Tibballs reports that this week’s announced closure of the Mutanda copper-cobalt mine in the Democratic Republic of Congo (DRC) is going to significantly shake up the depressed cobalt market, according to Benchmark Mineral Intelligence analyst Caspar Rawles.“Mine closures at these price levels are nothing new, but Mutanda is a significant mine in the supply chain and it changes the market outlook considerably,” he told the Investing News Network (INN). At US$12.85 per pound as of July, cobalt prices are well down from highs seen in early 2018, when the battery metal was valued above US$40 — though Rawles said with the news from the mine’s owner, Glencore, prices are already shifting.
“Prices are likely to rise, and early indications that we have picked up from the market are that they have already started to react,” he said. Any significant price movement as a result of the Mutanda closure will deter any other closures though, he said. Rawles also said that the decision to place the Mutanda mine — which is the largest single source of cobalt globally — into care and maintenance at the end of 2019 is likely to help other producers, though the broader market is already steeped in uncertainty.
“It will help prices, which is good from a producer perspective, but it places more uncertainty on the cobalt supply chain,” he said. “Downstream major consumers, such as automakers, don’t like this supply chain risk and it may only see efforts to reduce cobalt in lithium-ion batteries increase.” Carmakers around the world have been taking well-publicized steps to secure their cobalt supply as more of them delve into the electric vehicle market. Read about each company’s efforts in INN’s two part series here and here.
On prices, Rawles said he believes that levels have seemingly bottomed out for the mineral, which was previously expected to post a modest rally from rock bottom before staying put at lower values. “This news may change that as some cobalt refiners/consumers may be concerned about security of supply,” he suggested.
Further, Anglo-Swiss mining giant Glencore has confirmed that they pulling the plug on the world’s largest cobalt mine at the end of 2019, citing a fall in prices as the reason why. As reported by the Financial Times, in a letter to employees, Glencore said the Mutanda mine in the Democratic Republic of Congo (DRC) is “no longer economically viable.” The price of cobalt has fallen significantly in 2019 on the back of a glut in production from the DRC, with even artisanal miners choosing to mine copper instead.
In early 2018, cobalt sulfate was fetching prices near US$110,000 a tonne (or almost US$50 a pound), according to Benchmark Mineral Intelligence, while as of July this year the metal was nearing US$22,000 a tonne (around US$10 a pound) and continuing to fall. In a tweet, Chris Berry, energy metals strategist with House Mountain Partners, suggested that the closure is akin to the DRC “killing the goose that laid the golden egg,” putting the blame for Glencore’s decision on higher input costs and taxes in the DRC.
Berry told the Investing News Network (INN) that Glencore’s recent US$350 million loss due to cobalt prices makes its decision look sensible, but added that there is likely more to the story. “Their claim is that production of cobalt is uneconomic at current prices, but it was always viewed as a by-product of copper production anyways.” He said that if Mutanda — which he described as the “absolute best copper/cobalt asset in the world” — is deemed “uneconomic” by Glencore, it doesn’t bode well for cobalt projects elsewhere.
“… But my sense is that higher input costs and taxes are the real killers here rather than commodity prices,” he added. Looking at other projects in development, Berry suggested that the Mutanda closure could be a silver lining for the cobalt space, as it opens a window for non-DRC cobalt developments — though any further investments will require higher prices. Speaking of prices, Berry said that whether cobalt has further down to go “couldn’t be reliably answered” given the size and opaqueness of the market. “But I still think there’s an equilibrium price in the mid-$20 per pound range in the next decade as overall demand should outweigh evolving battery chemistry using less cobalt per battery.”
Investors needn’t look far to see why the DRC is a challenging jurisdiction to operate in despite the attractive copper and cobalt deposits there. Only a month ago, Glencore made headlines globally after 43 artisanal miners were killed on a Glencore copper concession. The company has also fought negative press in the African nation and globally all the way through 2018 and up to now, with higher taxes being piled on by the Kinshasa government.
Speaking to INN as the first half of 2019 drew to a close, Benchmark Mineral Intelligence Senior Analyst Caspar Rawles said that he doesn’t expect the cobalt price to make any significant recovery in 2019 given the rate of production in the DRC. Mutanda produced 27,000 tonnes of cobalt in 2018 along with 200,000 tonnes of copper. The mine will be placed on care and maintenance when 2019 comes to an end.
The DRC government has made no comment on the decision.
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