Rick Mills: Cobalt Is the King of Critical
Source: Zig Lambo of
The Critical Metals Report
Most people don't know or care about cobalt. But, as with a
number of metals we seldom hear about, we would certainly miss
cobalt if it were not available for use in many cutting-edge
applications. In this exclusive interview with
The Critical Metals Report
, Rick Mills, editor of
Ahead of the Herd
, talks about the supply and demand for critical metals and tells
us why cobalt is the "King of Critical Metals." He also tells us
why he likes two emerging cobalt producers that could reward
investors looking to participate in this very tight market
dominated by China.
: FORMATION METALS INC. -
PUGET VENTURES INC.
The Critical Metals Report:
Most resource stock investors are focused primarily on the
precious metals and copper and, to some extent, the rare earth
elements (REEs), which have gained increasing coverage in the
past few years. Base and industrial metals such as nickel,
manganese and cobalt seem to attract little investor interest.
Why is that?
Well, let's focus on cobalt, which has never been on the
radar screens of most investors. It is something new and
investors have to get their heads around exactly what it is, and
just how important it is to the functioning of a modern economy,
in the green movement and in defense applications. Cobalt is
going to undergo a massive sea change in perception among
investors because it is so much more than an industrial metal. I
call it the "King of Critical Metals." Cobalt is an emerging
story we can expect to hear more and more about as critical
metals are the sexy new story.
Why don't you give us a definition of critical metals so
everyone's on the same page?
There's been some controversy over what is and isn't a
critical metal, so let's lay it out for our readers based on
three reports published in the last year or so. The U.S.
Department of Energy says materials used in four clean energy
technologies: wind turbines, electric vehicles, solar cells and
energy efficient lighting, are critical now. The American
Physical Society's Panel on Public Affairs and the Materials
Research Society coined the term "energy critical element" to
describe elements that are essential to one or more of the new
energy-related technologies. The European Union commissioned a
report that identified 14 materials critical to the EU.
Only four metals or element groups made all three lists: REEs,
platinum group elements (PGEs), lithium and cobalt. So there is
absolutely no dispute that cobalt is a critical metal.
What exactly is it that makes a metal critical? Well, the
availability or lack of these elements can have major impacts on
energy systems, and significantly increased demand could strain
supply. That could cause massive price increases or even
unavailability and, therefore, discourage the use of new
technologies. Most of these critical elements are produced as
byproducts in the production of other metals, so ramping up
production can be extremely difficult and the Chinese are tying
up supplies. There's a relentless demand for high-tech consumer
products in emerging countries. We have ongoing material research
that is exploding uses for these critical metals; there's very
low substitutability and virtually none of this stuff is
Cobalt is in short supply, or at least in limited
availability, at this point and that is why people should be
looking at it, right?
Absolutely. Cobalt has all the criteria we've talked about,
but let's look at a few more reasons. Because of the relative
scarcity of critical metals, their extraction often involves
processing large amounts of materials, which sometimes causes
unacceptable environmental damage and, because critical metals
are often a byproduct of the production of other metals, the
timeline required for new production is dependent on the price of
those other metals. Critical metals also have a very high supply
risk, because a large share of the worldwide production comes
mainly from a handful of countries. Much of cobalt production
comes from the Democratic Republic of Congo (
Certainly not a politically stable source of supply.
The geopolitical situation in the DRC directly affects the
price of cobalt.
That makes sense.
Well, the DRC is the world's largest supplier.
That doesn't leave the rest of the world in a very good
position. Can you explain the industrial and energy applications
of cobalt, and how China fits into the picture in terms of tying
up cobalt supply?
Green initiatives have become a global focus point for many
investors. Cobalt holds a critical role in the future green
energy economy, mainly for its use in rechargeable lithium-ion
batteries used in electric vehicles and consumer electronics. But
cobalt is also used in solar panels and in the blades and magnets
for wind turbines.
Cobalt is also used in high-speed, high-strength
wear-resistant alloys that are used in aerospace and military
technologies, so there are critical defense applications. Cobalt
also has many industrial uses such as a catalyst in desulfurizing
crude oil and in hydrogen generation oxidation. It is used in
natural gas-to-liquid technology, orthopedics and life sciences.
But it is rare to find it in economical standalone deposits; even
though it is one of the 30 most abundant elements in the earth's
crust, it has an extremely low concentration, just 0.002%. So,
cobalt is almost always produced as a byproduct of copper and
nickel mining. There are very, very few primary cobalt deposits
in the world today.
About 40% of the cobalt consumed in the world originated as a
byproduct from copper production in the DRC. China went in and
made a deal with the DRC. It gave the DRC something like $9
billion and built roads, a couple of dams, hospitals, schools and
railways. In return, China got the rights to most of the
production from the most prospective areas in the Congo for
cobalt. So, China has literally tied up a majority of the world's
cobalt. The leading global producers of refined cobalt are China
at 39%, Finland at 15%, and Canada at 8%.
