OilPrice.com News Commentary
There is a massive opportunity for first-in investors in cobalt, as major hedge funds start hoarding the physical metal to gain exposure, and this long-overshadowed resource is poised to be more explosive than lithium.
Analysts are already predicting a 500 percent deficit increase starting next year, and the tight supply figures have caused a panic to breakout. Watching the Cobalt developments include: Rio Tinto PLC (NYSE: RIO) Hudbay Minerals Inc. (NYSE: HBM) AES Corp. (NYSE: AES) Johnson Controls (NYSE: JCI) Sociedad Quimica y Minera de Chile.
Major buyers of cobalt now find themselves scrambling to secure new supply, as hedge funds such as Swiss-based Pala Investments and China's Shanghai Chaos start stockpiling the metal because it's a surefire way to gain exposure to the coming price surge. So far, these hedge funds have scooped up 17 percent of last year's global production.
The electric vehicle (EV) revolution has made cobalt one of the most critical elements of our time. Cobalt makes up some 35 percent of the lithium-ion battery mix, but there isn't enough new supply and what does exist flows through a very controversial and uncertain supply chain.
EVs have hit the mainstream and production is moving forward at breakneck speed. Along with this, we've got at least 12 battery gigafactories in the works-in addition to Tesla's Nevada gigafactory that started production in January. All of them will be competing for cobalt supply that we don't have. And more than half of what we do have comes from the Democratic Republic of Congo (DRC), where it is unethically mined by children.
With giant companies that include everyone from Tesla, Apple and Google to automakers Toyota, General Motors and Ford all fighting over cobalt, nothing would be better-or more valuable-right now than an all-American, ethical source of the metal.
This is where US Cobalt (USCO.V; SCTFF) comes in, with a pure play cobalt project that could put the U.S. on the cobalt map for the first time in history.
The dream team behind US Cobalt (previously US Cobalt) has already hit a home run with lithium, when the panic over future supply drove prices up over 400 percent. Now it's got its sights set on cobalt, and it's a good bet because the price explosion looks set to be far bigger than lithium. In 2016 alone, lithium rose 80 percent. Cobalt prices have already risen 70 percent in 2017-and this is just the start.
Here are 5 reasons to keep a close eye on US Cobalt (USCO.V; SCTFF):
#1 The Cobalt Supply Panic Has Already Begun
If you thought lithium was the hottest commodity on the planet because of its role in powering our EV revolution, you would be right-almost. Cobalt is even more critical because lithium-ion batteries-despite their name-require more cobalt by weight. The difference this time around is that no one's been paying attention to cobalt and while a flurry of new explorers got in on lithium at the right time, they ignored cobalt, leaving the playing field wide-open for first-in investors.
Now, EV and battery producers find themselves dependent on a supply chain that is already broken, bottlenecked and, in the future, might not even exist without new exploration to keep up with voracious demand growth year-on-year.
The battery industry is already using up some 42 percent of global cobalt production, while the rest is used in industrial and military applications. The competition to secure new supply lines is becoming extremely intense.
Tesla launched its $5-billion battery gigafactory in Nevada in January, and by the end of this year already it will have doubled the entire global battery production capacity. But that's just this year. By next year, Tesla will be pumping out more batteries than the rest of the world combined.
Against this backdrop, we are also seeing phenomenal growth in EV production. Last year alone, it grew over 40 percent, with sales up more than 60 percent year-on-year. Between 2011 and 2016, this market grew 72 percent annually , and this year it should gain another 26 percent.
We've already seen a run on cobalt, and we're just breaking out of the starting blocks. So a small-cap explorer like US Cobalt could be a major beneficiary with its offering up of a pure cobalt play that is all-American, right at home and ethical.
The supply chain is showing major cracks in its foundation, and buyers are under pressure to find more ethical sources .
Traders already see a 'complete vacuum', according to the Financial Times, so this is a golden opportunity for a savvy junior explorer like US Cobalt.
#2 So Has the Hoarding
Cobalt prices are already being pushed up by fundamentals, but also by speculators who are betting big on the supply vacuum.
As early as February, hedge funds started the run on cobalt, sending those companies who supply the EV and battery giants into a panic, over how to secure new shipments of the metal, according to a 23 February Financial Times article.
