Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Zinc and cobalt often fall into that esoteric metals category called byproduct, meaning they are generally an afterthought for miners who are keen at getting at, say, nickel or copper deposits. Still, both metals are being increasingly targeted for their use in growing markets, such as rechargeable batteries for electric cars.
Now, the big issue for cobalt these days is that much of it – almost 45% of the world’s supply – is mined in the Democratic Republic of Congo, a country enscounced in a cival war, one where both sides are using metals such as tantalum and cobalt to fund their armies. Global backlash has been mounting, although it’s no secret that China has no qualms about traipsing through the country to bolster its own inventories with cheaply priced metals.
To some degree, this development has been offset by last year’s decision to include cobalt on the London Metals Exchange, which brings with it a certain amount of transparency and regulation.
This is further underpinned by the U.S. government’s recent decision to derail the DRC cobalt market by advocating homegrown cobalt production – a move that goes hand-in-hand with its clean energy initiatives.
Not surprisingly, some U.S. companies are trying to take advantage of the situation. Formation Metals is pushing forward with a project in Idaho, one that could go operational within two years. Rio Tinto’s Kennecott Minerals has its Eagle project in Michigan, which will be churning out cobalt as a byproduct. And Polymet has an open pit project in Minnesota, according to cobaltinvestingnews.com.
While cobalt prices were more or less stable during 2010, generally trading between $18 and $21 a pound over the 12-month period, Roskill Consulting sees the exponential growth in batteries for hybrid vehicles stirring up the market. The consultancy says the trend for cobalt consumption remains positive with batteries set to overtake superalloys as the largest market for cobalt by 2011. That expectation is good news for the demand side of the equation. And with more emphasis being placed on the supply side, companies producing cobalt as a byproduct should start to pay more attention to the metal’s worth in the market.
Conversely, zinc is currently sitting on a surplus, has been for most of the past year or so. That isn’t likely to change anytime soon, although investors should probably look toward 2012 when a number of major zinc mines start to wind down. That’s when stockpiles will start disappearing, placing upward pressure on pricing.
That’s also when the likes of Canada Zinc Metals, Woulfe Mining and Merrex should start to gain some real investment traction within the commodity-based investment community.
