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Bidders for $500m Canada streaming deal as cobalt price surges–report

Voisey’s Bay port site, Newfoundland and Labrador. Image: Vale

Cobalt prices have been one of the main beneficiaries of the scramble for battery materials by auto manufacturers.

The metal quoted on the LME recently topped $80,000 a tonne, a gain of 140% since the beginning of last year. Measured from its record low hit in February 2016, the metal is more than $50,000 more expensive.

Negotiating a price for a streaming deal could be complicated by the limited size of the overall market

Annual production of the raw material is only around 100,000 tonnes with the bulk coming from the Democratic Republic of the Congo, where fears about political instability and the challenges of ethical sourcing combine to supercharge supply concerns.

The supply picture is further complicated as nearly all cobalt produced globally is as a byproduct of copper and nickel mining which slows down project development and supply growth despite unprecedented demand.

Reuters reports Tuesday Vale has hired Canada’s Bank of Montreal to raise around $500m from bidders for cobalt that will be produced at the Brazilian giant’s Voisey’s Bay nickel mine in eastern Canada, citing four sources. Vale is extending the nickel mine underground to extend the life of the mine to 2035, but depressed nickel prices have slowed development.

Such a streaming deal – making an upfront payment in exchange for future production – is common on precious metals markets but would be the first of its kind for cobalt.

Negotiating a price for a streaming deal could be complicated by the limited size of the overall market. The Voisey’s Bay deal would only be for around 3,000 tonnes of cobalt per year according to the Reuters report.

“No one has done a cobalt streaming deal before and how you price it, given that it is not a liquid market, is very difficult,” the source said.

“But because cobalt is in short supply and there’s a squeeze in anticipation of a surge in demand for electric vehicles, then you’ll get interest.”

Surging cobalt price $500 million cobalt streaming deal

No shortage of interest

In December luxury vehicle maker BMW said its needs for car-battery raw materials such as cobalt and lithium will grow 10-fold by 2025 and that it had been surprised at just how quickly demand is accelerating. Automakers including world number two Volkswagen have been scrambling to secure long term supply contracts, with little success.

Apart from automakers and battery manufacturers other players could be bidders for a deal with Vale.

Top cobalt miner Glencore (LON:GLEN) and Canada’s third largest pension fund launched a base metals royalty firm named BaseCore Metals in December while precious metals streaming companies such as Wheaton Precious Metals and Franco Nevada may also be interested in diversifying.

Canada’s Cobalt 27 Capital has been successful in raising additional funds to build its cobalt stockpiles since listing in June last year providing “a way for investors to speculate on the price of cobalt, plain and simple” according to the Toronto-based company’s CEO.

Luxury vehicle maker BMW said its needs for car-battery raw materials such as cobalt and lithium will grow 10-fold by 2025

Apart from stockpiles Cobalt 27 also has options on early stage cobalt projects in Canada and elsewhere, but Cobalt 27 CEO Anthony Milewski recently told the company’s next deal would probably for a producing asset.

According to S&P Global today six of the top 10 cobalt mines are in the DRC. Due primarily to Chinese investment by 2022 the central African nation will host the nine largest cobalt producers. China also dominates cobalt metal refining and the country’s production of cobalt chemicals now constitutes 80% of global output.

Glencore in December announced it’s restarting production at its Katanga copper and cobalt mine in the DRC which would double its production to 60,000 tonnes in 2019.

Glencore in December commissioned a study to measure the impact of the booming EV and energy storage market would have on mining.

Based on an EV market share of less than 32% in 2030, forecast metal requirements are roughly 4.1m tonnes of additional copper (18% of 2016 supply). The move away from gasoline and diesel-powered vehicles would need 56% more nickel production or 1.1m tonnes compared to 2016 and cobalt supply would have to triple to 314,000 tonnes.