Small metal, wild ride. Cobalt price rises but big surplus looms

After halving in six months, dollar cobalt prices punch back, but the longer term supply picture remains destructive

JOHANNESBURG  - 

Cobalt dollar metal prices traded at multi decade records above USD 50/lb in April this year, before halving to levels seen over the past week, though recent quotes in spot markets have jumped closer to USD 30/lb. Cobalt, a small metal in global tonnage terms, ranks as an important by product of a number of copper mines, particularly brownfields operations under resurrection in Katanga Province, Democratic Republic of the Congo.

There is also important cobalt production in Zambia, Canada and Australia. The attraction of the metal, given its demonstrable ability to trade at multiples of ten times the copper price, has not, however, done much to encourage the emergence of primary cobalt producers. It may be argued that Mukondo, the core interest of London-listed Camec, and located in Katanga Province, ranks as a primary cobalt producer.

Global annual cobalt production currently runs at around 60,000 tons, but is due to triple or even quadruple in the medium to longer term. All else being equal, just a single mine is due to increase global cobalt production by 50% in the next four years. Katanga Mining, with its giant adjacent Kamoto and KOV pits in Katanga Province, aims by 2011 to produce over 300,000 tons of refined copper and over 30,000 tons of refined cobalt, on an annual basis.

DRC and Zambia miner Metorex envisages its copper and cobalt production increasing up to 140,000 and 8,000 tons, annualised, by its 2012 financial year. Tenke Fungurume, in which Freeport McMoRan and Lundin hold stakes, is targeting some 114,000 and 8,100 tons of copper and cobalt, with production commencing in 2009. Given further phases of expansion, cobalt production from the twin Tenke Fungurume deposits could increase above the 30,000 tons a year mark.

Camec, which recently stated that it has "dramatically enhanced its position as potentially a major producer of copper in the DRC and the world's largest producer of cobalt" anticipates producing an annualised 30,000 tons of copper cathode and, subject to demand, 8,000 tons of cobalt concentrate metal contained by March 2009, and 100,000 tons and 12,000 tons respectively by March 2011. This computes to about 40% of targeted cobalt output by Katanga Mining, where refined metal rather than concentrate is the end product.

First Quantum's Kolwezi tailings project is targeting 35,000 tons of copper and 7,000 tons a year of cobalt hydroxide. Africo, with its cobalt rich Kalukundi copper deposit, is looking at a target of around 2,500 tons a year of cobalt. Meanwhile, Geovic, with interests in Cameroon, "aims to be the world's largest primary producer of cobalt" by late 2010, with targets of 4,100 tons and 3,200 tons a year of cobalt and nickel.

Cobalt is sometimes associated with nickel deposits, as seen in the output from mining majors BHP Billiton and Norilsk. Cobalt is again typically ranked as a by product, and, given the streaming of a number of new nickel mines around the world, cobalt supplies are further on the rise.

On the demand side, in general terms, cobalt is a friendly metal increasingly used in developed processes. Sixty-five US industrial consumers surveyed indicate that 45% of the cobalt consumed in the US was for use in superalloys, used mainly in aircraft gas turbine engines; 9% was for use in cemented carbides for cutting and wear-resistant applications; 14%, for various other metallic applications, and 32% for a variety of chemical applications, such as inks, paints, and varnishes.

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