Is Cobalt the Next Big Commodity Trade?
Justin Rohrlich APR 20,
2010 1:00 PM|
promise of one tiny company, Geovic Mining, and the
risks that come along with the battery play.
president and CEO of Hackett Financial Advisors, a Florida-based
firm with a focus on commodities and small-cap value
stocks, says he has identified an undiscovered opportunity--
cobalt -- and a unique way to play it.
that it “contains a much greater degree of risk of loss
than does [his] typical recommendation,” and is only
for one’s “highest degree of risk capital.”
Mining (GVCM), which is currently trading at
$0.75 a share.
main battery technologies -- lithium-ion, nickel-metal
hydride, and nickel-cadmium -- are currently used in
cell phones by companies like Nokia
(NOK), computers by companies like Apple
(AAPL), and in electric and hybrid cars by companies
like Toyota (TM).
No one knows
which battery technology will be the ultimate winner.
What is known, however, is that all three of them require
points out, this has increased demand for cobalt from
30,000 tonnes in 1997 to 60,000 tonnes in 2007 and he
expects it to “continue to grow as far as the eye can
see,” especially as we’ve barely scratched the surface
with demand for electric cars, particularly in China.
knows that 4 billion people in Asia are not going to
be able to drive gasoline-driven cars due to pollution
limitations and resource limitations,” Hackett says.
“Small electric/hybrid cars are going to play a huge
global role in allowing greater mobility to the emerging
countries in a way that is more economical and more
sustainable for the long-term growth these countries
seek, given future crude oil resource availability limitations.”
car battery currently needs three to seven pounds of
cobalt, which is quite a bit of metal. Hackett also
notes that, in February, “the London Metals Exchange
launched the first Cobalt futures contracts ever traded.
This is a proxy for the growing importance of Cobalt
in the world and the increased global investment appetite
in the future of Cobalt demand.”
So, why Geovic
40% of cobalt production comes from the Democratic Republic
of Congo, one of the most dangerous and politically
unstable countries in Africa, where the government “has
been threatening to take over foreign cobalt mining
“the world is anxious to find an abundant and reliable
supply source for cobalt from a more stable region in
Africa,” which is where Geovic comes in.
owns a 60% interest in the Nkamouna and Mada cobalt
deposits, along with the government of Cameroon -- one
of the most stable and foreign investment-friendly countries
is extracted as a byproduct of copper and nickel mining
operations. Geovic’s operation would be the world’s
largest primary cobalt mine, guaranteeing greater quantities
and more stable supply -- feasibility studies have shown
there to be 1.5 billion pounds of cobalt in the ground,
along with 4.3 billion pounds of nickel and 8.9 billion
pounds of manganese, representing, at current prices,
$12 billion worth of tradable commodities.
to me about Geovic, is that the opportunity is right
in front of you,” Hackett tells Minyanville. “A lot
of times, the opportunity has passed you by, by the
time you hear about it.”
that investors must “be cautious,” but adds that Geovic
“owns an incredible asset,” unlike, say, an Internet
just a tremendous amount of metal there, which lends
a high degree of comfort you usually don’t get with
so-called ‘junior miners,’ ” explains Hackett. “The
risk is in the execution -- that they don’t raise enough
capital, that there are infrastructure problems… but
if Geovic can execute, it will be the largest primary
cobalt producer in the world.”
is a unique position in which to be, as companies like
Rio Tinto (RTP), which mine cobalt secondarily
from copper and nickel operations, respond to those
markets, while a company like Geovic can respond directly
to the demand for cobalt itself.
been a strong believer in owning industries that are
once removed,” Hackett says. “People tend to focus on
the ‘headline companies,’ like the high-profile battery
and auto startups, not the secondary and tertiary outfits.
That’s why the real opportunity will be to buy the cobalt
companies while we’re still at the very beginning stages
of the world’s appetite for cobalt.”
As for the
economics involved, Hackett says Geovic’s operations
have to bank on $20 or $15/pound cobalt prices,” Hackett
explains. “Geovic is looking at somewhere between a
$2-$5 net cost production. Cobalt’s been as high as
$50/pound, and at the very, very, very worst of the
economic meltdown, prices were hovering between $13-$15/pound.
If cobalt prices stay in a range anywhere from $13-$50,
this is going to be an insanely profitable mine.”
there are two real triggers for 2010 -- a final feasibility
study and securing full financing.
that, with demand ready to skyrocket, there will be
a “cobalt mania” at some point in the not-too-distant
in his opinion, those investors will be late to the
game. “When people start going crazy on cobalt,” he
says, “I’ll already be long gone.”