Cobalt Price Performance
Cobalt price performance over the last 100 years has been volatile (Figure 1). Price spikes have been driven by increasing demand, speculation of further demand and by strategic stockpiling of physical cobalt in anticipation of future demand. Each time, a supply response from mines in the Democratic Republic of Congo (DRC) has met the required demand. With the electric vehicle revolution now upon us and surging demand for batteries forecast, many forecasters anticipate that there will be a new long–term median price for cobalt.
Figure 1 – Long Term Cobalt Price. Source: US Geological Survey, prices escalated to 2019 real by US CPI.
Many countries include cobalt on their list of critical minerals. Its unique combination of properties make it ideally suited to high temperature, high-wear applications including superalloys for jet engines; magnets; carbides; and diamond tools. Cobalt is also used in batteries, catalysts and pigments (Figure 2).
Figure 2 – Cobalt Uses. Source: Darton Commodities.
The physical properties of cobalt, being thermal stability and energy density, are what make cobalt an essential ingredient the cathode of lithium ion batteries. The drive for improved battery performance has seen Nickel-Manganese-Cobalt cathode chemistry rise to be the dominant chemistry (Figure 3). NMC532 (5 parts nickel, 3 parts manganese, 2 parts cobalt) remains the dominant cathode chemistry with NMC 622 use expanding (both at 20% cobalt content). However, given the high value of cobalt, increasing demand and limited supply, there has been a push to develop NMC 811 technologies to move towards higher proportions of cheaper nickel and less expensive cobalt (10% cobalt content). The adoption of new technology is slow and the impetus for change is also driven by the fluctuating price of cobalt.
Figure 3 – Cathode chemistry trends
The demand for lithium ion batteries is such that to meet it, there must be substitution towards lower cobalt chemistry cathodes. However, even with substitution from NMC532 and NMC622 to NMC811 cobalt demand for electric vehicles is forecast to be exponential (Figure 4)
Figure 4 – Cobalt demand from electric vehicles; exponential despite substitution (Source: Cobalt 27)
The demand for cobalt is being driven by growth in battery tonnages driven by the electric vehicle revolution. Technological development and economies of scale realised by battery mega-factories have enabled unit costs of batteries to fall precipitously from US$1000/kwh in 2010 to less than US$200/kwh in 2018 (Figure 5).
Figure 5 – Battery Unit Costs (Source: Bloomberg)
These falling battery unit costs have now reduced the cost of electric vehicles to a typical sticker price premium of A$23,000 for like for like vehicle specifications (e.g. Hyundai Ionic vs i30 in “Elite” trim).
On a total cost of ownership basis, once fuel and maintainance costs are considered, electric vehicles are now cheeper than traditional vehicles with internal combustion engines in some juristictions in the USA, UK and Japan, once subsidies are applied (Palmer et al, 2018, Journal of Applied Energy v.209).
At the premium end of the market, a Tesla Model 3 is cheeper than a BMW 3 series and offers superior performance with a similar level of trim and prestige.
Previous concerns about range anxiety are proving unfounded with improved range evident in new models approved for sale in China (Figure 6). A Tesla Model 3 has 460-560km of range depending on trim level.
Figure 6 – Improved Battery Performance and Range in Chinese Electric Vehicles (Source: Galaxy Resources)
Electric Vehicle Policies
Progressive governments keen to reduce greenhouse gas emissions and reduce inner city pollution have set aggressive targets to ban the sale of new internal combustion engine powered vehicles (ICEs). Norway has surpassed 50% electric vehicle sales and will ban ICEs in 2025 along with Netherlands. India, Germany, Ireland, Finland, Sweden and Israel will do the same in 2030 and the United Kingdom, France, and Taiwan will follow in 2040.
Figure 7 – Proposed government bans on the sale of internal combustion engine vehicles
However, as with most industrial endeavours in the 21st century it is all about China. China is the world’s largest and fastest growing car market (Figure 8 a,b,c). In 2018 4% of all vehicles sold in China were electric. In 2020, the central government has mandated 12% EV sales and in 2040 ICEs will be banned all together. Many Chinese brands establishing a dominant position suchs as Byton, BYD, BAIC, Lifan, Nio, and Kandl are unfamiliar in western markets.
Figure 8 (a,b,c) – Chinese electric vehicle sales
Automakers have responded with production achievements and policies of their own:
- Tesla – delivered 90,700 units in Q4 2018
- BMW – 142,000 EVs sold in 2018
- Renault Nissan – 400,000 LEAFs sold to 2019
- Ford – will invest US$4.5 Bn in 2019-20
- Volvo – 50% EVs by 2025
- GM – 1,000,000 EV sales by 2026
- Toyota – 5.5 M EV sales by 2030
- Volkswagen – 22 M EV sales by 2030
Whichever way you look at it, the electric vehicle revolution is upon us. It is no longer a novelty and a question of if electric vehicles will arrive. It is not a question of when electric vehicles will arrive; they are her now. It is a question of how fast they will be adopted by the mass market. When BHP looks at the market, they see a range of possible realisations of how fast this uptake may occur (Figure 9).
Figure 9 – BHP’s forecast growth in electric vehicle sales
99% of all cobalt is mined as a by-product of Nickel and Copper Mining. For new cobalt to enter the market, these mines require an increase in nickel and copper prices. In Australia, most nickel laterite projects require high pressure acid leaching (HPAL) to liberate the nickel and cobalt metals from the minerals. Typically, HPAL requires a capital investment of over A$1 billion dollars.
Figure 10 (a,b,c) – Global Mined Cobalt Sources (Source: Darton Commodities)
68% of cobalt is mined from copper mines in the Democratic Republic of Congo (DRC) in central Africa. Of this 20% is sourced from 110,000-150,000 artisanal miners often in unsafe conditions with 80 fatalities reported annually. 40,000 children are estimated to work on these mines for A$1-3 per day (Source: Amnesty International).
Figure 11 – Artisanal cobalt mining in DRC.
Multinational companies are increasingly seeking to trace their cobalt supply to sustainable sources and our market intelligence suggests that a premium of up to US$4,000/t is available for cobalt from a guaranteed sustainable supply source such as Western Australia.
The DRC Parliament has exacerbated the risk of supply shock by enacting a super-profits tax of 50% of profits if price rises 25% above BFS assumption. Furthermore, if cabalt is declared a strategic mineral the royalty will increase from 2% to 10%.
Barra’s 50% owned Mt Thirsty Project offers a compelling alternative, being an advanced, low capital cost and high–quality cobalt project located in the stable mining jurisdiction of Western Australia.