Cobalt market forecast and cobalt stocks to buy

Cobalt Market Forecast Cobalt Stocks to Buy
© 2017 Cobalt Investing News 1
Contents
Cobalt Forecast 2017: Fortune Mineral’s Troy Nazarewicz..........................................................................2
Cobalt Outlook 2017: Price Revival Expectations.........................................................................................5
Top Cobalt Stocks 2016: TSX Top Gainers...................................................................................................10
5 Cobalt Producers Outside the Democratic Republic of Congo ................................................................12

Cobalt Forecast 2017: Fortune Mineral’s
Troy Nazarewicz
What will happen to the cobalt market next year? Fortune's Minerals Troy
Nazarewicz provides some insight.
Cobalt prices started to slowly recover this year and have increased more than 40
percent in the second half of 2016.
Human rights reports and political concerns in the top producing country, the
Democratic Republic of Congo, as well as China’s stockpiling and major mine
purchases to secure supply, were the major factors impacting the market.
For the past years, there has been a rising interest in the critical metal, due to its role in
lithium-ion batteries and the announcement of major megafactories opening and starting
production in the next few months.
But at this time of the year, investors and market participants are asking the same
question–will the cobalt market finally take off in 2017?
Troy Nazarewicz, Fortune Minerals (TSX:FT) Investor Relations Manager, shares his
thoughts about 2016 and what he expects from the year ahead.
INN: At the end of last year what did you expect from 2016?
TN: 2015 was a difficult year for the resource industry with low commodity prices, weak
capital markets and investor interest focused on other sectors. A number of high-grade,
near-surface deposits of cobalt in the Congo were also being mined by artisanal miners
causing a short-term glut and prices to fall below US$10/lb for cathode metal.
We noted that cobalt demand was, at a minimum, tracking its historic two decade
compounded annual growth rate of 6 percent, primarily due to accelerating consumption
in lithium-ion batteries used in portable electronic devices, electric vehicles and
stationary storage cells. With several battery megafactories under construction or
announced, including the Tesla Gigafactory in Nevada, we were confident the market
would transition into a supply deficit in 2016 or early 2017.
INN: What about your price forecast for cobalt in 2016?
TN: For the past four decades, cobalt metal has typically traded between US$15 and
US$30/lb, only dipping below US$10/lb briefly, and occasionally spiking to the US$50/lb
level when serious supply issues arise. Consequently, forecasts of a cobalt price
recovery above US$15/lb was considered to be a conservative position.

Our view was supported by the shuttering of a number of mines where cobalt is
produced as a by-product of nickel and copper mining, resulting in at least 6,500 tonnes
of production coming out of the market due to low primary metal prices. There has also
been considerable pressure from major electronics companies to secure their raw
materials from ethical sources, and reduce materials from artisanal mines associated
with child labour and human rights abuses. With geographic concentration of supply in
the Congo and China, we felt we would see strong prices in 2016.
INN: Were your expectations correct?
TN: Yes – the cobalt market has tightened resulting in a price increase of more than 40
percent in 2016 and recent transactions above US$14/lb for cobalt metal. Although this
did not happen until the second half of 2016, we believe the price recovery is only in its
early stages, we expect the supply deficit to prevail leading to much higher prices in
2017 and extending for the foreseeable future.
INN: What had the biggest impact on your commodity in 2016?
TN:The automotive industry is undergoing a transformative evolution from the internal
combustion engine to automotive electrification. Tesla has validated consumer interest
for a mainstream electric vehicle (“EVs”) with 420,000 preorders received for its Model
3. Tesla has had to accelerate its production target for 500,000 vehicles to 2018 from
2020 to meet this demand. The rest of the automotive industry is following suit. This has
implications across the materials sector, impacting everything from oil and copper, to
the energy metals needed to produce lithium-ion batteries at the heart of this disruptive
transformation.
In addition to automotive electrification, lithium ion batteries are now being
manufactured for use in stationary storage, enabling the use of renewable power
generation from wind and solar and off-peak charging from the electrical grid.
INN: What was the highlight of 2016 for you?
TN: Rebuilding our team after the end of the resource sector bear market. We are
pursuing off-take agreements and project financing to start construction at NICO. After
surviving a very challenging 2015 we have started to rebuild the team with key
individuals with finance and operations experience, including expertise working in
Canada’s far North.
INN: What do you expect for the resource sector in 2017?
TN: We are optimistic that the resource sector recovery that started in 2016 will
continue next year. After a devastating 5 year bear market that pushed even the largest
companies in the sector to the brink of insolvency, the resource sector has
demonstrated a positive turn in 2016 with markets recovering, funds returning to the
sector, and M&A picking up. President-elect Trump’s enthusiasm for infrastructure

