LONDON, November 13, 2017 /PRNewswire/ --
Pay close attention to this cobalt chart. Demand could be about to surge from 2k tonnes today to over 300k tonnes in 2030. That's a 14,900% increase in demand. Included in today's commentary is: Magna International (NYSE:MGA), Pretium Resources (NYSE:PVG), Endeavor Silver (NYSE:EXK), Teck Resources (NYSE:TECK), Intel Corporation (NASDAQ:INTC).
This cobalt chart is the only one you really need to understand. Simply: Cobalt is never going to be cheap again, thanks to the electric vehicle revolution and a massive supply chain bottleneck coming out of Africa.
Not only will investors never find cheap cobalt again, but all indications suggest that cobalt prices could go even higher. Smart investors are now looking for the small cobalt miners whose share prices will likely go up in tandem with cobalt's underlying price.
And one little-known company is bursting out of the gate with impressive finds of 'safe cobalt'-not the 'conflict cobalt' under major scrutiny in the Democratic Republic of Congo (DRC).
Amid a pending supply squeeze, as major buyers move away from conflict cobalt from the DRC, Quantum Cobalt Corp. (QBOT; BRVVF) (formerly Bravura Ventures Corp.) is sitting on North American resources in the heart of Ontario's cobalt belt. And its two past-producing mines have already shown impressive exploration upside.
#1 Demand Surge is Simple Math
Two million and counting that's the number of EVs already on the world's roads, and we're just getting started. And the $2 trillion global auto industry has completed a dramatic shift, and the shift depends on cobalt-which makes up some 35 percent of the lithium-ion battery mix.
Every single vehicle manufacturer will have to build their own cobalt pipeline, and at some $60,000 per metric ton, cobalt is the most expensive of the battery metals.
The auto industry is definitively about EVs now, and everyone's playing a furious game of catch-up with Tesla. Even car shows are all about plugging in now. The shift is irreversible:
- Tesla will pump out 500,000 EVs a year.
- General Motors has announced an 'all-electric' future, announcing plans to launch 20 EV models by 2023.
- Renault is planning to double its EV offerings in the next five years.
- VW Group (Volkswagen, Audi, Porsche) plans to invest a whopping $84 billion in EV development (over half going to battery production) and a target of bringing 300 electric vehicle models to market by 2030.
- Ford has the newly created 'Team Edison' focusing on EV development, pledging $4.5 billion in investment over five years and 13 new models by 2023.
- Toyata and Mazda are teaming up with Senso parts maker for a new EV tech company, and are slated to select a location for a joint $1.6 billion U.S.-based plant by 2021.
- By 2022, Renault, Nissan and Mitsubishi, collaboratively, plan to have 12 EVs by 2022.
And those are just the car manufacturers. Battery gigafactories are popping up at an accelerated pace:
- Tesla is ramping up its Nevada battery gigafactory from 35 GwH to ramp up to 150 GwH
- Dyson is building a $1-billion gigafactory
- LG plans to open Europe's largest EV battery factory in Poland next year
All in all, these immense EV efforts take more cobalt than the world can currently supply. That's why Volkswagen, for one, has just moved to secure long-term supplies of this vital battery component, seeking a 10-year secured pipeline beginning in 2019, according to Reuters.
The entire car industry is switching to EVs, and planning battery gigafactories to go along with them. According to Forbes, in 20 years, EVs could represent 40% of all car sales.
The shift is comprehensive. It's complete. The only thing missing? Cobalt. And investors expect what CNBC calls 'inexorable' growth in the EV industry to generate a major supply squeeze for cobalt.
#2 China, China, China
Big automakers may be playing catch-up with Tesla, but it's China that's the real beast, and it alone will seriously challenge global cobalt supplies. We knew this before, but now it's becoming even more clear.
Right now, China is the largest consumer of cobalt in the world. In 2016, Chinese cobalt consumption rose by 5.3% year-on-year, hitting 45,900 tons-equal to over 44% of all global consumption. From this year to 2021, China is expected to see a 12% increase in cobalt consumption, on the back of EV and battery growth.
Cobalt spot prices have seen a 150% price surge this year, thanks to the China-led EV growth spurt, and China leads the way with super restrictions on conventional vehicles to crack down on pollution. China is the largest market for plug-ins, and it's also the largest producer. It's not just about passenger EVs: it corners the market on commercial EVs and even electric buses.
