Cobalt Upstarts Add Capacity in Congo as Prices Triple
(Bloomberg) -- A little-known cobalt miner in the Democratic Republic of Congo plans to ramp up output so fast it will soon be out-produced only by industry leader Glencore Plc.
Chemaf Sarl, a closely held Lubumbashi-based company, and several other firms are capitalizing on a boom in demand that’s transforming small copper miners into major cobalt players, as refiners and automakers scramble to secure long-term supplies. Prices for the metal, used to make rechargeable batteries in electric vehicles, have more than tripled in the past two years.
New output from Congo means the supply of cobalt could exceed demand for a few years, as it did narrowly in 2017, Guildford, U.K.-based metals trader Darton Commodities Ltd. said in a February report. This surplus will become a deficit when an expected surge in electric-vehicle sales kicks in after 2020 because no new “meaningful” cobalt assets are expected to enter production in that period, according to Darton.
Chemaf is building a processing plant at its Mutoshi mine in Lualaba province that will open in September 2019 and six months later be capable of producing 20,000 metric tons of cobalt a year, Chairman Shiraz Virji said by email. Added to output from its existing Etoile mine, which was about 5,000 tons last year, that could make Chemaf the world’s second-largest producer.
Congo dominates output of the metal. Last year, the central African nation produced two-thirds of global supply, or 81,000 tons, according to Darton. Half of that amount came from the country’s two largest copper mines: China Molybdenum Co.-controlled Tenke Fungurume Mining and Glencore-owned Mutanda Mining.
The predicted rise in electric-vehicle production will require annual cobalt production of 314,000 tons by 2030, Glencore Chief Executive Officer Ivan Glasenberg said in December.
Congo’s market share is set to climb in coming years as both new and upgraded projects come on stream. Glencore will be responsible for much of the increase after investing in new processing facilities at its Toronto-listed Katanga Mining Ltd., which restarted production in December after a two-year hiatus. Katanga’s output will be as much as 34,000 tons a year from 2019, according to the Swiss commodity giant, making it the world’s largest cobalt mine.
Other miners also expect to start producing soon. Luxembourg-based Eurasian Resources Group Sarl’s Metalkol Roan Tailings Reclamation project is set to begin output later this year, eventually reaching a capacity of 21,000 tons a year. Shanghai-based Pengxin International Mining Co.’s Shituru Mining will also open a plant at the end of this year where capacity will reach 7,000 tons annually, according to a stock market filing.
Chemaf and Somika Sarl, another closely held Lubumbashi-based producer, are looking to expand operations as the global hunger for their deposits drives demand for the formerly unremarkable metal.
The companies’ founders, both of Indian origin, came to Congo more than two decades ago, acquiring copper-cobalt permits in the early 2000s as a ruinous civil war was coming to an end. At that time, cobalt was an obscure byproduct of copper and nickel mining, traditionally used to harden steel. Last year, the two companies exported a combined 47,000 tons of copper, about 4.2 percent of Congo’s production of more than 1 million tons.
Like Chemaf, Somika is also adding cobalt-processing capacity as it expands exploration on its concessions.
“Our group ambition is to be a stable producer of 60,000-plus tons of copper and 6,000-plus tons of cobalt per year from 2020,” Chairman Chetan Chug said in an interview.
Surpluses caused by new Congolese production may drive down the price of cobalt to as low as $44,000 per ton in 2020 and 2021, before a strong resurgence, according to consultant Wood Mackenzie Ltd.
“We see electric-vehicle sales, and therefore cobalt demand, starting to gain traction and a real deficit emerging in the market,” Gavin Montgomery, director of metals-markets research, said by email. “This will lift prices towards much higher levels.”
One potential drawback facing miners in Congo is a new law signed by Congolese President Joseph Kabila on March 9 that may result in royalty rates on cobalt export revenue rising five-fold to 10 percent.
If that happens, “it’ll be a challenge for all of us,” said Somika’s head of business development, Geoffrey Levy. “But the fundamentals for cobalt are strong and I’m optimistic prices will remain high.”
©2018 Bloomberg L.P.