The Vulnerabilities of Cobalt Supply

If you caught my first post on why cobalt is the metal Du Jour, you’ll know that cobalt is generally pulled out of the ground as a by-product of nickel or copper mining. This represents an inherent difficulty in responding to rapid increases in cobalt demand because, put simply, mining more cobalt means having to mine more copper or nickel. However, this is far from the only challenge for cobalt supply.

Map of Africa

The majority of world supply (54% in 2016), comes from the Democratic Republic of Congo (DRC), which also hosts the largest proportion of the world’s known reserves (48%). The DRC is a vast country, with a population of over 82 million, located in the heart of Africa. Such is the country’s mineral wealth, the World Bank stated it has the potential to become “one of the richest countries on the African continent and a driver of African growth.”

The DRC has incredible mineral wealth but it is also a notoriously unreliable and politically unstable jurisdiction. It is rife with corruption, major outbreaks of violence, armed rebel groups and its known to have problems with child labour. The violence does at times spill into the mining sector. Indeed, earlier this year gold miner, Banro, which created the DRC’s first modern gold mine, had several employees killed during an attack on the mine, and several more kidnapped just weeks later.

The mining industry is famous for the effect of its “black swan” events – incidents or periods that have a major impact on supply or demand. For an example of such an occurrence, let’s take another energy metal that I know very well: uranium. In 2006, major flooding at the Cigar Lake mine – currently the largest high-grade uranium mine in the world – set off a reaction in the uranium markets that saw the spot price rise swiftly from around $60/lb to nearly $140/lb. There was already a uranium supply crunch taking place but this black swan event increased the effect by magnitudes. It doesn’t take much imagination to think of all the things that could go wrong, when the full-throttle growth of the battery and EV industry is so heavily reliant on the Congo for one of its most important materials.

Exposure to cobalt thus comes with, perhaps, a greater level of risk/reward than many other metals. It’s for this reason that we (Cobalt 27) have a three-pronged approach to the sector, including holding physical cobalt, acquiring streams/royalties in producing mines and, at a later stage, acquiring interests in producing mines. This broad strategy not only offers pure-play exposure to cobalt but, critically, reduces risk for investors.

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about the author

Anthony Milewski

Anthony Milewski

Anthony Milewski has spent his entire career in various aspects of the investment world, including as a company CEO, board director, advisor, founder and investor, with a focus on commodities

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