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James Burgess

James Burgess

James Burgess studied Business Management at the University of Nottingham. He has worked in property development, chartered surveying, marketing, law, and accounts. He has also…

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Hotter Than Lithium: Cobalt Prices Soaring On Supply Deficit

cobalt ore

Trends, shortages, opportunity. Canadian financier Wayne Tisdale seems to have a sense for these things. He has done it several times in the past. His current target Cobalt.

Tisdale’s latest venture, Scientific Metals (TSX:STM.V; OTC:SCTFF) looks to impress once again. This time the target is cobalt, and the goal is a pure play development that could put the U.S. on the cobalt map at a time when the world is desperate for new supply.

Between the electric vehicle (EV) boom and the launch of Tesla’s cobalt-hungry battery gigafactory, cobalt is a metal that is already in short supply.

Tisdale’s 3 Golden Rules

#1 Look for early signs of need and shortage in a specific commodity

With cobalt, this is obvious. Prices are increasing, hedge funds are hoarding physical supplies, and demand keeps increasing.

North America produces only about 4 percent of the world’s total cobalt supply—not enough to put a dent in the demand coming from Tesla’s new gigafactory in Nevada, which started producing batteries in January.

To add further to the demand, tech giants such as Apple, Microsoft and Samsung are under increasing pressure to source ethical supplies of cobalt. The answer? North-American sourced material.

The bulk of the world’s cobalt mined and brought to market is a by-product of nickel or copper, and when it’s not economical to mine either, the cobalt supply picture further tightens.

Major miner Rio Tinto (NYSE:RIO) would agree that this is the hottest metal on the market now, too, and it sees the widening supply gap. That’s why it moved to expand exploration in the U.S. in January, but in a copper and nickel play that will produce cobalt as a by-product. Giant Anglo-American (NASDAQ:NGLOY) and Freeport McRoRan (NYSE: FCX), which also produce cobalt as a by-product, are likely eyeing the fast rise of the ‘after-thought’ metal. As tech giants and hedge funds battle each other for supply, the STM Idaho project targets a ‘pure’ cobalt play.

Additionally, hoarding has begun. February saw major cobalt acquisition initiatives by hedge funds from Switzerland to China. The hedge funds’ stockpiling of cobalt resulted in a rush to secure additional supply, according to a 23 February Financial Times article.

#2 Find overlooked and inexpensive assets in that space

Cobalt has been generally overlooked. As electric vehicles became mainstream, demand for lithium increased rapidly. Tisdale launched Pure Energy in 2015, when the price of lithium was only around $5,000 per tonne. He watched it increase 450 percent.

But lithium is only one key component of the lithium-ion battery. Cobalt makes up some 35 percent of this mix—see Golden Rule #1: we don’t have enough, and what we do have comes from problematic sources such as Democratic Republic of Congo (DRC).

#3 Hire smart people early on, because they will take you where you need to go

Tisdale and his team at Intrepid Financial have in recent years created $2.7 billion in market value by building and financing 5 companies in completely different industries.

Rainy River (gold) was worth $1.2 billion at its peak
Xemplar (uranium) hit $1 billion at its peak
Ryland Oil (oil and gas) sold for $114 million
Webtech Wireless (tech) was worth $300 million at peak
Pure Energy (lithium) is worth $65 million (and counting)

The Next Chapter: All-American Cobalt

On a daily basis, you hear about revolutionary names in industry, from Elon Musk’s Tesla Motors Inc. (NASDAQ:TSLA) for EVs and Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A) for investing brilliance to billionaire investor George Soros, who boosted his mining shares this year, including a $264-million stake in Barrick Gold Corp (NYSE:ABX).

Tisdale’s Scientific Metals (TSX:STM.V; OTC:SCTFF) acquired the Idaho Iron Creek Project in September, with historic estimates (currently being updated) and encouraging indications that there may be up to 10 million tons of cobalt on the property. This historical exploratory work included 30,000 feet of diamond drilling.

Next door to STM is the only other cobalt property in the US that is slated to come into production, with an estimated 3 million-plus tons of .55 percent cobalt.

With global demand for cobalt set to exceed supply this year and beyond, cobalt is a commodity that warrants investor attention. Tesla’s $5-billion battery gigafactory will have doubled the world’s battery production capacity by the end of this year, and its demand has just started. The price of cobalt has increased more than 50 percent since November, and is expected to increase further.

Tisdale and Scientific Metals are stepping in to fill the vacuum with a unique all-American cobalt pure play. They could be among the first to put the U.S. on the ethical cobalt map just as battery demand hits fever pitch. Tisdale has been at the beginning of many trends and he’s here again—with cobalt.

By James Burgess of Oilprice.com

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