Cobalt Stocks: Overview
These days, it seems everything has a rechargeable battery. Now, batteries even power full-scale vehicles and trucks. Cobalt is a key component in the lithium-ion batteries (LIBs) used in electric vehicles(EVs) and certain mobile devices. Buying cobalt stocks could be a great way to invest in the growing popularity of electric vehicles.
Cobalt is a rare mineral that comes from the Earth, so it needs to be mined out of the ground. It’s been a key resource for the metals industry for decades because it’s used to produce superalloys and steel products. However, cobalt use in EV LIBs is the growth story driving the market. Cobalt futures began trading on the London Metal Exchange in 2010; officially making cobalt an investable metal, but futures aren’t for everybody. Instead, buying cobalt stocks is a simpler way to play the trend. Speaking about investable metal, you should read about Gold stocks: https://www.thestockdork.com/best-gold-stocks/.
Check out current spot prices for cobalt here.
In this post, we’ll explore the industry and list our picks for the best cobalt stocks.
Cobalt Production & Use
Cobalt is an integral ingredient in the world as we know it. It’s used to make incredibly strong, temperature-resistant superalloys for jet engines, but it’s also vital to producing everyday items. Cobalt is used to make stainless steel, medical prostheses, diamond tools, and more. However, increased demand for EV LIBs growth is powering the industry.
Lithium isn’t the only element used in producing LIBs. In fact, the batteries are comprised of several elements. According to the U.S. International Trade Commission, cobalt is one of the key components of the most widely used battery chemistries.
“There are three key components to LIBs: the anode (negative electrode),
the cathode (positive electrode), and the electrolyte (that promotes the movement of ions from the cathode to the anode). The anode typically consists of carbonaceous material (i.e., graphite), while the cathode is made of various formulations of oxidized metals which can include cobalt.” (Courtesy of USITC.gov)
Producing industrial-grade cobalt starts with getting it out of the ground. Cobalt isn’t particularly rare. According to the Cobalt Institute, it ranks 32nd in global abundance. Cobalt deposits are scattered across the Earth’s crust, but it’s usually not alone. Most cobalt comes as a byproduct of mining copper and nickel. Roughly 55% of the world’s cobalt production comes from processing nickel ores. However, a handful of mines in Morroco and Canada extract cobalt alone from arsenide ores.
Supply & Demand
According to the U.S. Geological Survey, the Democratic Republic of Congo (DRC) supplies over 60% of the world’s cobalt. The DRC produced over 90,000 tons of cobalt in 2018, more than any other country by a significant margin. Russia took the second-place spot by producing a mere 5,900 tons. In addition, DRC has another 3.4 million tons still in its reserves.
The U.S. produces only a small portion of the world’s cobalt supply. However, there are about one million tons of identifies cobalt resources in the U.S; mostly in Minnesota. Most cobalt produced from U.S. reserves will come as a byproduct of producing other metals, like nickel and copper.
China was the world’s largest cobalt consumer in 2018, and the rechargeable battery industry comprised 80% of consumption. The U.S. gets most of its refined cobalt from China. Chinese refiners import massive amounts of cobalt from the DRC. Then, they refine the imported cobalt and sells it to U.S. companies for commercial use. Most of the refined cobalt consumed in the U.S. comes from China.
The DRC Cobalt Controversy
The demand for cobalt increased significantly in recent years due to meet the growing demand for LIBs. As a result, DRC cobalt production has exploded to meet global demand. The DRC’s cobalt/copper deposits constitute a huge portion of the country’s sovereign wealth. However, corporate America is beginning to question DRC cobalt and its ESG impact.
There are a host of concerns surround the DRC cobalt industry. Amnesty International says child labor and human rights violations are rampant in DRC cobalt mines. Approximately 20% of cobalt mined in the DRC is extracted by hand-powered manual labor; commonly referred to as artisanal mining.
The concerns have led some consumers to look for alternative cobalt sources. Many companies enacted policies that forbid the purchase of ‘unethical cobalt’. If this trend continues, it could be a tailwind for producers in the U.S., Canada, and Australia.
Best Cobalt Stocks: Producers
These cobalt stocks are actively pulling cobalt or other minerals out of the ground. Mining costs money, so the leading companies have huge market caps and access to capital. These cobalt stocks are more stable and, thus, more suitable for longer-term investments.
Glencore Plc (OTC: GLNCY)
A Switzerland-based company, Glencore is a globally diversified natural resources firm. The firm’s asset portfolio includes approximately 150 mining operations, oil production assets, and agricultural facilities. Glencore operates internationally, with locations in the Americas, Europe, Asia, Africa, and ‘Oceania’.
