Battery makers descend on Australia, Canada cobalt developers

Fortune Minerals

20/03/2018 01:12

(Repeats item issued earlier)
    By Melanie Burton and Nicole Mordant
    MELBOURNE/VANCOUVER March 19 (Reuters) - Nervous Asian
battery makers are turning to early-stage cobalt projects in
Australia and Canada to lock in supplies of the critical battery
ingredient ahead of expected shortages as demand for electric
vehicles revs up.
    Mine developers say interest from Japanese and Korean firms
is particularly strong as they compete with rivals from China,
which has built deep supply chain ties with the Democratic
Republic of Congo, the world's top producer.
    The central African country accounts for nearly two-thirds
of global cobalt output and production is set to rise despite
concerns over the use of child miners and rising royalties.
 urn:newsml:reuters.com:*:nL5N1QR5AU  urn:newsml:reuters.com:*:nL8N1NG615  urn:newsml:reuters.com:*:nL8N1QV6QJ
    "We are starting to see the first signs of an arms race to
secure long term cobalt supplies," said Joe Kaderavek, chief
executive of Australia's Cobalt Blue  COB.AX .
    "With over 85 percent of new global cobalt supply over the
next decade coming from Africa, in a region where the Chinese
have entrenched relationships, the Korean and Japanese cobalt
processing industries are very focussed upon Australian and
Canadian projects."
    South Korean battery maker SK Innovation Co Ltd  096770.KS  
locked in a seven-year supply deal with Australian Mines
 AUZ.AX  last month, helping to win funding for a project that
has yet to make a final investment decision and does not expect
to produce any cobalt until at least 2020.
    
    At least half a dozen Australian and Canadian mine
developers are currently in talks on potential supply deals with
battery and automakers for production at some point beyond late
2019-2021, company executives told Reuters.
    These include Australia's Aeon Metals  AML.AX , Northern
Cobalt  N27.AX  and Cobalt Blue, and Canada's Ecobalt  ECS.TO 
and Fortune Minerals  FT.TO .      
    China's Beijing Easpring Material Technology Co  300073.SZ ,
which makes products for battery makers, has also signed a
binding five-year deal with Australian mine developer Clean Teq
 CLQ.AX .
    "We are speaking to a number of parties about the balance of
the offtake - that includes not just Chinese potential customers
but also customers from other parts of the world," Clean Teq's
CEO Sam Riggall told Reuters.
    In an indication of heightened demand, Riggall said
automotive companies were also showing interest, along with
cathode manufacturers, the direct users of cobalt, a key
material in lithium-ion batteries.
    
    DRC GROWTH
    In the DRC, production is set to rise sharply, driven by
commodity giant Glencore Plc  GLEN.L , the world's biggest
producer, and Luxembourg's ERG, taking DRC's share of global
output to over 75 percent by 2023, according to UK-based Darton
Commodities.
    Glencore last week agreed to sell around a third of its
cobalt production over the next three years to Chinese battery
recycler GEM Co Ltd  002340.SZ .  urn:newsml:reuters.com:*:nL1N1QW2DL
    Developments in Australia and Canada will be small to
mid-size, producing around 1,000 to 5,000 tonnes each, in a
global market expected to swell to some 157,000 tonnes by 2023.
    Fortune Minerals said it has signed 25 confidentiality
agreements, while Australia's Ardea Resources  ARL.AX  said it
has seen significant interest.
    "Certainly some of the groups that we have spoken to have
said that they won't look at DRC sources, they want clean
ethical sources of cobalt," said Ardea Managing Director Matthew
Painter.
    Japan's Panasonic  6752.T , the main battery supplier to
Tesla Inc  TSLA.O , said it was aware of issues in the DRC and
was looking to source some material elsewhere, and it was also
looking at lowering its dependency on cobalt.
    "Regarding concerns about procuring cobalt and other raw
materials, we are addressing this by establishing advance
procurement contracts and developing new procurement routes,"
the company said in emailed comments.
    South Korea's Samsung SDI  006400.KS  and LG Chem
 051910.KS  declined to comment specifically on procurement but
also said they were looking at other methods to source cobalt
and to reduce usage.  urn:newsml:reuters.com:*:nL4N1QS01E
        
    RISKS REMAIN
    Despite surging share prices for some cobalt developers,
analysts warn the projects are not without risk, given fickle
technology and the high cost of processing out contaminants like
arsenic, found in some North American operations.
    Clean Teq shares more than doubled in the second half last
year, but have since slipped 20 percent, partly because it has
twice delayed the date of its definitive feasibility study, said
Larry Hill, an analyst with Canaccord Genuity in Australia.
    Still, the company easily raised A$150 million ($117
million) this month, and pulled forward its production timeline
by a year.
    "There's still a lot of upside in any cobalt supply that is
ex-DRC," said James Eginton, an investment analyst with Sydney's
Tribeca Global Natural Resources Fund, which took part in the
raising.
    "The challenges of the DRC make anything that comes out of
anywhere else a lot more attractive."
    
($1 = 1.2817 Australian dollars)

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Australian cobalt valuations seen rising as they look to lock in
supply deals    http://reut.rs/2GltqDB
Cobalt mining and reserves statistics    http://reut.rs/2Fn0uhb
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 (Reporting by Melanie Burton in MELBOURNE and Nicole Mordant in
VANCOUVER, Susan Taylor in TORONTO, Barbara Lewis in LONDON,
Ritsuko Ando in TOKYO and Jane Chung in SEOUL; editing by
Richard Pullin)
 ((melanie.burton@thomsonreuters.com Twitter: @MelanieMetals;
+613 9286 1421; Reuters Messaging:
melanie.burton.thomsonreuters.com@reuters.net))