Raise your hand if you know anything about the cobalt industry. You might want to Google it and take a long hard look at cobalt mining. This greyish white magnetic metal is not particularly well-known but is a strategic element in the ever-increasing demand for lithium-ion batteries. Cobalt is a strategic metal because it is found in so many devices we use today. Cobalt is a major component of your smartphone, comprising between 5–10 grams in each phone battery.
Some surprising facts about cobalt:
- Lithium-ion batteries contain cobalt allowing batteries to be denser therefore smaller.
- Cobalt allows batteries to increase energy density, and to hold their charge longer.
- Cobalt prices have increased by more than 47% year-over-year, resulting in one of the largest gains in the metals spectrum, even surpassing gold.
- Currently, the largest deposits of cobalt are found in the Democratic Republic of Congo (DRC).
- Worryingly, children are used for the mining of cobalt in the DRC.
- The inevitable result is that when supply chains for major companies such as Tesla and Apple are called into question, as is increasingly the case, the DRC will be considered and unacceptable alternative, as is the case with conflict diamonds.
- Most of China’s cobalt is currently supplied from the DRC for use in battery production.
With the entire car manufacturing industry eyeing Tesla’s popularity, one can see where the lithium-ion market is heading. The elephant in the room is how to deal with the DRC’s mining practices amidst increasing demand for the product?
According to a report by Amnesty International in 2016, children as young as four years old scoop the mineral out of the ground with their hands, which is the main reason Tesla is not purchasing its supply from the DRC. Even though the DRC produces 60% of the worlds cobalt Tesla has been using a supplier in the Philippines. No one wants to be associated with human rights issues and the pressure o do something about it is growing.
Tesla announced in 2016 that they would stop sourcing cobalt in the Philippines and find a North American supplier by 2017. As Tesla has already stated they intend to produce batteries for the home (as well as for their cars) in their new $5bn Gigafactory, the demand for a North American source is undeniable.
To put everything into perspective Tesla will use approximately 10,000T per year yet the entire US production of cobalt in 2016 was only 700T.
To complicate matters further, China as the biggest user of cobalt to date has had to shut down several of their mines because of environment concerns. This adds to the pressure on supply.
Additionally, most of the world’s cobalt comes as a by-product of copper and nickel mining and finding a pure source is a challenge. Last year marked the first time in eight years that cobalt supply was in deficit.
Hedge funds, such as Pala of Switzerland are hoarding cobalt because of their belief in the acute shortages. Manufacturers are looking for a cost effective source they can tap into that is both environmentally safe and is mined ethically.
Last year speculation was that cobalt would go to $10,000 a ton by this time this year, some even said with the Chinese environmental problems it might hit $20k — well folks it is trading at $25 a pound or $55,500 a ton — phew!
There is only one massive cobalt belt in the US and it’s a close from a logistics point of view from Tesla’s new plant. Upon further examination there are only two advanced projects being worked in the ‘belt’ for the foreseeable future, US Cobalt (formerly Scientific Metals Corp.) and eCobalt Solutions. The timing can’t be better for these two companies.
The Idaho Cobalt belt is an area about 100km wide by 50km long in central northeastern Idaho running parallel to Montana and contains around 12 known mineral deposits.
I spoke to long time friend, Wayne Tisdale, CEO of US Cobalt (TSX-V:USCO-X), a Canadian-based company and one of the companies operating in Idaho in the belt. Tisdale is a character and has been a legend in the mining business for over 40 years. His nose for finding good resources has made him a lot of money with his team at Intrepid Financial (his own merchant bank) has created $2.7 billion in value building and selling 5 companies in different industries.
Yahoo Finance said this about Tisdale and US Cobalt’s “small-cap looks even better when you consider its management.”
Tisdale’s jump into cobalt comes after success in other resource companies like Rainy River Resources (gold, purchased by Newgold) with a peak capitalization at C$1.2bn, Xemplar (uranium) with a peak cap at C$1bn and Ryland Oil Corp.
His first lithium mining company, Pure Energy, was the first lithium mine to be listed on the TSX.
Vancouver’s US Cobalt has the Iron Creek cobalt property, the Paradox Basin lithium property in Utah and the Deep Valley Lithium property in Alberta.
Tisdale’s property in Idaho, Iron Creek, has a historic estimate of 1.3M tons of cobalt with potential, based on historical workings of 10 million tons. Unlike most cobalt properties this is almost pure. As Tisdale says, “with a recent $2M raise and the grade of the cobalt this good, the company is well-funded and we are planning to update historical reserves and expand the drilling program immediately.” The company has a market capitalization of C$37M.
Tisdale recently came off an extended investor presentation series in London, Paris, Zurich, Monaco and New York where he told investors how fortunate US Cobalt was to have found cobalt in their own backyard that was in pure form.
In an interview on Financial Buzz, Tisdale said the recent price increase in cobalt of 150% indicates to him that the price will exceed $50/lb. very quickly as companies try to stockpile. He said because of the volatility of the pricing and the volume of pure cobalt in his property he expects a large company may come in to drastically scale-up the operation.
Tisdale and his team were very concerned about the DRC’s human rights atrocities and even went so far to use the Twitter handle @Ethical_Cobalt in their social media to point out the obvious differences in their business model.
Tisdale said that cobalt is causing a revolution of sorts and considering it will be ‘home grown in America’ it appears to be the right location and the right timing for his company. The Iron Creek claim is spread over 1800 acres which makes it very scalable.
Next issue: how do we stop the unethical mining in the DRC? Mining in America is certainly a good first step.
DISCLOSURE: No disclosures.