Last year alone, 507,000 EVs and PHEVs were sold in China - a 53% increase from 2015, and double the number sold in Europe and triple the number sold in the U.S.
Even more lucrative for the fantastically tight cobalt supply equation is the fact that China-the largest auto market in the world-produced 28 million vehicles last year and is expected to produce 40 million by 2025. Because of tight restrictions on conventional cars, the bulk of these are going to have to be EVs.
According to Wood Mackenzie, demand for cobalt in EV batteries alone is expected to grow fourfold by 2020 and 11-fold by 2025.
One of the biggest beneficiaries in the EV supply chain will be cobalt miners, and particularly those smaller, new entrants who are developing new supplies that are safe and ethical like Quantum Cobalt Corp. (QBOT; BRVVF)
#3 Tight Supply for Best-Performing Metal of the Year
The global cobalt market is already facing tight supply, and analysts see no release through 2021, when the supply gap is expected to reach 12,000 tons, according to Research and Markets.
It's a contradiction that is set to keep cobalt prices swelling this year and beyond.
Future supply is uncertain, at best. Some 60% of the world's cobalt is source from the DRC, where it's mined by children under inhuman conditions.
Buyers are under massive pressure to look elsewhere because it's mined by children under inhumane conditions.
Ask Apple Inc. The tech giant recently announced it would stop buying unethical DRC cobalt for its iPhones-so it's looking for new suppliers.
It gets worse: Some 98% of the world's ethical cobalt is produced as a byproduct of copper and nickel mining. This means that cobalt supply is dependent on copper and nickel mining, and if they aren't worth it, we have no cobalt.
With this tight supply situation, even without the DRC uncertainty, prices are poised to continue their upward momentum.
#4 Demand is Understated
Even with this clear contradictory supply and demand picture, many believe that demand remains understated.
For investors, though, it's hard to get in on the cobalt game. Purchasing shares of miners is tricky because the big miners only dabble in cobalt as a byproduct of copper and nickel, so exposure is skewed and diluted. And copper and nickel prices aren't great performers right now.
As Wealth Research Group noted recently, in looking for positions in the sector, without any ETFs for futures exchanges, investors looked at exploration stocks for exposure, and could only find 24 cobalt-related stocks on North American exchanges. Worse, while the 60 lithium stocks they found were primarily focused on lithium, 19 of the 24 cobalt-related stocks were really focused on copper, nickel, gold or silver.
China alone is a huge factor in the supply/demand equation, and what many investors don't know is that this goes far beyond EVs.
China's has introduced a new 5-Year Plan to push for up to 15% of power to come from non-fossil fuels-that will be another huge push for electric, and another huge consumer of cobalt, even beyond Beijing's recent plan to ban all fossil fuel cars.
Even Tesla's success in the area of energy storage takes us far beyond this cobalt supply equation for EVs.
This isn't just an electric car story-it's an energy revolution story, and right now, the most critical metal is cobalt.
Both China and the US view cobalt as a metal of strategic importance. The hoarding has already begun.
#5 Three Cobalt Plays, Made in North America
In Canada, all the talk is about Cobalt, Ontario. Cobalt was instrumental during the industrial revolution and it is now becoming superhot again, and Canada is sure it will lead the country into the next industrial revolution.
But it's not just Canadian talk. Everyone wants cobalt, but as Quartz notes, "few want to get tangled up in the world's largest producing nation"-the Democratic Republic of Congo.
So, they're heading to Canada, and specifically to Cobalt, Ontario, the site of a historical silver rush. That was a century ago, and everyone forgot about it when Africa started emerging as a metals bonanza. But now they're back in droves. Africa is too hot to handle.
"The whole situation is a cobalt-style rush, just like an old fashioned staking rush," said Gino Chitaroni, president of the Northern Prospectors Association and a geologist from the area, told Canada's CBC.
According to the company, the cobalt mineralization here is striking. Past production of five tonnes of material was reported to be an unusually high grade of 22% cobalt. That's impressive when you consider that most projects are deemed valuable with as little as 0.05% cobalt, says CEO Greg Burns. (its 14.75% on Nipising property)
And that's just one project in this massive cobalt belt. The company has already launched exploration to identify targets in two other projects in the heart of this cobalt belt: Rabbit and Kahuna. (Kahuna project has 22 percent showings)
The Rabbit project is just 55 kilometers north of Ontario's prolific Cobalt district, with historic work returning an assay of 8.76% cobalt.
