Apple, BMW, Cobalt27 move to secure cobalt supplies amid shortage fears

By Peter Kennedy

Apple Inc.  [AAPL-NASDAQ] is in talks to buy long term supplies of cobalt directly from miners for the first time, according to a Bloomberg report. BMW is also said to be nearing a 10-year supply contract for cobalt, Reuters said in a report.

These reports come amid news that Cobalt 27 Capital Corp. [KBLT-TSXV, 270-FSE] has acquired a 1.75% net smelter royalty on all future production of all metals from the Dumont nickel-cobalt project in the Abitibi region of Quebec.

Held by RNC Minerals [RNX-TSX], the Dumont Project contains the world’s largest undeveloped, permitted and construction-ready reserves of nickel and cobalt. Production is expected to commence in 2020.

Cobalt27 shares jumped 4.19% or $0.52 to $12.94 on Thursday, while RNC advanced 4% or $0.01 to 25 cents.

Analysts say Apple’s bid to lock down a long term cobalt supply is likely driven by worries about potential shortages, and follows reports about Volkswagen, BMW, and Samsung seeking to secure long term contracts for the material which is required in the manufacture of lithium-ion batteries used in smart phones and electric vehicles.

Apple is seeking contracts to secure several thousand tonnes of cobalt a year for five years or longer, according to the Bloomberg report.

However, many producers, including Swiss metals trading giant Glencore have so far been reluctant to sign fixed-price contracts according to a Scotiabank report which says miners may soon not be able to produce enough cobalt to satisfy all potential buyers.

Scotiabank is estimating that Apple could require roughly 3,000 tonnes of cobalt annually to manufacture batteries for its iPhones, iPads and computers (assuming that 10 grams of cobalt is required per device). Samsung may require similar amounts to power its smartphones, the investment firm said.

Volkswagen’s estimated requirements could amount to roughly 20,000 tonnes per year in order to meet its targeted annual electric vehicles sales by 2025. That would amount to between two million and three million electric vehicles, each using 10 kilograms of cobalt.

Cobalt 27 Capital holds 2,982.9 tonnes of physical cobalt, consisting of 2,270.3 tonnes of premium grade cobalt and 712.6 tonnes of standard grade material. Cobalt27 said its existing stockpiles of cobalt are currently the largest outside of China.

According to commodities intelligence specialist CRU International Ltd., electric vehicle production may require roughly 100,000 tonnes and 300,000 tonnes of cobalt to power batteries in 2025 and 2030 respectively. That compares to 10,000 tonnes in 2018.

BMO Capital Markets has said a doubling of the cobalt spot price over the coming years is not out of the question. Analysts are bullish on the outlook for the cobalt price in part because 60% of the world’s cobalt supply is mined in the Democratic Republic of Congo, a country that is facing increased political instability. This is due to concerns that DRC President Joseph Kabila may refuse to step down, even though he has completed two terms in office.

In addition, mining companies are concerned about a DRC government proposal that would raise royalties on metal production and cancel an existing mining code stability clause.

“No purchasing manager wants to be so reliant on supply of a critical raw material from a single supply source, particularly one [like DRC] with a poor human rights track record and the threat of political instability,” BMO said in a report

However, the investment firm concedes that there may be few alternatives, as cobalt is produced as a by-product of nickel and copper, and there are no new pure cobalt projects that could come to market in the short term.

eCobalt Solutions Inc. [ECS-TSX; ECSIF-OTCQB] has an advanced, permitted, feasibility-stage cobalt project in Idaho where some site preparation has been completed and much processing equipment has been procured.

Meanwhile, RNC Minerals says it is working to secure $1 billion to develop its flagship Dumont Project. It hopes to start the construction phase next year.

“Dumont contains the second largest nickel reserves and the eighth largest cobalt reserve of any deposit in the world,” said Mark Selby, President and CEO of RNC Minerals.  He said Dumont is the only deposit of this scale that is not currently in operation and not owned by a major mining company (the other eight largest deposits are owned by companies that include Glencore, Vale, Norilsk, Sumitomo Corp. and Jinchuan).

“Given market concern regarding future cobalt and nickel supply for electric vehicles, and nickel prices at the $5.50 to $6 a pound level, RNC believes it is well positioned to significantly advance Dumont in 2018,” Selby said.

With 3.15 million tonnes of nickel sulfide and 126,000 tonnes of cobalt, Dumont ranks as the world’s largest undeveloped reserves of both metals. Production is forecast at 73 million pounds of nickel annually and 2.3 million pounds of cobalt in concentrates.

The recovery of nickel and cobalt will be achieved using proven, conventional milling technology, rather than more technically challenging pressure acid leach technology.

However, any construction decision remains subject to financing.