Since November, cobalt prices have rallied more than 50 percent, and this is only the beginning. Cobalt's made impressive gains for 24 straight weeks.
Source: Inflation.us (metric tonnes)
It's this amazing price that the hedge funds are trying to get exposure to, and the only way they can do it is by buying the physical commodity.
#3 An All-American Pure Play
The cobalt craze brings us right to the door step of US Cobalt (USCO.V; SCTFF), which in September moved to acquire Iron Creek, a pure cobalt play right in the heart of the Idaho Cobalt Belt, the most prolific cobalt mineralization trend in the U.S.
This property includes 30,000 feet of diamond drilling and a historic 1.3 million tons, grading 0.59 percent of cobalt with encouraging indications of up to 10 million tons. Even better, it's right next to the only cobalt play in the U.S. that is ready to come into production soon, with an estimated 3 million-plus tons of the metal.
This means that US Cobalt will be one of the first explorers to turn the U.S. into a cobalt producing nation at just the moment the demand for the metal is hitting fever pitch. With one of only two pure play cobalt projects in the entire country, US Cobalt is set to become the stuff of legend.
# 4 Legendary Dream Team Leads Way For Another Metals Homerun
This could be the 5th home run in a row for Wayne Tisdale, the CEO of US Cobalt.
Tisdale and his team at Intrepid Financial have in recent years created $2.7 billion in value by building and financing 5 companies in completely different industries-including a brilliant move on lithium.
Tisdale helped start Pure Energy in 2012, when the price of lithium was only around $5,000 per ton, and it's since spiked 450 percent. The company is now worth $65 million-and counting. He and his team also developed a successful gold play called Rainy River, which was worth $1.2 billion at its peak, along with a uranium homerun with Xemplar, which hit $1 billion.
Tisdale's philosophy has worked time and again. He pinpoints industry trends, gets in early through smart and brilliantly timed acquisitions, and always puts a world class team in place to bring it home, fast and furiously.
With this track record, US Cobalt's pure cobalt play looks set to be another major success story.
#5 Cashed-Up to Advance Projects and Grab Major Attention
US Cobalt is setting the pace here, and positioning itself to play a key role in a new cobalt-producing future for the U.S. The prolific Idaho Cobalt Belt is just the beginning: It's already eyeing more acquisitions to expand these first-mover opportunities at a time when demand is set to explode over the next five years.
In the meantime, they are well-financed for this year's exploration program, having already secured $3.5 million for development. But the management are also major stakeholders, with 35 percent ownership, and a strong focus on creating shareholder value.
By the end of this year, they hope to have proved up at least 10 million tons of cobalt resource, worth a potential $1 billion at today's prices.
The end game? That's simple: Become the largest pure play cobalt miner, advance projects towards production and sell to a major.
The lithium craze was just an appetizer. Cobalt is the main course here, with prices set to explode as the supply chain bends under immense pressure. US Cobalt (USCO.V; SCTFF) is entering this game early, carving out a position that could make it one of only two U.S. producers to corner this market domestically. This is the stuff of legend.
Honorable Mentions in the resource space that investors should also look at:
Rio Tinto (NYSE: RIO).
This mining giant recently made a move to expand exploration in the state of Minnesota, a cobalt hot spot according to the U.S. Geological Survey. Clearly management is aware of the booming market and eager to profit from the ever-increasing cobalt price
Hudbay Minerals Inc (NYSE: HBM)
Hudbay Minerals is a Canadian miner with copper and nickel mines in Canada, Peru and the U.S., and while cobalt is only a biproduct of these processes, it is sure to become a big earner for this company over the next year.
AES Corp. (NYSE: AES)
AES is one of the most promising names in energy storage, the biggest bottleneck in energy at this moment in time. Next to battery giants Tesla and Panasonic, we see AES as the most influential and innovative battery manufacturer.
Johnson Controls (NYSE: JCI)
The battery division of tech giant Johnson Controls is betting big on a renewables breakthrough. The company invested almost $1 billion in battery R&D last year and is currently one of the biggest suppliers of start-stop systems in the automotive sector.
Sociedad Quimica y Minera de Chile
This Chilean lithium miner has a projected average annual growth rate of 14.3 percent over the next 5 years, and that is largely due to the electric car boom. Along with cobalt, lithium miners like SQM are hard to ignore
By Joao Piexe of Oilprice.com