spending is another piece of the mounting evidence for the long-awaited resource
recovery.
INN: What is your prediction for the commodity price in 2017?
TN: Our view is that cobalt should be priced closer to the historic long-term average of
~US$20/lb, but it could trade even higher over the mid-term given the confluence of
positive factors impacting the market.
More than 14 lithium-ion battery, of which cobalt is an essential raw material,
megafactories have been announced or are under construction to meet this demand. In
addition, cobalt’s use is also growing in superalloys, cutting tools, cemented carbides,
magnets, catalysts, agricultural additives and pigments.Our view is that the cobalt
market will need higher prices for longer, as supply struggles to catch up with demand.
INN: What are the major factors that impact cobalt supply?
TN:In terms of supply, cobalt is dominated by two countries that present significant
supply side concerns for Western companies. The Democratic Republic of Congo, a
politically unstable country, that is responsible for 65 percent of cobalt mine production,
and China that is responsible for 52 percent of refined cobalt production.
In addition to risks from geographic concentration of supply, cobalt is also produced
primarily as a by-product of copper and nickel mining. Consequently, cobalt does not
have the usual supply response from higher prices as the price of copper and nickel
determine the economics of these sources.
INN: What excites you the most about 2017?
TN: We are working to secure project financing to start construction at a time the world
desperately needs new sources of cobalt that are independent of copper/nickel
production, the Congo and China. NICO is well positioned to become a vertically
integrated North American source of cobalt chemicals for the lithium-ion battery industry
and be part of the solution to help diversify the battery supply chain.
INN: What advice do you give investors most frequently?
TN: Do your homework, look for those macro developments that will impact your
investments for years to come and try to ignore short-term noise. Understanding the
potential impact of vehicle electrification on the oil industry could be an important factor
for most investment portfolios.

Cobalt Outlook 2017: Price Revival
Expectations
Interest in the cobalt market
continued to rise in 2016, but
what will happen in the year
ahead?
Cobalt prices started to slowly
recover in 2016, and both
analysts and CEOs expect a
price revival for next year.
Interest in the cobalt market started
to rise a couple of years ago when Tesla (NASDAQ:TSLA) announced the opening of
its lithium-ion battery gigafactory. Cobalt, a raw material needed for these batteries, is
on track for a price surge in the next few months as the electric car revolution unfolds.
Prices for cobalt metal COB-CATH-LON are expected to rise above $16 a lb by 2020
from $14.75 at present, as stricter emissions controls boost demand for electric vehicles
and push the market into deficit from this year, analysts said.
Chris Berry, of House Mountain Partners and the Disruptive Discoveries Journal, said:
“Cobalt was finally discovered this year. Cobalt’s price on the LME is up by 25 percent
year-to-date and it looks like other forms of cobalt chemicals have enjoyed similar
strength.”
To add to the rising demand, the market could tighten substantially as political and
human right concerns continue to put the Democratic Republic of Congo, the top
producing country, in the spotlight.
Earlier this year, Amnesty International released a report showing that major tech
companies are not ensuring that their products do not use cobalt mined by child
laborers. In addition, concerns about the presidential election in the country could
compromise cobalt mining operations.
Electric Vehicles: Will the Market Keep Up?
IHS Automotive expects electric vehicles to represent nearly four percent of all light
vehicles worldwide by 2020, equivalent to 3.9 million cars, up from just over 14,000 in
2010.

