Europe needs way to price critical minerals independently of China, group says
Oversupply and weak prices of materials such as lithium, cobalt and rare earths are dampening cash flows of Western start-ups.
Global mined cobalt production showed a slight drop last year to 115,071 tonnes from 116,272 tonnes in 2016. The majority of cobalt supply is sourced from copper-cobalt operations in the Democratic Republic of the Congo (DRC) with the bulk of the remainder being attributed to nickel-cobalt operations worldwide.
The reduction in supply in 2017 was driven in large part by the loss of production from Lubumbashi Slag Hill, resulting in an overall reduction in output from the DRC. Supply risks are associated with the dominance of the DRC in cobalt supply, however these risks must be managed as there is no region that can match output from the DRC. We expect mined cobalt supply to increase at a CAGR of 12% to 2021 with the majority of the growth from formal mining operations in the DRC.
Production from up-coming significant cobalt supplier Kamoto (Glencore PLC) had not restarted during 2017. While copper production began slightly ahead of schedule at the end of 2017, cobalt supply started in Q1 2018, with the cobalt circuit beginning production in the final month of the quarter.
Lubumbashi Slag Hill ceased production during 2017 following a dispute between Groupe Forrest International, Gecamines and Shamrock Global Inc. The dispute resulted in the Group Forrest-owned Groupement du Terril de Lubumbashi, or GTL, losing access to feed for its pyrometallurgy plant, which has a capacity to produce up to 5,500 tonnes of cobalt. The dispute threatened to halt cobalt supply from the operation until the 2020s. In May this year, however, Gecamines and GTL agreed a settlement whereby GTL transfers full ownership of the pyrometallurgy plant to Gecamines. GTL also agreed to undertake required repairs to the plants furnace. With repairs required for the furnace — production from the operation is not expected to resume until 2019.
Etoile, owned by Shalina Resources Ltd, produced 5,000 tonnes of cobalt and is increasing its output of cobalt significantly in 2018. Shalina subsidiary Chemaf SPRL (Shalina) will also be introducing a new source of cobalt through a Solvent Extraction – Electrowinning, or SX-EW, plant at Mutoshi producing up to 16,000 tonnes of cobalt.
Vale’s Voisey’s Bay showed a significant increase in cobalt production as processed cobalt grades and recoveries increased. Vale also announced a cobalt-steaming agreement with Wheaton Precious Metals Corp. and Cobalt 27 Capital Corp., providing Vale an upfront US$690 million. Subsequent to its streaming announcement, Vale also announced that the previously postponed plan to expand the Voisey’s Bay operation with an underground mine had now been approved. This provides a significant source of cobalt from outside the DRC beyond 2021, with the mine life potentially extending into the 2030s.
Mine life potentially extending into the 2030s.
The DRC is currently the source of over 60% of global mined supply of cobalt. The Herfindahl-Hirschmann Index (HHI) is used to indicate the amount of competition amongst companies in an industry. We have applied this methodology to determine how concentrated the cobalt market is in terms of mined and refined supply by geographic region.
The HHI value indicates that the mined supply of cobalt has been concentrated since 2009 (a value over 0.25 indicates a concentrated market) and this is only going to increase with new production coming online in 2018-2020. However, since 2016 the country has being experiencing increasing political and social unrest in response to Presidents Joseph Kaliba’s refusal to step down from office, in addition to inter-ethnic hostility. While this unrest has not had a significant effect on the historically restive Lualaba and Haut-Katanga provinces hosting the Roan copper-cobalt belt, there has being lingering concern that the violence and disturbance could spread throughout the country. The elections have been scheduled for December 2018.
However, aside from the social risks surrounding the elections, companies are seeing the risks of operating within the DRC realized with the revision of the Mining Code. Amongst the controversial features of the code are the increase in royalties of base and precious metals from 2.0-2.5% to 3.5%, the introduction of a royalty for “strategic minerals” of 10% (cobalt has been designated as a strategic mineral), and a super profits tax. However one of the biggest factors rattling miner’s confidence is that existing stability clauses, protecting them from changes for 10 years, are being ignored.
