COBALT
2018: Year in Review
January 2019
2018 represented a rollercoaster ride for cobalt prices. The first half of the year saw a rate of increase not seen since early 2017, peaking mid-year before rationalising in the September Quarter. July saw prices sink 13% month on month to US$70,792/t on weak seasonal demand. Cobalt price continued this downward trend—falling at a rate more rapid than the first half’s rise—before bottoming out at US$55,000/t in August.

Prices

The sharp decline ceased in September, with prices plateauing somewhat in the leadup to the new year, simmering between US$60,000/t and US$66,500/t throughout the December Quarter.

2018 saw an average cobalt price of US$74,500/t, an increase of 33% over 2017’s average of US$55,960/t driven by shifts in policy encouraging development of new energy vehicles (NEVs) and shifting supply/demand dynamics.

 

 

Supply

The supply side has been dominated throughout 2018 by drives to increase ethically and environmentally responsible cobalt production. AME estimates recycling to contribute around 20% of global cobalt supply. During 2018, China’s Ministry of Industry and Information Technology (MIIT) announced a programme to begin in August encouraging NEV recycling outlets and simplifying the recycling process. In addition to an ever-increasing focus throughout the industry on sustainability, this move was encouraged partially by a supply deficit looming as early as 2020. Recycling and reclamation of valuable component materials can also add to a prospective producer’s bottom line. Clean Teq, for example, has spruiked plans to include battery recycling at its feasibility-stage Sunrise project in Australia. Clean Teq has continued evaluation of the project throughout the year, selecting China Minmetals as development contractor.

The London Metals Exchange (LME) also strove for improvements in the cobalt industry in 2018. Initially targeting 2020 for the introduction of responsible cobalt sourcing guidance, the LME published a further paper on the topic in October. The position paper proposes the implementation of responsible sourcing practices and allowing rapid action to remove brands breaching human rights. On a producer level, Trafigura partnered with Chemaf, a local DRC Congolese company, to provide training to small-scale miners to limit adverse social, health and environmental impacts.

2018 saw several noteworthy developments at Katanga’s Kamoto operation in the DRC. In March, Kamoto recommenced production after a two-year suspension followed by a ramp up in production throughout the year. Customs restrictions were temporarily imposed upon the operation for relating to historical duty disputes. Most notably, the operation suspended exports after detecting elevated uranium content in its cobalt hydroxide product in November. Exports are expected to recommence in the September Quarter of 2019 after a US$25m ion exchange circuit is added to the existing processing plant. Subsequently, Katanga has c/ommissioned Phase Two of its whole-ore leach plant, targeting full capacity by the end of the March Quarter of 2019.

Spurred on by recent price gains, producers globally are targeting development of primary or secondary cobalt operations. BHP announced plans in 2018 to trial production of cobalt sulphate at its Nickel West operations and Global Energy Metals has commenced test work at its Millennium project. Cobalt Blue released a prefeasibility study on Thackaringa in NSW and BHP's Mount Keith satellite pits were granted environmental approval, adding a potential 12 years of additional cobalt production. Panoramic secured power for its 0.8ktpa Savannah cobalt project in WA late in the year and targets production and first concentrate shipments in the March Quarter of 2019.

Growth in exploration was another common theme in the supply side of cobalt space in 2018. Australia in particular enjoyed a boost, seeing a substantial rise in cobalt and nickel exploration expenditure throughout the year, including a significant 42.2% quarter-on-quarter hike to US$46.6m in the September Quarter. Interest also grew on a site-by-site basis. December saw Jervois Mining seeking permits to explore at the Kabanga nickel-cobalt project in Tanzania. Moving back to the DRC, Cape Lambert Resources is also looking to increase its exploration expenditure, raising US$234m for further activities at Kipushi.

 

Demand

As in the supply side, the interplay between national governments and producers has been a key driver of cobalt demand throughout the year. The Chinese Government launched new mandates in the year, requiring NEVs to contribute 10% of total Chinese automobile output by 2019. Denmark and Israel also made substantial policy changes during the year, committing to ban sales of internal combustion engines by 2030. AME expects NEV sales to account for 6% of global motor vehicle production by 2020 and could account for 25% of cobalt demand by 2020.

