The demand for lithium batteries is rising to unprecedented levels. The powerful batteries are already a staple of consumer electronics and are starting to penetrate new product markets like power tools and other everyday devices like razors and vacuums. However, the growth of electric and hybrid vehicles remains the primary catalyst of the booming lithium-ion battery demand. CRU Group, an independent analysis firm studying global commodities, predicts electric car and plug-in hybrid vehicle sales could hit 4.4 million in 2021 and more than 6 million by 2025, from 1.1 million last year.

China is also a key driver in this market since it has some very aggressive plans for electric vehicles as it looks to curb pollution levels in its large cities and meet the requirement of the Paris Agreement. For example, China’s Contemporary Amperex Technology Ltd. or CATL headquarters intends to produce more lithium-ion batteries than Tesla’s (TSLA) Gigafactory by 2020 and is expected to be the largest battery factory in the world. Furthermore, in March Beijing called for companies to double electric vehicle battery capacity by 2020 and encouraged them to invest in factories overseas. The hyperbolic demand is forcing manufacturers to find more of the raw materials needed in batteries, and one of the most sought after materials is cobalt.

Unprecedented Demand Searching for a Stable Supply

“If last year was lithium’s time, for 2017 cobalt may be the one receiving more attention,” says Colin Hamilton, Global Head of Commodities Research, Macquarie Group.

Over the past six months, the price of cobalt has more than doubled, rising to over $25 per pound, hitting five-year peaks. Roughly half of its current consumption goes into battery production. By contrast, lithium may only reach cobalt’s current levels on a five to 10-year perspective.

Cobalt is an essential material inside a lithium-ion battery allowing a vehicle or device to extend its range between charges acting as a positive electrode. A smartphone may contain five to 10 grams, where a single electric vehicle might require 15,000 grams. Manufacturers are especially pressed to secure the metal because 60% of the world’s cobalt is imported from the Democratic Republic of the Congo.

Concerns over the social and environmental impact of mining in the DRC is growing. The political situation in the country is tenuous as current President Joseph Kabila did not respect December 31st accords to step down and instead put in place a government dissident that could cause a political implosion and plunge the country back into unrest. In addition, human rights organizations are demanding that battery manufacturers secure all cobalt supplies from ethical mining sources outside of the DRC because of child labor accusations. A Washington Post feature depicted miners including children working hundreds of feet underground with no safety equipment or oversight. The same feature indicated that these same mining communities are contracting breathing problems and birth defects because of exposure to toxic metals. LG Chem, a leading Korean battery maker who operates in Michigan, stopped purchasing cobalt from the DRC. Apple has started to investigate and pay more attention to the cobalt coming from the DRC and might be forced to cut off its supply entirely, if activists have their way.

It is not unthinkable that cobalt from this region could be restricted, since a 2010 U.S. law requires all American companies to verify tin, tungsten, tantalum and gold as not sourced from militia-held regions in the DRC because confirmed human right abuses by the militias. Apple and advocacy groups now support cobalt being added to that list of restricted metals. Tech companies and automakers, especially Tesla who has maintained that they want every piece of their vehicles to be “ethically sourced,” could be forced to separate themselves from the DRC because the “conflict metal” optics fly in the face of lithium as a truly “green” energy option.

A New North American Cobalt Market on the Horizon

However, there is no way around using cobalt and lithium-ion batteries are now ubiquitous and fully embedded into technology. This swelling appetite for cobalt has created a scramble and estimates by CRU expect demand to outstrip supply by 900 tonnes this year, while Tesla Model 3 preorders alone have already hit 400,000. The answer for many manufacturers is to turn to new miners and producers in North America with guaranteed ethically sourced cobalt.

Currently, there are few companies that are pure cobalt producers outside of China, but one of the few, Cruz Cobalt Corp. (CUZ:CA)(BKTPF)(FBR02:FSE) is positioning itself as the North American answer for automakers and lithium-ion battery manufacturers.