The risk of cobalt being supplied from child labor in artisanal mining has been a widely publicized risk since early 2016. Artisanal mining in general is widespread in the DRC for numerous commodities. We’ve estimated that the proportion of artisanal cobalt from the DRC has been relatively high in recent years — up to 21%. However with the ramp-up of large scale industrial mining we expect the proportion of artisanal sourced cobalt to reduce relative to the total. There are contradicting indicators for the outlook on artisanal cobalt production. One being the increased demand and value of cobalt, and the other being international pressure to prove that cobalt being used in products is ethically sourced.
With this in mind, the DRC government is intending to use the experience it gained tackling child labor in the diamond industry and apply these learnings to the copper-cobalt industries. A program used in the diamond industry to move artisanal mining operations to small scale industrial co-operatives may be used.
Although the DRC government claims that child labor has been eliminated from copper-cobalt mining, end-use manufacturers are putting in place assurances to guarantee that “their” cobalt is ethically sourced. This includes attempts to acquire cobalt directly from a miner and utilizing blockchain technology to provide a secure chain of custody record. However these attempts would surely be undermined by the fact that the majority of cobalt — particularly for the battery industry — is purchased, mixed and processed by Chinese refiners. This makes tracking artisanal cobalt more difficult. It should be noted, however, that while artisanal mining is not an insignificant source of cobalt, the vast majority of cobalt is sourced from multinational commercial mining.
Even if the controllable risks are managed effectively, and assuming the upcoming elections run without disruption and dispute, the fact that such a large proportion of cobalt production is sourced from one geographic region still gives cause for concern that supply could be disrupted through non-controllable events, such as natural disasters, or regional disruption that could affect supply lines.
Such a large proportion of cobalt production is sourced from one geographic region still gives cause for concern.
This is also true for the supply of refined cobalt, where China is the dominant supplier. China’s policies are encouraging investment in the electric vehicle (EV) sector, not only in the design and manufacture of EVs but also in the development and manufacture of lithium ion (Li-ion) batteries and their constituents. With a HHI value of over 0.37 the geographic supply of refined cobalt is very concentrated. China has been the largest supplier of refined cobalt since 2004, and has increased its market share almost continuously since. Chinese capacity was increased by over 50% in 2017, from 45,000 tonnes to over 69,000 tonnes. With this increase, China now supplies the majority of refined cobalt globally.
The supply of cobalt is set to increase significantly over the next five years. Growth is expected in the copper-cobalt sector in the DRC, with some significant producers expecting to come online and some existing suppliers increasing their output. A large proportion of existing and new copper production in the DRC utilize SX-EW. Copper is produced as cathodes, and cobalt is precipitated from the solution as cobalt hydroxide.
The Kamoto project ceased operation in 2015 as a new processing system was put in place, Whole Ore Leach, and the operation focused on waste development in preparation for restart. The cobalt production has restarted this year towards the end of the first quarter. The reported production for the month of March was over 500 tonnes. When at capacity, the operation will supply over 30,000 t/y of cobalt, which represents over 25% of 2017 global production. Cobalt production from this operation is in the form of cobalt hydroxide.
The Metalkol RTR, Roan Tailings Retreatment, project is located outside Kolwezi in the DRC. The operation will process tailings dumped from mining activities in the 1950s. Metalkol will produce about 300,000 t/y of copper as well as 20,000 t/y of cobalt. Processing will be via SX-EW, and this will produce cobalt in the form of cobalt hydroxide.
The Mutoshi project is owned by Shalina Resources subsidiary, Chemaf. Located outside Kolwezi, the project is under construction and is expected to enter production in 2019. The operation will utilize SXEW processing and has reported that the plant will produce up to 16,000 t/y of cobalt contained in hydroxide.
Jinchuans Musonoi project will be an underground mine, once again, outside Kolwezi. Copper-cobalt production from Musonoi may be in the form of a bulk concentrate for export, or the concentrate may be calcined to feed an SX-EW plant. If exported as a concentrate, cobalt metal will be produced at a refinery. If processed through an SX-EW plant, cobalt hydroxide will be the end product to be exported. The operation could produce between 7,500 and 10,000 t/y of cobalt.
