Cobalt: A Critical Metal To Electric Cars

Cobalt has been used as a pigment in glass and porcelain for centuries. Most notably it was used to create that distinctive blue color in fine china. Other than that, cobalt was mainly seen as a byproduct of mining copper and nickel ore.

The bulk of cobalt production has been from the Copperbelt in central Africa since the 1970s. But when Zaire (Now the Democratic Republic of Congo) had political strife in 1976, cobalt production was all but cut off. The price of cobalt skyrocketed. As a result, most manufacturers found alternatives to cobalt and demand at the time waned somewhat for the blue metal.

But cobalt is making a comeback. Aerospace and green technologies have introduced a slew of new applications for cobalt. According to the Department of Energy, cobalt can’t be as easily replaced this time around…

Cobalt: One of 14 Critical Metals to Clean Energy

In December of 2010, The U.S. Department of Energy outlined its "Critical Materials Strategy." Cobalt is one of 14 elements defined as a critical metal to clean energy over the next 5-15 years. Nine of these 14 are classified as rare-earth elements.

The DOE sees cobalt as such a critical metal because of its use in lithium ion batteries. The DOE predicts that each electric car (PHEVs and Electric Vehicles) will demand 9.4 kg of cobalt. That doesn’t even include all of the cell phones, tablets and laptops that will continue to use lithium ion batteries. Cobalt is also a significant ingredient in Nickel Cadmium and NiMH rechargeable batteries.

Besides the demand for cobalt from batteries, the other critical use for the metal is in superalloys. Cobalt superalloys are used extensively in military aerospace engineering. Because of the resistance to heat and corrosion the cobalt superalloy is particularly useful for gas turbine engines.

Other industrial uses of cobalt include:

As a binding agent in steel-belted tires
Used in magnets
Desulfurization of crude oil
Liquid-to-natural gas production

Although cobalt doesn’t get a ton of press, it’s a pretty important metal in this day and age. Even if we don’t realize it, the U.S. government seems to.

‘A Debilitating Impact’ on the U.S.

MIT’s technology review reported that U.S. diplomatic cables released by WikiLeaks last year mention an African cobalt mine. According to the report, The Department of Homeland Security claimed that the single mine is so important that it’s "incapacitation or destruction… would have a debilitating impact" on the national economy and U.S. Security.

Considering the volatile state of Africa’s political scene, it’s not very reassuring. But since only 15 percent of U.S. consumption of cobalt is via recycled metals, the United States relies on 85 percent of its cobalt from foreign sources.

Something else that isn’t reassuring for Americans – 40 percent of all cobalt production is from African mines, and 99 percent of that African cobalt is processed and sold by the Chinese. Much like the rare earth metals, China has a virtual grapple hold on cobalt production.

The U.S. hasn’t mined cobalt since 1971 and hasn’t processed it since 1985. Much like rare earth materials, China used its cheap labor and lack of environmental regulation to undercut the competition.

But that is starting to change this year.

Cobalt Projects and Producers

Formation Metals, a small penny stock on the Toronto Exchange, began the Idaho Cobalt Project this year. Formation expects the project to produce 1,500 tons of super-alloy grade cobalt annually over the next 10 years, roughly 3 percent of the global supply.

Two other U.S. projects are expected to get underway in the next few years that should yield cobalt:

Eagle Project nickel-copper mine in Michigan – This project is headed by Kennecott Minerals Company, a wholly-owned subsidiary of Rio Tinto (NYSE: RIO).
NorthMet Project copper-nickel-PGM mine in Minnesota – PolyMet (AMEX: PLM) is heading this project. It’s of note that Glencore International, which also holds a large stake in a handful of the large African mines, holds 17.89 percent of PolyMet’s stock.

While most cobalt producers and processors are foreign, there are a few other cobalt players in the American markets.

OM Group (NYSE: OMG) – OM Group is somewhat vertical in that they refine cobalt and also participate in three segments of its uses: advanced materials, specialty chemicals, and battery technologies.
VALE S.A. (NYSE: VALE) – Vale, a mining giant in South America, processes cobalt as a byproduct of its copper production. Cobalt is just one of many segments of Vale’s business.
Freeport-McMoRan Copper & Gold (NYSE: FCX) – Freeport-McMoRan is like Vale in that it processes cobalt mainly just as a byproduct of its vast copper mining operation in Africa. While the cobalt exposure is diversified with gold and copper, it’s also subject to the volatile political climate in the Democratic Republic of Congo.

Cobalt Supply ‘Should’ Outpace Demand

Adding to new U.S. ventures, there are also cobalt mining projects coming online soon in Canada and Australia. With all this supply expected to enter the markets, it’s likely that cobalt prices are likely to remain somewhat low for now.

The USGS believes that "global increases in supply from existing producers and new projects are forecast to outpace increases in consumption."

But that doesn’t mean cobalt shouldn’t be on your radar as an investor. The Democratic Republic of Congo is a very volatile place that is still reeling from a recent civil war. Violence and protesting disrupted mining operations in the region as recently as October 2009.

It’s not out of the question that something drastic may happen in that region of the world. As a result cobalt would be certain to experience a dramatic rise in price.

It’d be wise for investors to keep an eye on this developing industry and world news that affects it over the next few years.

Justin Dove.