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Commodities move in and out of vogue on the Australian share market all the time, and one that is well and truly in the spotlight right now is cobalt. The metal is a crucial component of the lithium-ion batteries that power everything from smartphones to electric vehicles (EVs). As the transition to renewable energy gathers pace, cobalt is in demand like never before. Batteries now account for more than half of global cobalt consumption and with EV sales predicted to balloon from 6.5 million in 2021 to 66 million by 2040, the world’s appetite for the metal is only growing.
Specialist research firm Benchmark Mineral Intelligence projects the demand for cobalt out of the global battery sector alone will grow by more than 20% this year, and grow at an average compound annual growth rate (CAGR) of between 8%–10% between 2022 to 2030. That is enough to double the size of the market, from 140,000 tonnes produced a year, to 310,000 tonnes.
By 2050, says Anglo-Swiss mining and trading company Glencore – which is the world’s largest producer of cobalt – about 507,000 tonnes a year of cobalt will be required, driven mainly by EV carmakers. Meanwhile, forecast supply growth will struggle to keep pace with this burgeoning demand.
That is an obvious recipe for a price rise, and cobalt is up about 60% in price over the last year, to about US$82,000 a tonne. (It’s not as transparent a market as gold or base metals or iron ore, as it relies on offtake agreements negotiated between producers and users.) That is up about 60% on a year ago.
But there is another aspect of the cobalt market that is increasingly interesting to ASX investors – and that’s on the supply side.
More than 70% of the world’s cobalt comes from the African nation of Democratic Republic of Congo (DRC). The next largest supply source, accounting for about 4.5% of the world’s production, is Russia. Australia, which produces a small amount from various nickel mining operations, is the third-largest supplier (mainly from Glencore’s Murrin Murrin nickel-cobalt mine in Western Australia, which produces more than two-thirds of Australian cobalt output).
Last month, the ABC program 4 Corners lifted the lid on the very uncomfortable secret of the global cobalt market – “blood cobalt.” This refers to the fact that much of the DRC’s production comes from mining practices that would not be allowed in a country like Australia: in particular, the practice of “artisanal” mining, where people living near the big cobalt mines fossick with their bare hands for cobalt-bearing rock left over, or dig their own shafts, without any proper mining techniques.
Many of these fossickers are small children, who should be at school, but there aren’t many around. It’s desperate life, and it shouldn’t be allowed.
Then, of course, the second-largest cobalt producer decides to invade another sovereign country, and doing business with it becomes a no-no.
Actually, both of these things appear not to worry the world’s biggest consumer of cobalt – China – which gets about 90% of its supply from DRC. But they certainly worry the major EV carmakers, who want to make very sure that the huge (and growing) amounts of cobalt they will need in the near future can be shown to come from ethical sources – the last thing they want is to be pilloried on ESG grounds because they are benefiting from appalling mining practices.
This is where Australia comes in – with several potential cobalt producers getting projects closer to fruition. Here is a look at five of them.
Market capitalisation: $221 million
12-month return: 94.6%
Analysts’ consensus price target: 67.5 cents (Thomson Reuters, one analyst)
A stock price chart of Cobalt Blue Holdings Limited (COB.ASX)
Cobalt Blue is big news in the cobalt world – it is the only large-scale, non-African, greenfield (that is, new) primary cobalt project in the world. In fact, the company describes itself as “the only pure-play cobalt producer in the listed world,” because virtually every other listed cobalt company produces cobalt as a by-product of nickel or copper mining. Cobalt Blue’s Broken Hill Cobalt Project (BHCP) will have cobalt as its only product.
The BHCP has been granted Major Project Status from the federal government. If everything goes according to plan, the BHCP could come onstream in 2025, and produce more than 3,500 tonnes of cobalt metal a year, over 20 years. BHCP has a projected all-in sustaining cost an all-in sustaining cost (AISC) – a figure that incorporates not only the “cash cost” of production but all the costs that allow production to be sustained – of US$12 a pound. At present cobalt prices at more than $US37 a pound, which would give the project very healthy margins – in fact, it would make money at historically low cobalt prices.
This year, Cobalt Blue is focusing on running its demonstration plant and delivering large-scale samples to potential offtake partners. It says its potential customers want to engage in longer-duration offtake agreements of up to about eight years, to support their EV production runs. COB says “non-African sustainably sourced cobalt” is becoming a premium material, as EV makers react to their consumer and legislative requirements, and seek to influence upstream sourcing. The company hopes to finalise all project approvals and a bankable feasibility study (BFS will be finalised by the end of this year, ready for a final investment decision (FID) on the project by the end of the first quarter of 2023.)
COB has doubled in a year, and the only analyst following the stock sees it as having run past fair value. But the BHCP is a very interesting project.
Market capitalisation: $1.1bn
12-month return: 82.6%
Analysts’ consensus price target: 82 cents (Thomson Reuters, two analysts)
A stock price chart of Jervois Global (JRV.ASX)
Jervois is building a fully-integrated cobalt value chain and is on track to become the only cobalt mine in the United States. In 2021, it bought the Freeport Cobalt business for a final purchase price of US$185 million, to create Jervois Finland; at a stroke, this made Jervois one of the largest western world suppliers of refined and advanced manufactured cobalt products (specialty cobalt powders and chemicals). The business has long-standing customer relationships across Europe, the United States and Japan.
The company is also developing its mining operation at its 100% owned Idaho Cobalt Operations (ICO), where it expects to achieve first production in August 2022 and to reach sustainable commercial production from December 2022. ICO will be the only domestic US mine supply of cobalt.
