Cobalt blues, all right

A slumping cobalt price is further damaging the valuations of selected miners in the nickel and copper sub-sectors.

Author: Barry Sergeant
Posted:  Friday , 08 Aug 2008

JOHANNESBURG  - 

 

Cobalt metal, produced mainly as a byproduct by, in particular, primary copper and also nickel miners, continues to be sold down, in line with the general sell off of commodities. Cobalt traded above US$50/lb, said to be 30-year highs, in March this year, but has since fallen some 40% to around US$31/lb, based on the latest spot market transactions.

BHP Billiton, the world's largest diversified resources stock, and a major cobalt producer, is currently offering cobalt at US$32/lb on its open sales system, established to at least partially counter much of the opaque trading in the metal. The Democratic Republic of the Congo is by far the biggest country producer of the metal, with 2007 output equal to the combined production of cobalt by Canada, Australia and Zambia.

While commodity prices have in general been cooling since mid-May, with an acceleration seen since mid-July, falls have varied widely by degree. Seen over the past 12 months, dollar nickel metal prices have halved, from highs, and copper is off by some 14%. Cobalt, however, is a far smaller metal by tonnage, and thus far more price responsive to changes in supply and/or demand when big producers enter or exit the market, and even more so when cobalt is regarded as a byproduct.

Global annual production of copper runs at around 22m tons; nickel is at a far more modest 1.8m tons, and cobalt, just 60,000 tons or so. Output of cobalt, used in batteries, super alloys, catalysts, metallurgical (hard metals), pigments, soaps, adhesives, and magnets, has been increasing rapidly from brownfields copper-cobalt mines in the DRC and Zambia.

In a report published by Renaissance Capital in February this year, global cobalt output was projected to rise from around 60,000 tons this year to nearly 160,000 tons in 2018. Production outside the DRC and Zambia is expected to decline over the period, leaving those two countries more than responsible for the increase.

Renaissance Capital cautioned that its projections may be negatively impacted by potential power supply problems in the broader region, but said that the majority of new supply is planned to come on stream in 2009-2010. The cobalt price was projected as falling to around US$10/lb by 2012.

The prevailing damage to prices is likely to affect the valuation of mines and projects in the copper-cobalt deposits in the DRC and Zambian copper belt, including mixed ores, slag and tailings; nickel sulphide deposits in Russia, Australia, Canada and Finland, and laterite (oxide) nickel deposits in Australia, Russia, Cuba and New Caledonia.

The major contributor to recent price damage, on the supply side, is the Mukondo mine, located in Katanga Province, DRC, and majority owned and managed by London-listed Camec. After a shut down for more than a year, following a dispute, Mukondo was restarted late in 2007. Camec anticipated building up to 8,000 tons a year of concentrate contained cobalt by March 2009, and 12,000 tons by March 2011.

In the copper market, even Mukondo's build up to 8,000 tons a year of cobalt would be tantamount to commissioning and building to full production, not one Escondida, the world's biggest single copper mine, but two, in the space of little more than a year.

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Jean-Louis Kayitenkore
Procurement Consultant
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