The Kahuna Cobalt-Silver property, covering 77 claims over 1,200 hectares, has also seen mineralization of cobalt discovered in past work.
The company has mobilized field crews to carry out first-pass exploration on both of these properties, and we expect rapid news flow on prospecting, geologic mapping, geochemical mapping, geochemical surveying and sampling to locate and delineate mineralized structures.
Nearby, First Cobalt Corp.-which pulled out of the DRC to expand in safer Canada, has past-producing assets and a market capitalization of CAD$39 million, which is expected to reach CAD$156 million pending an acquisition transaction. It all suggests that Quantum Cobalt, with its three cobalt projects at ground zero--may be undervalued.
The past production on these properties suggests that Quantum Cobalt has significant exploration and development potential, and it could be coming into this game right at the edge of the cobalt cliff. And it's got the team to back it up.
Jerry Huwang, a Quantum Cobalt director, is an instrumental player in Energold Drilling Corp., a leading drilling solutions company servicing the mining and energy sectors in the Americas, Africa and Asia. With experience from Energold, which is internationally recognized for its social and environmental approach to drilling and operating 270 rigs in 24 countries worldwide, Jerry bring a wealth of knowledge and expertise in exploration and drilling.
CEO Greg Burns, Director of Mergers and Acquisitions at Capital Investment Partners-a multi-billion-dollar fund out of Australia-has lead multiple large-scale deals, including the development of Coalspur Mines into a billion-dollar market cap company at one point.
Quantum Cobalt is also backed by big institutional money, most notably that of Haywood, arguably the most respected institution in Canada. Haywood, a clearing house for 4 Canadian dealers with more than CAD$5.5 billion in assets under administration, will be advising on financing and mergers and acquisitions.
With cobalt at all-time highs, we expect news flow on this one to take quantum leaps. They're putting boots on the ground right now and hope to be drilling at the start of the New Year.
And with the demand in cobalt about to rise 14,900% by 2030. Investors finding the top cobalt miners could be rewarded with incredible gains. And short term.
This year is shaping up to be the year that cobalt left Africa and relaunched in Canada. It's the year of North American Cobalt. Lithium producers are already feeling the pressure, now it's cobalt's turn-and the pressure to produce safe new resources could be even greater.
Quantum Cobalt (QBOT; BRVVF) is right there in the heart of the Canadian cobalt belt, and it's right at the heart of a cobalt rush that could shift continents.
Other companies to watch within the space:
Magna International (NYSE:MGA) is based in Aurora, Ontario. The global automotive supplier is gutsy and innovative--and definitely tuned to the obvious future--clean transportation. A great catalyst is its development of a combo electric/hydrogen vehicle--a fuel cell range-extended EV (FCREEV). It's not going to produce them (for now, at least) but plans to use the model to show off its engineering and design prowess and produce elements of the electric drivetrain and contract manufacturing.
Pretium Resources (NYSE:PVG): This impressive Canadian company is engaged in the acquisition, exploration and development of precious metal resource properties in the Americas. Additionally, construction and engineering activities at its top location continue to advance, and commercial production is targeted for this year.
Endeavor Silver (NYSE:EXK) operates three silver-gold mines in Mexico, but it's also got three attractive development projects. Production has dropped and all-in sustaining costs have risen, leading to a negative cash flow. But the company has significantly reduced its debt, so its future is anything but bleak. By 2018, with development in the pipeline, this stock might be prohibitively expensive again because there is plenty of near-term growth potential here.
Teck Resources (NYSE:TECK): Zinc hasn't been Teck's best friend of late, but that looks set to change in the medium term, as supply continue to dwindle and as we hear news that the world's top producer of the metal-Glencore-isn't planning to bring shuttered mines back online. Supply will remain tight.
Intel Corporation (NASDAQ:INTC) is a leader in multiple fields of technology. The forward-thinking industry giant is the backbone of many laptops and PCs running the Windows operating system. The company has been so successful in its deal-making and advertising that it is impossible to escape its influence. Not only is Intel running our laptops, it may soon be taking over the self-driving car industry.
By: Ian Jenkins
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