This flooding demand for cobalt was no secret for Cruz Cobalt and their team. The company began acquiring high-grade cobalt prospects across North America long before the current situation had come to pass.

“We’ve always prided ourselves on trying to be ahead of the curve, so we wanted to look at what we felt would be the next battery focus metal,” said James Nelson, President of Cruz Cobalt. “Looking at the battery components, it was cobalt that really piqued our interest because, at that point very few were focused on it. There has not been any new production in 45 years in North America and the demand has been in equilibrium for years. The vast majority of the cobalt production is based in the DRC and anytime there is that much concentration in one place it sets up for price shocks. Also, now there is a significant exponential demand assumed from the battery market. Based on these factors we looked at the whole dynamic of what moved lithium, and determined cobalt had to work. At that time cobalt was trading under $10 and not many juniors were searching for cobalt.”

Thus far, Cruz owns nine properties throughout North America with high potential and promising historic drilling data. With the summer months approaching and snow gone, Cruz expects be very active on its properties.

  • Four prospects in Ontario, including:
    • The Coleman Cobalt Prospect: The property consists of approximately 900 contiguous acres in the Larder Lake mining division and appears to be an extension of the Tretheway veins. According to the Province of Ontario mineral file, returned grades of up to 13% COBALT.
    • The Bucke Cobalt Prospect: The property consists of approximately 1480 contiguous acres, also in the Larder Lake mining division. The property returned assays grading up to 13% COBALT and 240 g/t SILVER on this cobalt-focused prospect.
    • The Johnson Cobalt Prospect: The property consists of approximately 900 acres in the Kirkland Lake mining district, and returned assays of over 300 metres grading up to 10.5% COBALT, 69 g/t AG, 12% NI and .4% CU.
    • The Hector Cobalt Prospect: The property consists of approximately 5,500 acres in the Larder Lake mining division of Ontario and covers multiple cobalt occurrences
  • Three Prospects in British Columbia, including:
    • The War Eagle Cobalt Prospect: According to a Province of British Columbia Mineral file, the property encountered samples of up to 6.41% COBALT, 3.59% nickel and 7.25% copper.
  • One Prospect in Idaho:
    • The Idaho Star Cobalt Prospect: The property is located approximately nine miles southwest of Saltese, Montana, and 19 miles southeast of Wallace, Idaho. This prospect consists of 44 contiguous claims within the prolific Idaho cobalt belt. Geological data gathered shows the area to have been active for mining of cobalt, silver and copper in the past, which was the reason for the acquisition.
  • One Prospect in Montana:
    • The Chicken Hawk Cobalt Prospect: Located in Deer Lodge county, the property consists of 64 contiguous lode claims covering approximately 1,300 acres. The 64 claims surround 4 patented claims, no less than 15 unclaimed prospects, and 3 unclaimed adits.

With the boom now underway, Cruz represents a player in a market that could be transforming because of tight supply dynamics.

“If you are a buyer of cobalt, supply conditions in DRC are your most concentrated risk,” Hamilton from the Macquarie adds. “However, eventually we could end up with a two-tier cobalt market, with a non-DRC cobalt segment commanding a premium.”

As global demand continues its surge, a reliable and clean supply of North American cobalt would be a godsend to many tech companies like Tesla with thousands of orders to fill. The company would have the material it would need without compromising its business values and ethics. Broadly speaking, a strong reliable cobalt producer in North America would be a game-changer in the current market, where the metal is so important to enabling the battery longevity we now require on our technology.

“With this growth will come further disruption to the traditional market structures that have developed in cobalt over the last 30 years,” remarked Andrew Miller, from Benchmark Minerals. “In short, a new, more secure supply chain for the modern era will need to be created, a task that includes new mines, new refineries, and more transparent supply chain.”

North American cobalt companies like Cruz Cobalt could be standing at the precipice of a new market happening at the right place and the right time.


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