A rising demand for lithium-ion batteries in these vehicles and other electronic devices
is expected to drive the cobalt market, among other metals, in the next years as
producers will need to secure their raw materials supply.
Benchmark Minerals Intelligence analyst Caspar Rawles said: “The biggest driver at the
moment in the cobalt market is electric vehicles and companies procuring their supply
for the future of the electric vehicle market.”
Last year, only 37 percent of cobalt was consumed in metallurgical applications and
global demand is expected to continue to shift towards non-metallurgical applications.
Consultants CRU Group said electric car and plug-in hybrid vehicle sales could top 17
million in 2030, assuming an average growth rate of 25 percent a year from 2016 to
2030.
CRU’s senior consultant Edward Spencer said: “Demand for cobalt in non-metallurgical
(chemical) uses such as in batteries will grow at more than 7.5 percent a year to 2020,
“Chemical demand growth will be buoyed by the electric vehicle sector growing out of its
infancy and the lithium-ion sector for other applications also growing robustly.”
He sees global cobalt demand at approximately 120,000 tonnes in 2020, whereas
Macquarie analysts see it at 107,000 tonnes. Both, however, forecast similar deficits in
excess of 7,000 tonnes at the end of 2020.
Macquarie analysts said in a note: “Cobalt’s demand growth profile remains one of the
best among industrial metals peers. Its exposure to rechargeable batteries continues to
play a crucial role.”
Lithium-ion-batteries are not only used in electric cars but also in mobile phones,
laptops, digital cameras, cordless drills and hedge trimmers.
According to Benchmark Mineral Intelligence forecasts, three-quarters of lithium-ion
battery cathode capacities are expected to contain some volume of cobalt by 2020, with
NCA and NMC cathodes benefitting from the growth in automotive battery applications.
“This is projected to see significant growth in cobalt consumption from the battery sector
over the coming years – demand which today’s industry appears badly placed to
supply,” they said.
Rawles expects to see some more of the price increases already seen in 2016, “I think
2017 is definitely going to be a busy year for Cobalt. I mean at a distance we’re getting
a lot more interest around Cobalt than we have done historically.”

Human Rights and Environmental Concerns
Another factor stirring up the cobalt market are human rights concerns, after Amnesty
International released a report showing that major tech companies — including Apple
(NASDAQ:AAPL), Samsung (KRX:005930) and Sony (TYO:6758) — were not doing a
good enough job of policing their supply chains and allowing so-called minerals into
their products as a result.
Some reports suggest that this year 60 percent of the world’s cobalt supply will come
from this country, which could be an issue for companies that want full visibility of their
resource supply chain.
“Interest in cobalt has shined a light on its origin and sourcing in the DRC, a region rife
with conflict. With no substantial near-term source of cobalt available in other parts of
the world, the uneasy relationship between sourcing a critical commodity in a
challenging part of the world is set to continue,” Berry said.
The world’s biggest cobalt producer, DRC, mined an estimated 67,735 metric tons of
the material last year and approximately 20 percent of the total mineral is mined by
unregulated, “artisanal” miners. According to a 2014 estimate by UNICEF, about 40,000
of these miners are children.
“This has cast a big spotlight over cobalt at the moment. That with a responsible cobalt
initiative and one thing or another might mean that we see some supply restrictions as
that market changes. I think that’s what causing the change that we’re seeing right
now,” Rawles said.
But Tesla pledged in 2014 to use only North American resources for its battery
production at its Gigafactory and has also claimed that it will stop sourcing its cobalt
from the Philippines this year, due to environmental concerns, which will be a future
issue for cobalt extraction as demand rises.
“The refined cobalt market will fall into a 3,000 tonne deficit this year following seven
years of overcapacity and oversupply. CRU anticipates prices to increase onward into
2017 as global demand for refined cobalt exceeds the 100 kt mark and mine and refined
supply tightens,” Spencer said.
Stormcrow Capital’s Jon Hykaw said that annual global mined production clocked in at
120,000 tonnes, with 53,000 tonnes being used as cathode material. But, “by 2025,
we’re looking at a requirement for cobalt of 121,000 tonnes, which is actually in excess
of all producing cobalt today.”
That, said Hykawy, is “interesting,” particularly in light of the fact that “cobalt is a by-
product.”

About 60 percent of cobalt production is a byproduct of copper and the volatile price of
the red metal is further impacting the supply of cobalt and is leading to specialist
companies entering the market.
China’s Long Game
In addition, the Chinese State Bureau of Material Reserves has increased it’s
stockpiling efforts since the start of 2015 and this is now limiting physical availability on
the market.
This longer-term trend alongside a more recent crackdown by Chinese authorities on
environmental pollution from domestic refiners, has limited available volumes on the
spot market.
“China now owns around 70 percent of the cobalt refinery business and doesn’t produce
much from a mining perspective, but these deals give Chinese companies control of a
more valuable part of the cobalt supply chain,
“Just how much cobalt is in stockpiles in China is the Million Dollar Question. Clarity
here can materially affect the cobalt price,” Berry said.
China Molybdenum announced earlier this year its plans to purchase Freeport
McMoRan’s (NYSE:FCX) interest in its TF Holdings Limited for $2.65 million which was
completed in November, despite efforts by state-owned miner Gecamines to block the
deal.
As early as next year, China could be producing approximately 62 percent of the global
refined cobalt production, increasing its demand by more than two-thirds over the next
decade. This will mean Tesla Motors could find itself heavily relying on China for cobalt
as they aim to increase production of electric cars in the coming years.
“The Chinese are playing the long game to tie up that angle of the battery supply chain,”
Berry added.
Companies to Watch
Earlier this year, Berry told INN that some of the junior cobalt companies that interested
him were Formation Metals, now eCobalt Solutions (TSX:ECS), that had gains of over
350 year-to-date and Global Cobalt (TSXV:GCO) that has been in the cobalt space in
2016.
Investors Takeaway
“Watch copper and nickel prices as sustainable increases here can mean more cobalt
on the market. Major cobalt producers like Glencore will wait for price signals in the

