Most investors are aware that there is an increasing demand for lithium-ion batteries, but the majority will overlook the fact that one of the main ingredients in these batteries is cobalt. That said, there are a number of companies who have clued in and are now starting to look outside of the Democratic Republic of Congo for a more secure source of cobalt. Why? Because the DRC is linked to corruption and instability.
“I think cobalt is the most critical of the battery raw materials,” says Simon Moores of Benchmark Market Intelligence. He adds, “I don’t think it’s necessarily the most important. I think that’s actually lithium. But cobalt, really, because 66% comes from the DRC, then you’ve basically got a very lopsided industry from the supply perspective.”
Moores has stated that if there were to be any issues with the delivery of the critical metal, this will cause problems down the road for manufacturers such as Apple (NASDAQ:$AAPL) and Tesla (NASDAQ:$TSLA).
The Midas Letter has already considered cobalt as a choke point to lithium battery output for a number of years as it has a connection to Cruz Cobalt Corp. (CVE:$CUZ), one of the few companies in Canada to mine cobalt. James Nelson, CEO of Cruz Cobalt Corp., has stated that the Canadian company would like to enhance their position as a cobalt-focused junior.
Over the course of the past several weeks, Cruz Cobalt Corp. has expanded its holdings of the critical metal. They did so because they anticipate an inescapable squeeze in supply which will drive cobalt prices up. Cruz disclosed that they have increased their property holdings by 36 claim units from the original 1.25 units. They now have roughly 1,480 adjoining acres.
One of the main reasons that companies have started to look outside of the DRC for cobalt is because there has been a considerable amount of pressure from human rights activists around the world. These human rights groups have pointed out that there is the use of child labor in the DRC and they have been relocating villages without consent. As of right now, the DRC is ranked 4th in the world by Verisk Maplecroft, which is a global risk analytics and strategic forecasting company in the United Kingdom. According to Verisk Maplecroft, cobalt is on its way to becoming the world’s next “conflict” mineral.
Many speculate that an increase in supervision over the Congo’s mining industry could cause companies to have an increase in costs due to reputational damage and the need to have additional reporting. That said, regulations that already exist have proven to be difficult when it comes to enforcing, thus making them unlikely to impact the industry.
According to Moore’s’, the added risk acts as a “corporate social responsibility” problem which is likely to see battery manufacturers prefer cobalt that is sourced outside of the DRC. In regards to Cruz Cobalt, this suggests an opportunity that few junior miners have been able to benefit from.
“Any problems, geopolitical or otherwise, within the Congo and/or China, will definitely affect the rate at which cobalt is produced,” says Nelson.
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