Cobalt Forecast 2020: Execs Expect EV Demand to Materialize

Cobalt’s price decline continued in 2019, and despite seeing a rebound after the summer, it had stabilized by the last quarter. 

News about supply concerns as well as the shutdown of the world’s largest cobalt mine — Mutanda in the Democratic Republic of Congo (DRC) — grabbed the attention of market participants throughout the year.

But what will happen to cobalt next year? To find out, the Investing News Network (INN) reached out to companies in the space to get their thoughts on what’s ahead for the battery metal in 2020.

Many executives shared their outlooks on cobalt for 2020 with INN: Benedikt Sobotka, CEO of Eurasian Resources Group (ERG); Bryce Crocker, CEO of Jervois Mining (ASX:JRV,TSXV:JRV,OTCQB:JRVMF); Robin Goad, president and CEO of Fortune Minerals (TSX:FT,OTCQB:FTMDF); Anthony Milewski, chairman of Conic Metals (TSX:NKL); Tim Fernback, president, CEO and director of Surge Exploration (TSXV:SUR,OTCQB:SURJF); Mitchell Smith, president and CEO of Global Energy Metals (TSXV:GEMC,OTC Pink:GBLEF); and Scott Sheldon, CEO of Go Metals (CSE:GOCO,OTCQB:GOCOF).

Cobalt trends 2019: Volatility hurts the space

At the end of 2018, the outlook for the cobalt space was optimistic long-term, but many predicted market volatility would continue in the short run.

“Given the inelastic, illiquid nature of the cobalt market coupled with oversupply and bleak macroeconomic conditions, some of the lower expectations for cobalt’s performance were realized,” Global Energy Metals’ Smith said. “However, new initiatives, such as resource sovereignty, have bolstered the outlook for cobalt and other critical minerals associated with the new energy economy.”

Cobalt metal prices fell to the low-teens towards the middle of 2019, which hurt some of the high cost producers, ERG’s Sobotka explained. Additionally, over the past six months the market has seen curtailments at several large-scale industrial mining operations.

“The sharp price drop hurt a lot of consumers. Having overbought as prices climbed, and sitting on devalued inventory when prices came down, these consumers are obviously concerned about making the same mistake twice,” he said.

As a result, throughout 2019 many consumers adopted a “hand-to-mouth philosophy,” keeping inventories low and minimizing the working capital value impact of any price fluctuations, according to Sobotka.

“Combined with weaker than expected electric vehicle (EV) sales in China since July (linked to the revision of subsidy rules), this has caused prices to soften more than previously forecast,” he added.

Meanwhile, Jervois’ Crocker said he had expected 2019 to be challenging.

“At Jervois we saw the weakening cobalt market into the end of 2018, and our expectations for 2019 to remain subdued, as an opportunity,” he said. “Nothing at the time nor since had or has undermined our fundamental belief in the intrinsic attraction of investing in cobalt.”

Sheldon of Go Metals had expected a slow down in terms of cobalt, but not necessarily all battery metals.

“The most challenging part of 2019 was losing our cobalt identity and switching for battery metals,” he said. “We were bullish on nickel and that’s why we picked up the nickel-copper-PGE HSP project.”

Go Metals was not the only company to add or change its focus from cobalt to nickel. Conic Metals, formerly Cobalt 27, has now turned its efforts to its Ramu nickel-cobalt operations.

“When we started looking at cobalt initially, there was this question of, ‘Is there enough cobalt?’ and I think we definitely know now that there’s going to be enough cobalt — although that cobalt is going to largely come out of the Congo,” Milewski said.

He added that right now what the industry needs to do is figure out ethical sourcing and how to integrate artisanal mining into the supply chain.

Speaking about nickel, Milewski said he is also incredibly bullish on the metal, initially because of where the chemistries for batteries are going.

Surge’s Fernback said that at the end of last year he thought that cobalt’s price would have improved more significantly that it did in 2019.

“(The most challenging part of 2019 has been) the EV market not growing as quickly as expected, impacting demand,” he added.

In 2019, Global Energy Metals’ Smith said that despite seeing capital poured into automakers’ EV plans, battery plants and manufacturers’ contracts for sourcing materials, investment into the battery minerals equity markets, cobalt companies in particular, is lagging.

“It is this draught in liquidity and capital that, in light of the strong demand curve for the critical minerals that make-up EV and battery technology, has caused a disconnect between cobalt demand and the companies involved in the sector,” he said.

For his part, Croker said the excess cobalt inventory caused by the explosion in DRC supply weighed heavily on sentiment in 2019.

“On the demand side, Chinese reduction in subsidies for electric vehicles slowed electrification expansion rates in their fleet, which in the second half also created challenges in working through cobalt inventory,” he said.

Cobalt forecast 2020: EV demand to pick up

Looking at what’s ahead, ERG’s Sobotka pointed out that the large automakers have spent the past couple of years announcing new EV models and it is finally time for those to launch, with more than 250 new models due to start production in 2020.