Not limited to cobalt, this huge industrial conglomerate is very active in the commodity market. Glencore deals in oil, grain, and a variety of other commercial commodities. Its current market cap is about $46 billion, so the cobalt trade only comprises a small portion of the firm’s total revenue. However, large market cap producers are less volatile than cobalt stocks with smaller market caps.
Glencore’s size enables it to better withstand short-term fluctuations in the price of cobalt. However, its size also dampens the potential effects of a cobalt rally. Glencore offers investors more stability but sacrifices the upside potential for gains as a result.
Glencore currently pays an annual dividend that yields 5.97%, so that partially compensates for limited upside.
Update: August 8, 2019
Glencore Shutters One of Its Mines in Congo – Glencore PLC announced that it is closing one of its largest copper/cobalt mines. The firm cited concerns over a slowing global economy and weak commodity prices in China as the reason for the move.
This mine generates approximately 20% of the world’s cobalt supply. Declining copper and cobalt prices have created significant headwinds from Glencore’s Africa operations. Cobalt prices decline 58% in the first half of 2019, and copper decline by approximately 11%. Lower returns and higher costs pushed Glencore’s first-half net profits down 92% from the previous period.
Closing the mine should be a net positive for the cobalt market, which has been plagued by oversupply and lagging demand in 2019.
China Molybdenum Corp. (OTC: CMCLF)
Trade disputes hurt Chinese stocks this year, but lower prices result in better valuations. As a result, China Molybdenum Corp. is an interesting opportunity for value investors.
China Molybdenum is the world’s largest tungsten producer, and it’s the second-largest producer of cobalt and niobium. The company is also the world’s number one copper producer.
This company is a massive enterprise. It has a market cap of over $10.8 billion USD. The Chinese government owns a 25% stake in the company so it has plenty of governmental support. Current dividends have an annual yield of approximately 5.33%.
If you’re looking for value and stability, this could be one of the best cobalt stocks. It’s currently trading for only 1.09 times book value, incredibly cheap, but headwinds abound. The ongoing U.S.-China trade dispute is a risky uncertainty for this Chinese cobalt stock, and slowing global growth could reduce demand for CMC’s products. However, CMCLF could be a long-term winner if a trade agreement is reached and the global economy picks back up.
Best Cobalt Stocks: Exploration & Development
If you have a healthy appetite for risk, massive state-owned mining enterprises probably don’t get you very excited. In contrast, exploratory-phase miners are more speculative assets and offer greater potential rewards for investors willing to take a chance. This section of the best cobalt stocks are companies that could be winners down the road.
eCobalt Solutions Inc. (OTC: ECSIF)
If you want more exposure to the domestic cobalt market, eCobalt Solutions might be the best option for you. The Vancouver-based junior mining firm explores and develops mineral properties in the U.S., Canada, and Mexico. In addition to cobalt, the company explores for precious metals, uranium, zinc, and more.
The company owns a 100% stake in its primary asset, the Idaho Cobalt Project. Located in Lemhi County, Idaho; the project has a mine and a mill to process the minerals. The site will produce battery-grade cobalt salts for rechargeable batteries and other renewable energy applications.
eCobalt’s Idaho mine is still being developed, but it’s a promising venture. The concerns surrounding the Congolese cobalt industry could create more demand for domestically sourced cobalt. If eCobalt can get the Idaho project up and running, the firm could be a big beneficiary of such a trend.
Shareholders recently approved a merger with Australian-based Jervois Mining Ltd. (ASX: JRV). eCobalt shares jumped in response to the news.
This is a highly speculative cobalt stock so be sure to be cautious and do your own due diligence.
First Cobalt Corp. (OTC: FTSSF)
Toronto-based First Cobalt Corp. is another smaller North American miner that is developing a continental cobalt supply chain for domestic industry. Its principal asset is the Iron Creek cobalt project in Idaho. In addition, the firm holds about 100 square kilometers of land in the Canadian Cobalt Camp.
Recently, Glencore agreed to assist the firm in recommissioning the First Cobalt Refinery in Ontario Canada. First Cobalt accepted a $5 million load to support the operation. Reopening the refinery would be a big step towards establishing a self-contained North American cobalt supply chain.
If First Cobalt can successfully develop a North American cobalt supply chain it could create tremendous value in the stock. American companies want cobalt from ethical producers, so First Cobalt could capture some of the Congo’s market share if it can get its operation running at full capacity.
Outlook for The Best Cobalt Stocks
Massive increases in cobalt production oversupplied the market. Furthermore, the DRC continues to expand production. However, experts predict demand for cobalt will grow as LIB and EV production expands. Some industry insiders are predicting that global demand for cobalt will quadruple by 2025. Even the best cobalt stocks underperformed this year, but contrarian investors who get in near the bottom could be in prime position when the market swings. Cobalt stocks could be a great opportunity for both value investors and swing traders.
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