copper market before expanding production capacity there which will directly affect
cobalt production over the longer-term,” Berry said.
He also added that investors should be watching for finances as well as technological
advances in battery chemistry as there is a great deal of financial and intellectual capital
being put towards minimizing cobalt’s use in batteries.
“The real winners in cobalt will be those companies that can harness illiquidity and
volatility in 2017 and beyond,” he said.

Top Cobalt Stocks 2016: TSX Top Gainers
Fortune Minerals, eCobalt Solutions,
First Quantum Minerals and Lundin
Mining have registered gains in 2016.
Cobalt demand is growing. According to
research and consultancy firm CRU,
global consumption for refined cobalt
will reach 100,000 tons in 2017, with
demand to grow at an average rate of 5
percent annum for the next 10 years.
We took a look at these cobalt mining companies listed on the TSX who had positive
gains in 2016:
eCobalt Solutions (TSX:ECS)
eCobalt Solutions is focused on providing battery grade cobalt salts that are ethically
sourced and environmentally sound, produced safely and responsibly in the United
States. eCobalt’s primary asset is its 100 percent owned Idaho Cobalt Project (ICP)
located in Lemhi County, Idaho.
The company commissioned a feasibility study in September 2016, with the final report
expected in Q1 2017.
eCobalt’s stock has gained 580 percent in 2016.
Fortune Minerals (TSX:FT)
Fortune Minerals of London, Ontario, expects to benefit from the development of its
NICO Cobalt-Gold-Bismuth-Copper project, in the Northwest Territories. NICO, which is
comprised of a planned mine and mill and a refinery in Saskatchewan, is positioned to
become a Canadian producer of battery-grade cobalt chemicals with 1.1 million ounces
of gold and 12 per cent of global bismuth reserves as co-products.
More than $115 million has been spent by Fortune in advancing this project, and the
company has a positive feasibility study and environmental assessment approvals for
both the mine and concentrator.
Fortune Minerals’ stock has gained 316.67 percent in 2016.

First Quantum Minerals (TSX:FM)
First Quantum Minerals is a well-established and growing metals and mining company
producing mainly copper, gold, nickel and zinc. The Company’s assets are located in
Zambia, Spain, Mauritania, Australia, Finland, Turkey, Panama, Argentina and Peru,
and focuses on cobalt as a byproduct of its Ravensthorpe nickel mine. The mine
achieved commercial production on December 28, 2011 and is 100 percent owned by
First Quantum.
First Quantum announced comparative earnings of $38 million and cash flows from
continuing operating activities of $304 million for Q2 2016. The company also reported
that it ended the quarter with $895 million in unrestricted cash, $593 million in
committed, undrawn facilities, and a working capital of $553 million.
First Quantum Minerals’ stock has gained 221 percent in 2016.
Lundin Mining (TSX:LUN)
Lundin Mining operates in Chile, the USA, Portugal, and Sweden. The company
primarily produces copper, nickel and zinc, with cobalt as a byproduct.
The company holds a 24 percent stake in the world-class Tenke Fungurume copper-
cobalt mine in the Democratic Republic of Congo (DRC) and in the Freeport Cobalt Oy
business, which includes a cobalt refinery located in Kokkola, Finland.
In September, Lundin Mining updated its mineral resource and reserve estimates for its
Candelaria Mining Complex in Chile: total measured and indicated mineral resources
have increased to 689.0 Mt at 0.64 percent copper, from 643.6 Mt at 0.63 percent
copper in July 2015.
Lundin Mining’s stock has gained 68 percent in 2016.

