E Rare Opportunities In Rare Metals

Investors constantly search for the “next big thing”, the next innovation that will disrupt entire industries and make early investors a lot of money. Now that “next big thing” is electric cars and alternative energy. The question is what is the best way to take advantage of the coming boom in these fields. The answer is rare metals like lithium and cobalt.

These rare metals are essential in the development of lithium ion batteries that power electric cars like Tesla. With the launch of the Model 3, potentially the world’s first popular mass market electric car, demand for these batteries is set to go through the roof. Tesla is not the only player in the electric car field either. All the major auto companies have electric cars in the works, and other companies like Foxconn and Panasonic are busy building enormous battery factories to satisfy the worlds ever increasing demand for battery products. With increased demand for lithium and cobalt comes incredible opportunity. Lithium was one of 2016’s best performing assets and 2017 is shaping up to be cobalt’s year which is why I want to focus on the latter in this post.

Few people have heard of Cobalt but it is one of the world’s most important metals. It is primarily used in super alloys which are crucial to make gas turbines, jet engines, permanent magnets, and turbine blades. Cobalt’s necessity to produce these things have led governments to declare it a “strategic” metals. However, the primary driver of the increased demand for cobalt comes from its use in batteries. Cobalt’s unique chemical structure makes it possible for batteries to hold their charge longer, which is why it is such a critical component. For example, the lithium ion battery that powers a Tesla Model S, uses 22.5 kg of cobalt, and just think, Tesla alone is about to start producing hundreds of thousands of cars all using similar batteries. Meaning Tesla and other companies are about to start soaking up cobalt by the ton (demand is set to triple by 2025), and this can cause a problem, or an even greater opportunity.

Cobalt Prices over the last year in USD per ton

As demand increases there has been worries that a supply crunch in cobalt is inevitable, this has led to surging prices (as shown in the chart above). Prices have surged from $10 a pound to over $25 in a little over a year, including a 14% increase in August alone. Unfortunately, taking advantage of these surging prices and investing in cobalt is tricky. For starters, almost 98% of cobalt is mined a byproduct of other industrial metals like copper and nickel, this means there are very few pure cobalt deposits out there. Another problem is that 65% of this “strategic” metal is mined in the Democratic Republic of Congo (DRC). You might know the DRC as one of the world’s poorest and unstable countries, or you might know it as one of the most corrupt but either way the fact that most the world’s cobalt comes from the country poses obvious supply chain problems. Even so there are a few options for those who want to get in on the cobalt boom.