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Cobalt Mining & Cobalt Demand

Cobalt is an element that has many diverse and critical uses.  In most applications, substitution for cobalt yields lower product performance.  Below are cobalt’s most common usages.

2008 Global Cobalt Use(1)	% of Market
Batteries - Cell phones, computers, hybrid vehicles, portable tools, etc.	23
Super Alloys - Turbine blades, mainly jet engines	23
Chemicals - Includes pigments and dyes	24
Wear Resistant Alloys - Hard facing and cobalt carbide	15
Catalysts - Includes Gas-to-Liquid conversions	8
Magnets - High performance applications	7

Cobalt in rechargeable batteries is the fastest growing use, and notably in 2007 the percentage of cobalt use for rechargeable batteries rose to 23% of total cobalt demand.  Nickel metal hydride and lithium-ion batteries both contain cobalt and are used in hybrid electric vehicles (HEVs), computers, cell phones, portable tools, audio/visual units, and numerous electronic devices.  The fastest growing segment of battery applications is for HEVs, which reduce air pollution and fuel consumption by at least 50% compared to conventional vehicles.  The HEV “plug-in” option is even more environmentally friendly, and includes an extra cobalt-bearing battery that can be charged from electrical outlets and achieve fuel economies that exceed 100 miles per US gallon.  In the US, roughly one-third of all CO2 emissions come from transportation sources.

The Toyota Prius HEV was named 2004 Motor Trend Car of the Year and 2005 European Car of the Year.  The one millionth unit was sold in April 2008, and Toyota estimates sales of one million hybrid vehicles annually "as early as possible in the 2010s".  In the next few years, the Company plans to offer all Toyota and Lexus models as hybrids.  General Motors, Ford, Daimler-Chrysler, Mercedes, and others are attempting to catch up with Toyota’s hybrid success.  Nearly all current HEVs use nickel-metal hydride batteries that contain about 22 pounds of nickel and 3 to 5 pounds of cobalt. Lithium-ion batteries containing 5 to 7 pounds of cobalt and little or no nickel are expected to dominate future HEV markets because they charge in minutes rather than hours and offer many other economic and technical advantages.  Global production of HEV’s in 2007 was about 400,000-500,000 units, and is estimated to increase to 8 million units by 2015(2), thereby increasing annual cobalt demand by nearly 22,000 tonnes/year.  In 2006, the world produced 69 million conventional cars and light trucks, and is expected to produce over 80 million units by 2015.  According to JP Morgan Securities, the total number of electric cars will rise to nearly 13 million by 2020, representing a CAGR of more than 12% for the 2008-2020 period.

Cobalt Supply and Demand

The cobalt market is dynamic but small in comparison with other base metals. Consumers purchase cobalt through negotiated agreements, bids, and open markets from producers, traders and to a lesser degree, government stockpiles and private inventories. Approximately 48% of the world’s 2007 cobalt mined was a byproduct of nickel from sulfide and laterite deposits. An additional 37% was produced as a byproduct of copper operations, mainly in the Democratic Republic of the Congo (DRC) and Zambia.  The remaining 15% of cobalt mining came from primary producers.

Several new projects are deemed to be sufficiently advanced and financed to produce significant quantities of cobalt in 2010-11 (mainly as a byproduct), including those listed below.  However, until that time cobalt demand may exceed production due to limited new production and the absence of stockpiles.  Additional projects may also come on stream in the intermediate term, however political and logistical issues in the DRC may endanger the viability of some of the larger projects.

Major New Projects	Start Up Year	Country	Annual Prod. Cobalt Tonnes
Tenke Fungurume	2009	DRC	4,000
Talvivaara	2009	Sweeden	1,000
Katanga	2010	DRC	2,000
Kamato	2010	DRC	1,000
Weda Bay	2010	Indonesia	1,000
Goro	2010	New Caledon.	1,500
Ambatovy	2011	Madagascar	3,500
Formation Metals	2011	USA	1,000
Ravensthorpe	2012	Australia	1,000
KOV	2012	DRC	1,000
Ramu	2013	PNG	1,000
Nama	2013	Zambia	2,000
Mukondo	2013	DRC	1,000
Boleo	2015	Mexico	1,000
Total	n/a		22,000

Cobalt consumption in 1995 was only 24,000 tonnes, but grew to 60,800 tonnes in 2008, for a compound annual growth rate (CAGR) of 7.4% for the 13-year period. 

