Rechargeable lithium-ion batteries have revolutionised the way we live in recent decades, allowing us to take the world with us via smart phones and letting us see the world with electric vehicles.

A lithium-ion battery’s electrolyte carries positively charged lithium ions from the anode to the cathode, which are separated in batteries, but connected through devices.  It’s the movement of the lithium ions and the resulting free electrons which power those devices.  Similarly, it is the reverse movement through a power source that recharges a battery.  The Anode is made from graphite and the cathode is made from various metals. The Tesla S battery uses approximately 80% nickel, 15% cobalt, and 5% aluminum whereas the Apple iPhone battery uses 100% cobalt.

According to Transparency Market Research, the global lithium-ion battery market is projected to grow from US$29.7 billion in 2015 to US$77.4 billion by 2024, primarily driven by electric vehicles.  Global sales of all-electric cars and hybrids hit a major milestone in 2017, surpassing 1 million units, according to research firm Navigant Research.  Navigant also expects annual sales growth of 38% through 2020.

Cobalt traded at an all-time high of US$95,000 a ton in March 2018 up from a record low of US$21,750 in February 2016.  In December 2017, luxury vehicle maker BMW said its needs for  cobalt and lithium will grow 10-fold by 2025 and that it had been surprised at just how quickly demand is accelerating.  Automakers including the world’s second largest car maker, Volkswagen, have been scrambling to secure long-term supply contracts for such minerals.

Though cobalt is often the most expensive component in a lithium-ion battery, the battery is generally a fraction of the cost of the device it powers.  A good example of this is the Apple iPhone.  The iPhone consumes about a quarter of an ounce of cobalt which costs about 73 cents, however the phone itself can often fetch over $1,000.  As the cost of cobalt is only a small fraction of the cost of such devices, the price of cobalt for battery makers and end users does not seem prohibitive at current prices.

There can be continued elasticity in the cost of cobalt and prices are likely to continue rising until new mines meet demand.  According to Seeking Alpha, Apple requires approximately 4,550 metric tons of cobalt per year for its iPhones, iPads and MacBooks.  At a price of US$83,000 per ton this would cost the company $378 million.  If Apple could reduce their cobalt expense by 20%, the $75 million per year they would save is a small fraction (0.1%) of the $64 billion in pre-tax profit the company made in fiscal 2017.  As reported in Quarts Africa, “The problem has nothing to do with the amount of cobalt in the ground but rather the number of mines currently producing cobalt,” said Trent Mell, CEO of First Cobalt Corp, the world biggest cobalt exploration company.  “We are in a supply-demand imbalance and it will take miners a few years to catch up.”

According to the US Geological Survey, 64,000 metric tons of cobalt, 58% of worldwide production in 2017, came from the Democratic Republic of Congo (DRC).  But cobalt mining in the DRC has been linked to human rights abuses.  Last year, Apple stopped buying cobalt mined in the DRC due to such abuses.

According to the Financial Review in March 2018, the “easy money has gone in lithium.”  However, speakers at the Energy & Battery Minerals Conference in Brisbane had a more bullish outlook on cobalt.  Resources stocks analyst Rob Murdoch of Austex Mining pointing to “plenty of opportunities” for investors in the cobalt space.  Veteran resources stock picker Warwick Grigor said he anticipated institutional money to rotate out of lithium stocks this year and into cobalt stocks as investors “get confirmation that lithium stocks have peaked.”  “Institutions are yet to buy into cobalt in a big way, partly because there are not many credible vehicles and they are still doing their homework,” he said, pointing to Cobalt Blue and Northern Cobalt as the most likely to attract institutional support.

Recent demand has created opportunities for these and other Australian cobalt explorers.  Australian producers have moved from fifth to third-largest worldwide producer in 2017 with 5,000 metric tons of cobalt production.

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