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Mike Beck: Cobalt – The Most Supply Constrained Commodity on Earth, By Far

Mike discusses the cobalt market which is part of four critical metals used in batteries and why it is of particular interest. Total world mine supply is around 100,000 tons which are currently split evenly between batteries and alloys. Furthermore, 65% of current supply comes from the Congo a country that can be politically unstable. Secondly, 99% of cobalt production comes as a by-product of mining copper and nickel. The average copper and nickel mines total production will only result in 5% to 10% cobalt. If the price of cobalt rises, it does not necessarily incentivize new supply.

If you examine the electric vehicle adoption rates which most estimate that by 2025 will be 15% of all passenger vehicles, the world will need three times current supply. Unless copper or nickel prices dramatically increase it’s unlikely there will be any material increase in cobalt supply.

Cobalt prices have risen in the last year from $10/lb to $30/lb which is only slightly above the historical average of $24/lb. Mike expects further price increases in 2018 and a severe shortage will likely manifest in the supply chain.

Tesla with their model 3 plan to produce 500,000 vehicles per year. Each car uses 10kg of cobalt. That is 5000 tons of cobalt that is presumably required which is 5% of total mine supply. That is demand from one car model and one manufacturer. If you extend that out to other manufacturers, you quickly see how dramatic shortages can emerge. Recently Volkswagen put out a public tender for ten years of cobalt supply, and they received no bids.

Battery manufacturers are re-engineering the chemistry ratios which will help ease cobalt requirements. There are still significant technical challenges, and it will take several years.

Talking Points From This Week’s Episode
• Cobalt supply is a by-product of other metal mining.
• The Recent price rise is only slightly above the average historic cobalt price.
• Cobalt represents only 1% of the price of an electric vehicle.
• One of the few pure cobalt plays is the company Cobalt 27.

Mike Beck is the founder and Managing Director of Regent Advisors LLC, a corporate finance advisory and investment firm. He has advised on equity and debt financings for private and public companies in the natural resources sector, including Signet Petroleum Limited, West African Minerals Corporation, Polo Resources Limited, Direct Petroleum Exploration Inc., Titanium Resources Group, Copper Development Corporation, UraMin Inc., Diamond Fields International Ltd., Weda Bay Minerals Inc., Regent Pacific Group Limited and CCEC Ltd.

Mr. Beck was a Managing Director at N M Rothschild & Sons with responsibility for the firm’s mining, oil and gas advisory and investment activities. Prior thereto, Mr. Beck was the founder and President of Librion Group Inc., a corporate finance boutique. He also was with the International Finance Corporation of the World Bank Group, where he oversaw the structuring and financing of a large number of natural resource projects in Africa. Mr. Beck has also been a founder or co-founder of a number of companies listed on the Canadian, Australian and London stock exchanges. He has an M.S. in Engineering from Princeton University and a B.S. (High Honors) in Engineering from Rutgers University.