Chris Berry reports that the deal in which China Molybdenum Co. agreed to pay Freeport McMoRan $2.65 billion for FCX African copper assets reaffirms our view that asset shedding from the FCX project portfolio will continue. FCX, with a $13 Billion market capitalization, made a bad bet in diversifying into the oil business at the cyclical peak and now must reckon with roughly $20 Billion in debt on their balance sheet.
While it is a shame to have to part with such high quality assets, what Berry noticed was the fact that FCX has agreed to negotiate exclusively with China Moly on the FCX cobalt assets including the Kokkola Cobalt Refinery in Finland.
The potential cash inflow for FCX (forecast at $100 million) clouds the more significant issue of cobalt supply chain control. China is already the leading producer of refined cobalt and, should the deal for the Kokkola refinery go through, will acquire another 15,000 tonnes per year of refined cobalt capacity as well as 870 million contained pounds of cobalt (on a consolidated basis) in top-tier assets in Africa.
Though Berry does not believe the narrative that there is a cobalt crisis, he does see higher looming cobalt prices as China plays the long game to dominate the cobalt supply chain. This makes sound strategic sense when you consider the plan for increased lithium ion battery capacity in China.
One of the greatest misunderstandings about the lithium ion battery industry is that Tesla Motors is the only game in town. This could not be further from the truth and while TSLA sucks all the oxygen out of the room with the plans for the Gigafactory, similar build outs are happening in Asia, specifically China. Benchmark Mineral Intelligence have estimated that at least 12 lithium ion megafactories are forecast to come online by 2020 with 7 of them located in China.
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