“We are also likely to see strong battery energy storage systems growth in 2020 as these have proven a great success in many instances over the past year,” he said.

Another trend the CEO expects to see in 2020 and beyond is 5G connectivity, which will ultimately benefit cobalt demand, as the metal will be needed in batteries used to power the devices that will use this infrastructure.

Speaking about what he forecasts for next year, Jervois Mining’s Croker believes that 2020 will be an improved year for the space.

“Prices bottomed in the second half, and despite recent weakness, they are overall supported by a better balanced physical market following the closure of major DRC sources of supply,” Croker said.

Jervois Mining has also witnessed a marked level of interest from customers across 2019.

“Ultimately the global outlook for cobalt is one of increasingly large deficits and shortages of physical supply, primarily driven by the rise of electric vehicles,” Croker said. “(Original equipment manufacturers) have largely reached this conclusion and are now working to determine how they protect themselves against this forecast.”

Global Energy Metals’ Smith highlighted the shut down of Mutanda as a key catalyst, as 20 percent of the global cobalt supply prematurely turned off without reaction and without question as to where material is going to come from in the face of daily projections concerning EV and energy storage growth.

Smith doesn’t believe the space will see prices return to 2017 and 2018’s levels, but demand projections will be realized.

“This creates opportunity for investors to get exposure to what we believe is the biggest investment trend of the decade through new, ethically sourced supplies of cobalt,” he said. “But that can only happen if project level investment is made to develop these types of projects.”

For his part, Milewski said the cobalt market has really fallen off its high from almost two years ago, and what the industry has learned is the artisanal response in Congo is real and material.

“I think for the next six to 12 months cobalt will trade in a range of probably a high in the low US$20s (per pound) and potentially trading lower depending on macro news around the world,” he said.

Cobalt outlook 2020: Challenges to continue

In terms of challenges in 2020, ERG’s Sobotka said the biggest issue facing the cobalt industry right now is the prevalence of unsustainable and unethical mining practices.

“Some may argue that buying artisanal material favours the local economies, but in reality the miners on the ground are paid a very small fraction of the value of the ore,” he said. “For people involved in subsistence mining there are no long-term prospects.”

Sobotka added that ERG is committed to the DRC, where it has interests, and it is there for the long term. “(This) means that we focus on our corporate social responsibility duties in the area that we operate.”

Speaking about his best suggestion for market participants, Jervois Mining’s Croker said investors new to the space should select the right assets in the right jurisdiction led by the right team.

For Fortune Minerals’ Goad, the favorable jurisdiction issue is especially relevant for the cobalt market. The DRC is the primary supplier of the world’s cobalt mine, while China dominates cobalt refining, with about 60 percent of global capacity, and notably controls approximately 80 percent of cobalt chemical supply.

“These present both political and policy risks to the chemicals and automotive industries, and also comes with ethical concerns related to the use of child labor and unsafe working conditions in many artisanal mines in the Congo,” he explained.

Both the US and EU identify cobalt on their critical minerals lists and are now looking to the Canadian government and its mining industry to diversify cobalt mine production.

For his part, Surge’s Fernback suggested investors to be selective now, and wait.

“Once the demand increases with the EV market in China, Europe and the USA, the market will pick up for cobalt,” he added.

Meanwhile, Go Metals’ Sheldon said, investors interested in the space should find investments for a rounded portfolio with exposure to lots of battery metals.

Cobalt forecast 2020: What’s ahead for companies?

As the new year begins, Jervois Mining continues to aggressively move forward to update the bankable feasibility study at its 100 percent owned Idaho cobalt operations in the US.

“We remain on track to commission the facility in Q4 2021, transforming Jervois into the unique position as a cobalt producer from a first world jurisdiction,” Croker said.

He added that exploration activities in Uganda are promising, and he is optimistic that 2020 will herald real progress. Furthermore, offtake negotiations for Nico Young, located in Australia, continue to gather pace.

In 2020, Surge Exploration will continue to work on its cobalt properties in Ontario. The company is looking for partners and business opportunities now that First Cobalt (TSXV:FCC,OTCQX:FTSSF) is re-activating its cobalt smelter.

Global Energy Metals’ Smith said next year investors will see continued announcements detailing his company’s ongoing programs in Nevada and further developments on its 100 percent owned Millennium cobalt-copper project in Queensland, Australia.

Looking at what’s ahead, while it optimizes the NICO development plans, Fortune is also looking at conducting some exploration on a few targets.

“We also continue to seek project financing, and our strategy is centered on entering into strategic partnerships, but we are re-looking at the types of partnerships that make sense for this development,” Goad said. The company is also looking at several sites for its downstream processing plant.

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Fortune Minerals, Global Energy Metals, Go Metals, First Cobalt and Surge Exploration are clients of the Investing News Network. This article is not paid-for content.

The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

Source: Investing News Network
(December 23, 2019 - 7:55 PM EST)

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