5 Cobalt Producers Outside the
Democratic Republic
of Congo
Profiled here are Huayou Cobalt, GEM Co.,
Glencore International, Umicore, and
Sherritt International
The Democratic Republic of Congo (DRC)
accounts for roughly 60 percent of global
cobalt production, and has been the top
producer of the metal for some time.
However, the dangerous conditions in the
DRC have dubbed the country’s mined minerals as “conflict minerals” or “blood
metals.”
Mining in countries that are more politically stable is becoming an attractive policy, and
investors may start to look outside of the DRC for its cobalt resources as cobalt demand
for batteries amps up. With that in mind, here are five cobalt producers outside the
DRC.
Huayou Cobalt (SHA:603799)
Market Cap: $16.67 billion
Huayou Cobalt has the cobalt smelting capacity of about 16,000 tons and is China’s
largest cobalt producer. The enterprise focuses on the nonferrous smelting and deep
processing of cobalt. Their main products include cobalt tetroxide, cobalt oxide, cobalt
carbonate, cobalt hydroxide, cobalt oxalate, cobalt sulfate and cobalt monoxide.
Although it still depends on some mining projects in the DRC, it is branching out in
China to become a leading global supplier. The company expects that its ternary
precursor sales volume will reach 8,000-9,000 tons in 2016.
GEM Co. (SHE:002340)
Formerly Shenzhen Green Eco-manufacture Hi-tech, GEM held about 15,000 tons of
cobalt metal in 2015. A leading Chinese enterprise in renewable resources, the
company is principally engaged in the recovering and using of disused cobalt, nickel

resources and electronics, as well as the production and distribution of superfine cobalt
and nickel powder materials.The power battery materials recycling Center is China’s
largest manufacturing center of cobalt battery materials.
In 2012, Gem acquired Jiangsu, which is the largest producer of cobalt oxide and the
second largest producer of cobalt metal in China. Jiangsu produces cobalt oxide, lithium
cobalt oxide, cobalt chloride and cobalt carbonate through its smelting facilities. The
procurement has helped launch GEM into a leading position for cobalt production.
Glencore International (LON:GLEN)
Market Cap: GBP $29.15 billion
Glencore is one of the world’s largest global diversified natural resource companies and
a major producer and marketer of more than 90 commodities. The group’s operations
include approximately 150 mining and metallurgical sites, including copper, nickel, gold,
platinum, palladium, and cobalt. Their operation in Nikkelverk, Norway is the largest
nickel refinery in the western world.
Glencore’s refined cobalt output accounted for about 10 percent of global production in
2014, and reported that it had extracted 12.7 metric tonnes for the first half of 2016, a
27 percent increase compared to the first half of 2015.
Minara’s Murrin Murrin project is a major nickel-cobalt mining operation in the North
Eastern Goldfields in western Australia. The company also holds a large amount of
cobalt production in its Mopani mine in Zambia. With this in mind, it still relies on its
Mutanda and Katanga mine in the DRC for some of its cobalt.
Umicore (EBR:UMI)
Umicore refines cobalt for its Cobalt and Specialty Materials (CSM) division at its
facilities. The company has been refining and selling cobalt products since 1912, and
has more than doubled reported its output since 2010. Presently, the company
produces about 5,850 metric tonnes of cobalt a year and has mining operations in
Belgium, Canada, China, Shanghai, and the US.
Revenues for the company’s energy and surface technologies sector increased by 20
percent and 30 percent, respectively, in 2015. The report attributed this growth to higher
revenues in cobalt and specialty materials.
Sherritt International (TSX:S)
Market Cap: $249.80 million

Sherritt is a top 10 producer of finished cobalt, and its finished cobalt has a 99.9 percent
purity – somewhat above the current London Metal Exchange specification of 99.3
percent.
For Sherritt, cobalt is a byproduct of their nickel mining. Material is mined from two
ventures – Moa (Cuba) and Ambatovy (Madagascar) – and then shipped to Sherritt’s
Fort Saskatchewan facility in Canada for refining. Sherritt has a 50 percent stake in the
Moa Joint Venture and a 40 percent stake in the Ambatovy project.
The Moa Joint Venture is a vertically-integrated nickel and cobalt operation involving
three companies: The Cobalt Refinery Company (CRC), International Cobalt Company
(ICCI), and Moa Nickel SA.
The Ambatovy mine and refinery, which has put Madagascar on the world’s metal map,
began commercial production began in 2014. Ambatovy is still ramping up to a targeted
annual production of 60,000 tonnes of refined nickel and 5,600 tonnes of refined cobalt.
Sherritt reported that it had produced 1,952 metric tonnes of finished cobalt so far in
2016. The production amount is higher than originally estimated for the company.

Cobalt market forecast and cobalt stocks to buy

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Cobalt market forecast and cobalt stocks to buy

Similar to Cobalt market forecast and cobalt stocks to buy (20)

More from Chris Helweg

More from Chris Helweg (20)

Recently uploaded

Recently uploaded (20)

Cobalt market forecast and cobalt stocks to buy