Jervois is also buying the São Miguel Paulista (SMP) refinery in Brazil, which it will close and re-equip with a pressure oxidative (POX) autoclave, and will be dedicated to cobalt concentrates from ICO. The first cobalt production at SMP from ICO concentrates is expected during the second quarter of 2023, and a bankable feasibility study (BFS) is in the works to reopen the refinery at its previous nameplate capacity of 25,000 tonnes of nickel and 2,500 tonnes of cobalt metal. Overall, the Jervois strategy is to become a leading nickel and cobalt company and become the second-largest producer of refined cobalt outside China.
The company is also developing Nico Young, a nickel-cobalt deposit in New South Wales, but the focus is on developing a fully-integrated cobalt value chain. Superannuation megafund AustralianSuper is on board as an investor.
Market capitalisation: $195 million
12-month return: –6.3%
Analysts’ consensus price target: $3.00 (Thomson Reuters, three analysts), $1.80 (FNArena, one analyst)
A stock price chart of Sunrise Energy Metals (SRL.ASX)
Sunrise Energy Metals (the former Clean TeQ Holdings) is also positioning itself to take advantage of the booming lithium-ion battery industry, developing its wholly-owned Sunrise Battery Metals Complex project near Condobolin in the Central West region of New South Wales.
The Sunrise project will produce high-quality, battery-grade nickel sulphate and cobalt sulphate, critical materials for the rapidly expanding lithium-ion battery market, and will also produce scandium, a crucial ingredient in the next generation of lightweight aluminium alloys.
The $2.4bn project will use the company’s proprietary Clean‐iX resin technology for extraction and purification of metals. Sunrise says its project is designed to be one of the world’s largest integrated producers of battery-grade nickel and cobalt sulphate, supporting the production of up to 25,000 tonnes a year of nickel and 7,000 tonnes a year of cobalt, suitable for precursor feedstocks, over a 50-year project life. Sunrise is planned to operate 100% on renewable energy. According to the company, the project could meet a significant portion of global demand for the raw materials needed in the lithium-ion battery industry.
Like Cobalt Blue at Broken Hill, Sunrise has been awarded Major Project Status, which formally recognises the project’s significance to the Australian economy and assists in ensuring a streamlined and consistent process for the permitting and approvals required.
According to Sunrise, figures the project would generate US$16.3bn in life-of-mine revenue and US$10.8bn in EBITDA (earnings before interest, tax, depreciation and amortisation). It had an offtake deal with Chinese lithium cathode materials (CAM) producer Beijing Easpring terminated (by mutual consent) in October 2021 but will be banking on its major project status to boost its marketing efforts. A positive sign came earlier this year when Sunrise secured conditional finance support from Export Finance Australia (EFA) for up to $400 million of debt funding. For the rest of 2022, investors will be hoping to see possible off-take agreements and more news on project funding/partnering.
Market capitalisation: $80 million
12-month return: –0.5%
Analysts’ consensus price target: n/a
A stock price chart of Australian Mines (AUZ.ASX)
Australian Mines plans to supply the rapidly growing EV and clean energy storage industries with nickel and cobalt materials from its flagship project, the world-class, Tier 1 Sconi cobalt-nickel-scandium project in North Queensland. In August 2021, Australian Mines signed an offtake agreement with South Korean group LG Energy Solution, which will buy 71,000 dry metric tonnes of nickel and 7,000 dry metric tonnes of cobalt from the project, in the form of a mixed hydroxide precipitate (MHP) mixed nickel-cobalt hydroxide. The agreement represents 100% of the anticipated production at the Sconi project; the first shipments are expected to flow in 2024.
The mineral resource estimate and corresponding ore reserve estimate for Sconi indicate a project with a lifespan of more than 30 years. Australian Mines is developing the site into a low-cost hybrid operation by mining and then processing ore into advanced battery precursor chemicals. The $1bn planned battery metals production plant will process two million tonnes of ore a year, and produce, over the life of the operation, an average of 46,800 tonnes a year of nickel sulphate and 7,000 tonnes a year of cobalt sulphate – enough to generate life-of-mine sales revenue of $13.3bn and net cash flow (after tax) of just under $5bn. The operation will be certified carbon-neutral by the Australian government, as it is expected to source power from solar generation with pumped storage hydro, and also, generate power from steam that is a by-product of the on-site MHP process plant.
Australian Mines has two other promising, early-stage “green metals” exploration and development projects, including the Flemington Project (cobalt-scandium-nickel-copper-gold) in NSW and the Lennard Project (nickel sulphide) in WA.
Market capitalisation: $41 million
12-month return: –55.2%
Analysts’ consensus price target: 10.5 cents (Thomson Reuters, one analyst)
Stock price chart of Aeon Metals (AML.ASX)
Aeon is developing its 100%-owned, world-class Walford Creek copper-cobalt project in northwest Queensland, located about 340 kilometres north-west of Mount Isa. In June 2021, Aeon completed a scoping study on Walford Creek, which highlighted the potential to develop a long-life, major mining project focused on producing a portfolio of battery metals, headed by copper and cobalt. The company has been drilling the project and a preliminary feasibility study (PFS), including a maiden ore reserve figure, which is expected soon. Aeon anticipates the PFS to confirm the potential for Walford Creek to become a significant producer of high-quality battery metals – copper, cobalt, zinc and nickel – produced “responsibly” in a leading “green mining” development.
All prices and analysis at 10 March 2022. This information was produced by Switzer Financial Group Pty Ltd (ABN 24 112 294 649), which is an Australian Financial Services Licensee (Licence No. 286 531This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. This article does not reflect the vi