COBALT
A Contraction Like No Other
March 2019
Twelve months ago, the cobalt market was looking shinier than any other base metal. Outlooks were strong, and while markets accepted that prices had peaked at US$87,000/t during the June Quarter of 2018, prices were expected to reach an average of US$77,000/t for all of 2018 and then settle gently during 2019 as new supply came online. In retrospect, perhaps expectations were a little too optimistic to be true.

Prices did reach the US$70,000 mark: in August of 2018. Then, prices kept dropping, in what has become a long, steady fall towards a price one-third of what they used to be. The predicted supply increases didn’t pan out as well as hoped either, with the predicted surge in production being undercut by closures, both forced and voluntary, that have affected around 30% of global production. It appears the cobalt industry may have jumped the gun and increased supply too fast before demand was ready. Prices are now back where they were in January of 2017, and with high stockpiles preventing a rapid price recovery, nobody is quite sure where the market will go next.

 

Democratic Republic of Congo

While the country is still the number one source of cobalt in the world, the DRC has seen a series of significant blows that have capped its output of cobalt. Its move to raise its holdings in each company’s mining operations and introduce new royalties on cobalt have slowed the previous rush to invest in the cobalt-rich country—whose GDP fell from 7% growth to 2.4% as prices fall and cobalt exports reduced by around 40%. 

Glencore subsidiary Katanga mining is the most significant individual downside, with its entire 34,000t of supply being held back from market by radioactive contamination. Stocks are still building at Katanga operations, but the DRC government is preventing exports until it is sure that the miner’s decontamination processes are up to par.

Eurasian Resources Group has halted production at its Boss Mining Sprl copper-cobalt mine. While the site is placed into care and maintenance, ERG is conducting feasibility studies around the construction of new sulphide refining plants, but the shutdown is also in part due to increased duties on exports.

Glencore has also cut its workforce and considered the temporary stoppage of production at its Mutanda mine—the world’s largest and richest deposit of cobalt. Production costs at the site are rising even as cobalt prices drop, leaving the miner in a considerable predicament. 

 

Chile

Looking to capitalise on investors looking to move away from the DRC, Chile has presented itself as an economically and politically stable country with little risk of sudden government moves for additional duties or stakes—and without the alleged corruption and child labour that plagues the DRC.

Already the world’s largest producer of copper, Chile has a significant history with cobalt mining, historical data in some regions, and infrastructure that would ease development. Geologists have presented evidence of significant cobalt deposits, and companies like Chilean Cobalt Corp are working at developing cobalt resources in areas like the San Juan District, which saw historical cobalt mining activity. Future developments could shift away from the DRC if cobalt deposits prove to be high-grade and cost-effective to mine.

 

Zambia

Chambishi Metals, one of Zambia’s most significant copper-cobalt refiners, has suspended operations after it became unable to reliably source feedstock from the DRC. Zambia had also raised its duties on cobalt by 5%, further reducing margins at the refinery. While smaller than many DRC operations, Chambishi was responsible for around 7% of worldwide cobalt metal supply during 2018.

 

Australia

2018 saw renewed action in the country’s mining sector, with Australian Mines completing a feasibility study for its Sconi project in Queensland, building towards a project yielding 8.5ktpa cobalt for at least eight years. Western Australia also saw developments, with BHP receiving environmental approval for two satellite pits at its Mount Keith operation, expected to add 12 years of cobalt production at grades of 0.07-0.10%. Australia has also seen notable rises in exploration expenditure over the past three years. Cobalt exploration is being pursued with rising vigour; December saw new cobalt targets identified at Cohiba’s Wee MacGregor, and 2018 has seen A$561.4m spent in the September Quarter, up 25.7% from the corresponding quarter of 2017.

 

 

China

While not mining a significant amount of cobalt, China is the source of more than half of the world’s finished cobalt, and its companies are spread throughout the entire cobalt supply chain. Dozens of megafactory battery manufacturing plants are being constructed across China, and it is clear the country is positioning itself to be at the forefront of the cobalt industry when demand ramps up and begins to tickle at the heels of supply—or even surpasses it in 2022 onwards.