Cobalt angst will turn carmakers into mine owners
Henry Ford left little to chance. To ensure raw materials reached his slick new production lines, the U.S. automobile pioneer owned everything from coal mines in West Virginia to rubber plantations in Brazil. It’s a lesson for successors like Elon Musk and Volkswagen boss Herbert Diess as they stake their futures on electric vehicles and hard-to-get battery metals like cobalt.
For EV makers, the blue metal is a double headache: it’s
likely to be central to lithium ion battery packs for the foreseeable future,
and three-quarters of it comes from a single, tricky place – the Democratic
Republic of Congo. For Western manufacturers like Tesla and VW, that’s an even
bigger pain: Chinese firms control well over half of cobalt output from the
chaotic African state, accounting for more than 40% of the 130,000-odd tonnes
mined globally each year. In the DRC, London-listed Glencore digs up most of
the rest.
Currently, manufacturers rely on long-term purchase
agreements for their cobalt, around 10 kilogrammes of which sits in the average
EV battery. However, the scramble for Covid-19 vaccines has shown this is not
without risk. The International Energy Agency thinks a carbon-free economy may
mean cobalt demand rising 30-fold, dwarfing this year’s 60% price spike. And
after falling victim to the global chip shortage, carmakers are hypersensitive
to supply chain snafus.
Contemporary Amperex Technology (CATL), a $138 billion
Chinese battery giant, took matters into its own hands last month when it paid
$137 million for a quarter of China Molybdenum’s Kisanfu copper-cobalt mine in
the DRC. This yields multiple benefits. First, CATL gets a say in who buys
Kisanfu’s cobalt, and in what quantities. Second, it can influence investment
and production plans, crucial given that cobalt is mainly a copper by-product.
And third, CATL acquires a handy hedge against cobalt prices going
stratospheric.
Rather than buying a chunk of $57 billion Glencore, the
equivalent for Musk or Diess could be stakes in DRC-focused subsidiaries like
its 75%-owned Kamoto Copper Company, whose Katanga mine produced 23,900 tonnes
of cobalt last year, or the currently shuttered Mutanda. If ownership alongside
the Congolese government looks iffy, a safer alternative might be Murrin Murrin
in Australia, which supplied a modest 2,900 tonnes of cobalt last year as a
nickel by-product.
Musk already has Ford-esque plans to unearth his own lithium
in Nevada and methane in Texas, for SpaceX rockets. It’s a logical extension to
do the same in Africa.
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