Accordingly, battery and auto producers have stepped up their collective game throughout the year. In December, SK Holdings has committed to developing a US$1.1bn NEV battery plant in Georgia in the US. Lithium Werks, with Chinese Zhejiang Economic and Technological Development Zone Industry Corporation, plans to construct a US$1.8bn gigafactory in the Zhejiang province of China. Also in China, BYD has powered up a 24GWh factory with plans to develop another, expected to cost around US$1.75bn. Auto manufacturers have also sought a stake in the battery industry. Mercedes-Benz has broken ground on a US$1bn+ battery factory in the US and commenced construction of a US$1.13bn plant at its Kecskemet site in Hungary, doubling production capacity. Also in Europe, Terrafame is to proceed with its Sotkamo plant in Finland, advancing the project to the detailed engineering phase. Sotkamo is expected to produce around 5ktpa of cobalt sulphate with production possible as soon as 2020.

The outlook is not, however, entirely positive for NEV-driven cobalt demand. Of particular threat is the low-cobalt or cobalt-free battery. South Korea's LG Chem has announced plans to produce lower-cobalt NCM 811 cells for electric buses. These include around 75% less cobalt than the more-common NMC 111-style battery, which includes one part each of nickel, cobalt and manganese. China's largest lithium-ion battery producer, CATL, has outlined plans to launch NCM 811 cells from 2019, as has SK Innovation. Further, Tesla Motors has been vocal throughout the year about the elimination of cobalt from its batteries in the elevated price environment, targeting a zero-cobalt battery.

 

Mergers and Acquisitions

In 2018, the most notable mergers and acquisitions include Citic’s 19.5% stake in Invahoe Mines for US$556m, Primary Energy (Primary Cobalt) has signed a definitive agreement with Exco Mining to acquire up to an 85% interest in two Spanish polymetallic cobalt properties in Almeria and Granada provinces in southern Spain, Jervois Mining acquired a 4.5% stake in eCobalt whilst selling 100% stake of Flemington to Australian Mines. Tanga Resources continued to expand its base metal portfolio in Namibia with the acquisition of Hagenhof Copper-Cobalt Project whilst Tyranna Resources completed the 100% acquisition of private company US Cobalt which operates the Goodsprings cobalt and base metal project in Nevada’s historical Goodsprings mining district. 

In addition, Winmar Resources has agreed to acquire a 50% stake in the Luapula cobalt processing facility in the Democratic Republic of Congo, which was mothballed in 2016. Red Rock Resources has boosted its interest in a joint venture company to 50.1% for greater exposure to copper and cobalt tailings and dumps near Kolwezi.

Battery makers VARTA, BASF and Ford Germany are in discussion with the German Government over potential joint ventures.

 

Future Developments

Fortune Minerals’ NICO is examining the feasibility of a 20 to 30% increase in the planned NICO production rate over the 4.65ktpd to produce between 1.7-2ktpa battery grade cobalt sulphate heptahydrate. Additional cobalt supply is expected from Terrafame’s Sotkomo plant in Finland as production is forecasted to commence in 2021. Western Areas has announced its decision to mine Cosmos Odysseus and is expecting to produce 240tpa of cobalt over a ten-year mine life from 2022.  

Significant future developments in cobalt include a target production rate of 1.4ktpa cobalt for GME Resources’ NiWest laterite project over a 27-year mine life as announced in its Pre-Feasibility Study. Additionally, Polymet Mining has received permits for the construction and operation of Northmet, USA. The Phase I flotation project and Phase II hydrometallurgical project are expected to cost US$945m and US$259m, respectively, with development expected to commence in 2019.

Germany’s cobalt demand is projected to rise significantly as the country earmarks US$1.2bn to assist consortiums to develop and commission battery plants. In addition, Samsung has announced a US$63m battery plant for the USA.