Geovic's preliminary estimate for 2009 world demand is 52,600 tonnes, or a 13% decrease from 2008 demand, principally due to the impact of the global economic crisis in the first half of the year.  On the supply side, Geovic estimates that 2009 cobalt production will fall by approximately 5% compared to 2008, to around 53,000 tonnes. 

In the chart below, actual world supply and demand data from external sources are used through 2008, whereas the projections from 2009 through 2015 are based on an 11% CAGR (principally due to the "catch-up effect" following the aforementioned significant demand decline in 2009).  The combination of production from existing mines and new production is expected to yield 10% CAGR between 2008 and 2015, however the aforementioned demand growth is expected to yield a relatively tight supply/demand balance during that period. 

World Cobalt Supply

Source: Actual supply and demand by USGS, The CDI and other independent research groups. Projections after 2008 were developed by Geovic.

Roskill Consulting, an international group that researches mineral industry information, estimates growth in demand by 2011 in a most likely case to be 72,500 tonnes(3). However, this forecast could be considerably understated given the exponential growth in batteries for hybrid vehicles and new demand from emerging markets such as China and India.

Global cobalt consumption by country and the increase for the four-year period ending 2006 is shown below(4).  Unfortunately, this is the last year such data was published by the USGS.

Tonnes Cobalt  

The table below shows approximate production of refined cobalt and reserves and resources by country.

Refined Cobalt Production in 2009 & Reserves(4).

Country	Mine Production	Tonnes x 1000 Reserves	Tonnes x 1000 Reserve Base*
Australia	6,300	1,500	1,800
Brazil	1,000	29	40
Canada	5,000	120	350
China	6,200	72	470
DRC	25,000	3,400	4,700
Cuba	3,500	500	1,800
Morocco	1,600	20	n/a
New Caledonia	1,300	230	860
Russia	6,200	250	350
United States	0	33	860
Zambia	2,500	270	680
Other	3,200	180	1,100
Total	62,000	6,600	13,000
*includes reserves plus measured and indicated resources

There are no published statistics on world use of cobalt scrap, but the USGS estimates 2006 U.S. scrap consumption was about 25% of reported US consumption.

Prices
Cobalt prices fluctuate significantly in response to world events and changes in the overall supply/demand balance.  Historically, cobalt prices have had limited transparancy, although quotes can be found from sources such as Platt's Metals Bulletin and www.minormetals.com.  On February 22, 2010, the London Metals Exchange (LME) plans to launch the first-ever cobalt futures contract, which should materially improve such transparancy.

As of February 2010, the 3-year and 20-year average prices of 99.8% cathode cobalt are approximately $28/lb. and $18/lb, respectively.  

Footnotes
Much of the project and cobalt market data in this report were obtained from the four sources below:

(1)The Cobalt Development Institute, www.thecdi.com.
(2) Credit Suisse Metals & Mining report, 04-02, Avicenne 2009
(3) The Economics of Cobalt, 11th Ed., 2007 by Roskill Information Services Ltd., www.roskill.co.uk
(4) USGS website, http://minerals.usgs.gov/minerals/pubs/ commodity/cobalt/.

References
Cobalt market data, publications and related services may also be obtained from other
sources, including:

• SFP Research - www.sfp-metals.co.uk
• The CRU Group - www.crugroup.com, or www.crustrategies.com
• GFMS Metals Consulting Ltd., www.gfms-metalsconsulting.com
• World Bureau of Metal Statistics, www.world-bureau.com
• Mineweb - Manganese: The Unsung Hero-http://www.mineweb.com

Disclaimer
This document contains certain forward-looking statements and projections estimated by Geovic personnel regarding future production, metals markets, competition, capital spending, earnings, cash-flow, commodity prices, resources and other considerations. The statements are based upon Geovic’s current expectations and beliefs, and are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from those presented herein. Any use of this document is at the sole risk of any party that so relies.

 

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