Canaccord Genuity estimates up to US$46M in investment needed to fund cobalt production to meet anticipated demand
Canaccord Genuity (TSX:CF, LSE:CF) analysts are estimating that up to US$46 billion of investment is needed in cobalt production capacity in order to meet demand forecasts.
The firm’s analysts’ hailed cobalt’s performance in 2021 and into 2022 as the supply and demand ratio of the critical metal remains tight.
The analysts said they anticipate a growing deficit throughout the rest of the decade, with deficits set to reduce near the end of the 2020s as battery manufacturers are poised to reduce cobalt content in batteries and focus on increased recycling and additional supply.
Between US$20 million to US$46 million needs to be invested into the sector, according to the Canaccord analysts.
Demand growth in 2021 came predominantly from electric vehicle (EV) batteries, they noted, with minor growth from traditional markets like aviation as the world emerged from the coronavirus (COVID-19) pandemic.
In a note to clients, the analysts said: “We anticipate EV demand to grow at 9% compound growth rate out to 2030. As the price of cobalt rises the risk of substitution exists, however, we believe that in traditional markets much of the substitution has already been done and in EV markets limitations on chemistries will mean that, for energy-dense batteries, cobalt will be required to a degree into the future.”
What’s more, the analysts said they believe the responsible sourcing of cobalt is becoming increasingly important as environmental, social and governance issues return to the spotlight.
“Recently we have seen an influx of media attention on responsible sourcing of cobalt, in particular on artisanal mining from the Democratic Republic of the Congo (DRC),” the analysts added.
They noted that the issue is “complex,” with little new information being presented that has not been seen during the previous price cycle. This time around, however, the analysts believe there are higher levels of sensitivity by end-users.
“Following the Russian invasion of Ukraine we have also seen an increased focus from governments wanting to shore up local production and refining capacity,” the Canaccord analysts said. “We believe this will translate to projects ex-DRC/China receiving preferential treatment and funding by governments.”
Governments taking action
Some governments are funding the development of new projects and supply chains.
Electra Battery Materials Corporation (TSX-V:ELBM, NASDAQ:ELBM) is building North America’s only fully integrated, localized and environmentally sustainable battery materials park. Leveraging the company’s own mining assets and business partners, the Electra Battery Materials Park will host cobalt and nickel sulfate production plants, a large-scale lithium-ion battery recycling facility, and battery precursor materials production, which will serve both North American and global customers.
Earlier this year, the group announced that it will receive C$250,000 from the Government of Canada to support its recently announced battery materials park study. The study, which was announced in late February 2021, sees a consortium including Glencore PLC (LSE:GLEN) and Talon Metals Corp collaborating on the potential to develop a nickel sulfate plant as well as a battery precursor cathode active materials plant adjacent to Electra’s cobalt refinery and recycling plant.
“We are pleased that the Government of Canada supports our vision of an integrated battery materials park, bringing together chemical refining, battery recycling and cathode precursor production as a means of establishing a world-class battery supply chain with an ultra-low carbon footprint,” Electra’s CEO Trent Mell told investors at the time.
“The Federal Government has been one of our biggest champions and we are grateful for their support with this collaborative five-party consortium working to build out the missing pieces of the North American battery supply chain,” he added.
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Meanwhile, a sharper focus on a secure supply chain could spell good news for companies developing projects outside of DRC and China, which are currently two of the largest global producers of cobalt.
Canada’s Global Energy Metals Corporation (GEMC) is building a diversified global portfolio of exploration and growth-stage battery mineral assets. Its portfolio includes cobalt-dominant projects in Canada, Australia, Norway and the United States.
GEMC CEO Mitchell Smith believes that policy is going to play an important role in the development of the battery supply chain.
“Governments across the globe are now awake and they’ve realized that security of supply, something that we’ve been saying for a while now, is vital to their nation’s economic and strategic wellbeing,” Smith told Proactive recently.
“They’re now prioritizing this with funding and promise to permit in support of the facilitation of localized, or regionalized, electric vehicle materials supply chain. I’m not shy in saying that more needs to be done, not just with government but at all levels, but I’ll emphasize that it all starts with investment,” he added.
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