Why Cobalt Is the Hottest Commodity on the ASX

Lithium Battery Mining Manganese

Have you heard of Elon Musk?

I presume your answer is yes. If not, may I ask whether you’re living under a rock?

Elon Musk is the founder of Tesla Motors [NASDAQ:TSLA] — the world’s most famous electric vehicle company. He famously tweeted:

Battery “breakthroughs” need to state power and energy density (not the same thing), plus how long they last. They usually fail on energy.

That sentence can easily pass over your head. I mean, what’s the difference between power and energy density?

It’s a good question, and, if you’re a cobalt fan, it’s worth knowing. To explain why, I’ll turn to Dr Jeff Dahn…a name that you may not know.

The hidden genius behind Tesla Motors

Dahn is famous in the scientific research community and business industry. Building his reputation, Dahn worked for 3M and the Natural Sciences and Engineering Research Council of Canada for years. He developed and modernised longer-lasting, lower-cost lithium-ion battery cells. According to the Dalhousie University website:

Jeff Dahn is recognized as one of the pioneering developers of the lithium-ion battery that is now used worldwide in laptop computers and cell phones. Dahn’s recent work has concentrated on the application of Combinatorial Materials Science methods to battery and fuel cell materials problems. He is the author of over 500 refereed journal papers and co-inventor of 58 inventions with patents issued or filed.

During the middle of last year, everything changed for the battery expert. Dahn signed a contract to work exclusively for Tesla Motors. According to Teslarati.com, Dahn’s mandate is to do ‘whatever it takes’ to improve the company’s battery performance.

This could be a challenge…

For most of his life, Dahn has worked with a different type of battery chemistry — lithium-nickel-manganese-cobalt oxide (NMC). According to batteryuniversity.com, although the chemistry offers more power and longer life, NMC has less capacity than the lithium-cobalt battery. For this reason, Elon Musk isn’t a fan of the NMC chemistry.

Instead, Tesla has committed to a different type of battery for years. It has a lithium-nickel-cobalt-aluminium oxide chemistry (NCA). Typically, lithium-ion NCA batteries use a combination of 80% nickel, 15% cobalt and 5% aluminium, according to batteryuniversity.com. NCA batteries require more cobalt than NMC batteries.

The future developments should be interesting. Dahn believes his mission is the same as every battery researcher in the world — lowering the cost, increasing the mileage per charge, and lengthening its useful life. He told Teslarati.com, ‘We’re open to anything that makes sense.

This brings me to the commodity of the day: cobalt. Cobalt has a huge impact on the battery-energy density, which Musk and Dahn want to improve.

Ever wondered why everyone is crazy about cobalt?

Cobalt is not the kind of metal you hear about every day, like gold or iron ore. However, it has some important applications. Cobalt is used in manufacturing smartphones, jet engines and wind turbines. It’s also an important part of the lithium-ion battery, as you can see in the chart below:

The many uses of cobalt


Sources: CDI, Roskill, MMTA, Industry Sources
[Click to open in a new window]

Cobalt is critical to increasing battery-energy density, something Elon Musk and John Dahn want to achieve. Energy density and power density are similar to energy and power, except their values relate to volume.

Sounds simple, right?

There’s always a twist.

High energy density doesn’t necessarily mean high power. To help you understand how energy density works, and how it relates to cobalt, I’ll use an example.

Imagine building a campfire. You use kindling — small pieces of wood — to start the fire. It burns quicker, being a high-power-density product. When everything looks good, you throw logs — a high-energy-density product — onto the fire. The logs keep the fire burning for longer.

Cobalt — a high-energy-density product — is similar to the logs. It’s used to increase the mileage per charge, keeping the electric vehicle running for longer. When you think about it, given the goal is to increase battery-energy density, cobalt should become a ‘strategic’ — and highly sought-after — mineral in the years ahead.

The ‘Cobalt Cliff’

We are already witnessing an increased scarcity of cobalt supply. Approximately 97% of the world’s supply of cobalt comes as a by-product of nickel or copper. And, as you may know, nickel and copper are experiencing supply issues at the moment. In addition, 60% the world’s cobalt reserves are located in the Democratic Republic of Congo. On that note, I wrote to Resource Speculator readers last week:

Cobalt prices have screamed higher. The Democratic Republic of Congo — the world’s largest cobalt supplier — has seen multiple conflicts between armed groups and security forces. The conflicts are fuelled by disputes over land, ethnicity and mineral resources.

Furthermore, the country’s president, Joseph Kabila, refused to step down when his constitutional mandate expired in December. Fears of a new civil war have increased sharply. If that happens, it would trigger massive supply shortages for cobalt (and copper), at a time when lithium-ion battery manufacturers are hungry for the ingredient.

Remember, the battery industry currently uses 42% of global cobalt production. The remaining 58% is used in diverse industrial and military applications.

CRU Group, a global commodities consultancy firm, is very bullish on cobalt. It expects lithium-ion batteries to consume around 55% of total cobalt demand by 2019. This number stands at 42% today. Have a look at projected growth in the chart below.


Source: CRU Group
[Click to open in a new window]

Future demand for the ‘strategic’ mineral appears strong. Too strong, in fact, for the current supply pipeline. While that may pose a problem for battery producers, their problem is our opportunity.

According to a CRU Group report, ‘Tesla’s commitment to develop electric cars that rely on cobalt-intensive batteries is expected to put a strain on cobalt supply from 2017 as vehicle production increased.

Plus, around the world — outside of Tesla — there’s massive hype surrounding battery plants. Benchmark Mineral Intelligence said ‘…at least 12 mega-factories are expected to be producing lithium-ion batteries by 2020.’ With the growing demand for batteries, serious questions are being asked about cobalt’s supply. For that reason, anticipating this move far in advance, I recommended cobalt to Resource Speculator readers last June:


Source: Infomine; Resource Speculator
[Click to open in a new window]

Readers who followed my advice were more than happy. Two of the cobalt stocks I tipped are up more than 100%. And every metric I look at tells me the cobalt bubble isn’t close to its peak yet.

I’m in the final stages of writing up a new stock report for Resource Speculator readers. It’s set to go out tomorrow after markets close, and will recommend up to three new ‘battery stocks’. That’s what I call the stocks riding the explosive growth in demand for electric vehicles and home-power storage.

These ‘gems’ are totally ignored by the market, and could make you hundreds of percent in gains.

To find out more, simply go here.

Regards,

Jason Stevenson,
Editor, Markets and Money

Jason Stevenson

Jason Stevenson

Analyst at Markets & Money

Jason Stevenson is Markets and Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options.

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