How Investors Can Profit From The Coming Resource Wars
How Investors Can Profit From The Coming Resource Wars by James Burgess
This super-metal is the hottest commodity on the market right now—and it’s NOT lithium.
It’s a metal that early investors are eyeing as a massive opportunity.
Supply is already in deficit – and that’s before the anticipated 500 percent increase in demand.
It’s a metal that is critical to the future stock price of everything from Google, Apple, Tesla, Amazon, UPS and many more.
Welcome to the supply crisis that is all about Cobalt
Cobalt is a metal that few investors know much about – it is critical to the electric vehicle (EV) revolution because it makes up some 35% of the lithium-ion battery mix.
That’s 30% of batteries that are the backbone of EVs, EVs that are now mainstream. To meet demand for EVs, billion-dollar battery gigafactories have been built and continue to be built. Consumer electronics are contributing to the demand and resulting shortage of supply.
And, unlike lithium, which is a fairly common commodity… we can’t source enough of cobalt as things stand today – and demand is increasing quickly.
Soon this story will get out.
Analysts at Macquarie Research project deficits of 885 tons of this resource next year, 3,205 in 2019 and 5,340 in 2020. That’s a deficit increase of 503 percent.
As a first principle of investing, where there is a supply problem, there is a massive opportunity for early investors.
In the perfect storm that is the cobalt market, there are additional challenges. Currently, more than half of the world’s supply of cobalt comes from the Democratic Republic of Congo (DRC). Use of child workers in appalling conditions in the DRC means that difficult supply chain questions are starting to be asked. Apple and Tesla will not be able to ignore the awkward questions they are being asked about their supply chains. Is their cobalt ethically sourced? Generally speaking, no. This is a huge and growing problem.
What’s the answer? Where possible, cobalt sourced from America. For early investors, now is the time to act.
This is where US Cobalt (previously Scientific Metals) (TSX:USCO.V; OTC:SCTFF) enters the picture with a pure play cobalt project that could put the U.S. on the cobalt map in a meaningful way, for the first time in history.
As the cobalt supply problem grows, and EV giants and gigafactories continue to increase demand, a home-grown solution is at hand.
US Cobalt is in an ideal position to answer the call and create shareholder value.
#1 In the Cobalt Surge, All-American Supply is Key
The math on this one is simple: We don’t have enough cobalt. We will have run out by the end of this year, according to Macquarie Research analysts. Beyond that, we’re looking at 500-percent demand growth between now and 2020.
The battery industry already uses 42 percent of global cobalt production, while the rest is used in industrial and military applications—all competing for supply.
Tesla—now with a $50-billion market cap—launched a $5-billion battery gigafactory in Nevada in January. By the end of 2017, it will have doubled the entire global battery production capacity. By next year, it will be producing more batteries than the rest of the world combined.
Tesla’s run on cobalt alone will be phenomenal, and that ignores all those competing for the super metal.
But it’s much bigger than Tesla. The EV market has grown over 15 times, with an amazing compound annual growth rate of over 72 percent from 2011-2016. This year, analysts expect it to gain another 25-26 percent.
Last year, global EV production grew 41 percent, and sales are up more than 60 percent year on year.
In the midst of all this EV growth alone, there is a “complete vacuum” in cobalt supply, according to traders interviewed by the Financial Times as early as 23 February.
Because so much of it comes from the DRC, and because Western buyers are under pressure to find more ethical sources, new sources must be found—with America being the most appealing—especially since it’s in Tesla’s back yard.
#2 Watch What Hedge Funds are Doing with Cobalt
The run on physical cobalt started in February in the least expected corner: Major hedge funds started buying up physical cobalt and hoarding it in order to gain exposure to the major supply shortage.
Swiss-based Pala Investments and China’s Shanghai Chaos have already hoarded 17 percent of last year’s global production. At today’s prices that’s worth around $280 million. At tomorrow’s prices, it will be worth a lot more.
When hedge funds start stockpiling physical cobalt, it sends its traditional buyers into a panic to secure new shipments.
Since November, cobalt prices have rallied more than 50 percent, and this is only the beginning.
#3 In the Heart of the #1 Cobalt Trend in America
In September, US Cobalt (TSX:USCO.V; OTC:SCTFF) entered into an agreement to acquire an amazing cobalt property, Iron Creek, right in the heart of the Idaho Cobalt Belt, one of the most prolific cobalt mineralization trends in the U.S.
This isn’t new exploration: this is property that’s already seen major historic exploratory work, including 30,000 feet of diamond drilling. And when it comes to cobalt, Iron Creek has historic (non 43-101 compliant) indications of 1.3 million tons grading 0.59 percent of cobalt with encouraging indications of up to 10 million tons.
The ‘closeology’ is also brilliant. US Cobalt’s project is right next door to the ONLY advanced cobalt project in the U.S. with an estimated 3 million-plus tons of cobalt.
Right now, the most important thing on the cobalt scene is homegrown exploration, and US Cobalt is a first-mover on this.
As one of only two pure play cobalt companies in the U.S., US Cobalt could be among the first to put America definitively on the cobalt production map just as EVs and batteries hit feverish demand.
The clients will be lining up to get at homegrown cobalt because major buyers like Samsung are all under pressure over unethical cobalt sourced from the DRC.
The bottom line: The EV revolution is already in full force. And it needs cobalt it doesn’t have.
#4 The Dream Team Behind the Bet on Cobalt
The CEO of US Cobalt, Wayne Tisdale, is a legend in spotting emerging trends with impeccable timing and creating outstanding shareholder value.
He’s already done it with uranium, gold and oil and gas, and his most recent homerun was in lithium, with Pure Energy. When it launched in 2012, lithium was selling for about $5,000 per tonne. Just a short time later, it had increased 450 percent.
His next bet is on cobalt.
Tisdale and his team at Intrepid Financial have in recent years created $2.7 billion in 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)
#5 Proving Up 10 Million Tons of Cobalt
That’s worth a potential $1 billion at today’s prices with a grading of 0.59 percent.
And as Tisdale and the team set out to become the largest pure play cobalt company, advance projects towards production and sell to a major, they have shareholder value in mind. After all, the team are major stakeholders in US Cobalt, with 35 percent ownership.
As global consumption for refined cobalt is set to reach 100,000 tonnes in 2017, US Cobalt is forging an Idaho future that will truly make America great again.
By. James Burgess of Oilprice.com
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