With the rapid increase in the cobalt price over the past two years, and the increased global demand from EVs, there has been intensified focus on cobalt exploration worldwide. Data for 2017 showed that cobalt had the largest increase in budget exploration expenditure both in the DRC and elsewhere. In addition to the increased focus on exploration, there are a number of promising projects with the potential to enter production in the short term.
The Idaho cobalt-copper-gold project is located in the U.S. and aims to supply the local industrial market. The mine is expected to produce about 1,500 t/y of cobalt as cobalt sulfate. The operation will be an underground mine producing cobalt, with copper and gold as by products. Much of the copper production will also be in sulfate form, with the main end use being in agriculture. A premium is expected to be received for the sulfate product, however there has been little indication that sulfates are actually commanding a premium in the market place. The project is expected to enter production in 2019/2020.
The Nico cobalt-gold-bismuth-copper project is based in the North West Territory of Canada. The project requires that an all-season road be built from a main highway to the nearby community to allow for the transport of concentrates from the mine — the company has approvals in place to build a spur road from the mine to link with to the all-season road. The initial intention was to transport concentrates from the mine to a new processing plant in Saskatchewan to produce cobalt sulfate, however in light of significant interest by global mining and refining companies in purchasing concentrate direct from the mine, the company is also now considering deferring the construction of the refinery, reducing development capital expenditure by about 50%. The project is expected to produce about 1,700 t/y of cobalt when it enters production, potentially in 2020/2021
Formally called the Syerston project, this project is a potential producer of nickel and cobalt sulfates. A definitive feasibility study is expected this month which will include a significant increase in refinery capacity, potentially increasing production to 7,000 t/y. The project is located in New South Wales in Australia and is projected to begin operation in 2020/2021.
As the metallurgy of cobalt projects around the word differ from the DRC, the form of cobalt being produced is inevitably varied. Traditional sulfide projects generally sell concentrates to smelters and refiners producing metal, nickel-cobalt laterite operations utilizing high pressure acid leaching (HPAL) generally produce either cobalt hydroxide or carbonate, again frequently further refined to metal. However, some of the newer projects producing cobalt outside the DRC are intending to produce a cobalt sulfate.
While all the cobalt products can be processed for the manufacture of the cobalt chemicals used in batteries — cobalt metal needs the most processing, requiring both mechanical breaking down of briquettes or broken cathodes into powder and chemical conversion to the required cobalt chemicals. Cobalt hydroxide is already in a chemical salt form and can relatively easily be converted to other chemicals.
Cobalt sulfates are the most ideal form for battery manufacturers, requiring the least amount of processing prior to fabrication of the battery cathode. While production of cobalt sulfates would be possible at mine site processing plants in the DRC, the product is hygroscopic and so will absorb water from the atmosphere, making transport over long distances difficult. The areas where sulfate production is considered, however, are in North America and Australia, which are closer to their battery manufacture end markets, Asia and North America, than the DRC.
As evidenced by the significant upcoming projects, cobalt supply will increase significantly over the five years from 2017 with a CAGR of over 12% to 2021. Much of the upcoming supply is being sourced from the DRC, which holds the largest reserves by a large margin.
There is very little likelihood that the DRC will cease to be the most important source of cobalt globally. Indeed, there is significant scope for production to be ramped up in the DRC, and with responsible management of the resource by government, producers and traders, this could be very beneficial for the local community.
The DRC alone has the ability to produce cobalt at the forecast 2018 levels every year for over 30 years with its current reserves. However the longer term outlook for cobalt supplies remaining dependent on the DRC is even starker when including the country’s resource base — which could possibly be converted to reserves under the correct market conditions. The DRC alone contains about 50% of both global reserves and resources. The remaining 50% of reserves and resources are geographically diverse, with no region in a position to replace production if supply is disrupted from the DRC.
Current battery technology is being developed to minimize its cobalt content, and future, cobalt-free technologies are expected to be developed over the next 10 years. While supply risks to cobalt continue to be a hazard to industry, there is significant upside to production that can be realized before supply risks becoming constrained in the short or medium term. The risks being realized to cobalt supply remain political and social in nature, and these are risks that can be managed over time.