It has been forecast that close to 40%-50% of the incremental
cobalt production over the next five years is going to come from
the DRC. China is extremely short of cobalt itself and needs to
import it. China uses what it needs and then exports it to
everybody else, making it the leading supplier of cobalt imports
to the United States. So, again, like the REEs, we have a
situation where most of the world is relying on China for its
critical metal supply. This is an untenable situation.
Obviously, China is looking at it from the standpoint of
insuring adequate raw material supply.
True, and China does deals differently than we do. We'll go
in and finance a company. We'll talk on a company-to-company
basis. China goes in and talks on a government-to-government
basis. It wants offtake agreements in exchange for building the
infrastructure that a country needs. It's very hard for us to
compete on that level.
We used to be worried about "Japan Incorporated" because it
was the industrial-government complex in Japan, but now we've got
"China Incorporated" and it is an even bigger force.
It is by far. A few years ago China's state-owned
enterprises and sovereign wealth funds were armed with hundreds
of billions of U.S. dollars from the country's foreign reserves
and sent out to scour the globe for resources. They deal in
straight cash and don't mind operating in high risk areas, and
they want offtake agreements from early stage development
projects in exchange for cash and infrastructure.
What has happened with U.S. production of cobalt and other
strategic metals since the big investment push for them in the
The U.S. used to be a leading producer of a lot of the
strategic/critical metals and even the rare earths. But domestic
production and research dropped off in the 1980s and 1990s
because China ramped up production so much and undercut prices.
China could produce at a much cheaper price than anyone else
could because it had low production costs and non-existent
environmental regulations and oversight. It could get away with
anything it wanted. Dump waste/tailings in the bush, drop them in
a lake, pump them into a river. They didn't care. Just produce
and undercut everybody.
China basically stole all the production and drove everyone
out of the markets. We got complacent because we could get it
from China cheaper than we could ever produce ourselves. Now
China has this stuff locked-up and they're increasingly cutting
back exports. It's critical to us as well and we've got to get
our own supply. The security of supply situation has to be
Do you expect that there is going to be a strong demand for
cobalt and the other critical metals for as far as we can see
into the future?
I do. There are very few primary producers of cobalt. We're
in a different environment today than in the 1980s and 1990s.
People are starting to realize just how important these elements
are to the green sustainable technology movement and the
functioning and defense of our modern economy. China's exporting
less and less as its own internal demands increase. Cobalt is the
king of critical because the applications continue to expand and
there are so few primary cobalt deposits.
So how are cobalt prices established?
The London Metal Exchange has commenced cobalt futures
trading. Now we have an open market in cobalt. The last price I
got was for August 11. A cash buyer could buy one ton, minimum
99.3% pure cobalt for $36,000.
So, it's in the multi-dollars per pound category like
nickel and molybdenum.
You follow some companies that are trying to develop cobalt
production in North America. Can you tell us about some of
Well, I follow two companies on
Ahead of the Herd
. The first one is called
Formation Metals Inc. (
. Its main asset is a high-grade U.S. cobalt deposit in Idaho.
The company is planning to begin cobalt production mid-2012.
Formation expects to close an extremely large financing soon and
this will give it enough money to cover the capital costs to put
the Idaho Cobalt project into production. When/if the financing
closes and people see that Formation is going to get into
production, the market could definitely revalue the stock price.
I think it is undervalued at this time. The U.S. relies on
recycling its scrap for 15% of its cobalt and imports most of the
remaining 85% from China. It looks like Formation is in a pretty
sweet spot in its lifecycle right now.
How did Formation end up with that project considering that
cobalt is so rare in the U.S.?
Formation has had it and has been bringing it along for 15
years. Back then, cobalt was so far off people's radar screens
that I am pretty sure there were one or two properties laying
around that it could have picked up. Foresight, I guess.
That certainly gives people one good opportunity to invest
in U.S. domestic cobalt. What's the other company?
Puget Ventures Inc. (TSX.V:PVS)
, which will, upon completion of the company's Pafra acquisition,
be renamed Global Cobalt Corporation. The company is doing a
transaction that will make the new Global Cobalt Corporation, the
former Puget Ventures, a first mover into an incredibly
resource-rich area in southern Siberia. It is the Republic of
Altai, on the border with Mongolia, Kazakhstan and China. It's a
bit removed from mainstream Russian industry.
The company is doing a financing and has the European Bank for
Reconstruction and Development as a shareholder. The bank is a
bit like the World Bank and provides equity and debt financing
for projects in emerging countries and emerging economies. The
bank is partially owned by the Russian government, which gives
Global Cobalt an added political safety net. So, it has taken
care of the political risk issue. The European Bank for
Reconstruction and Development does an incredible amount of due
diligence on projects they are going to invest in. The bank is
incredibly thorough on assessment, and the management milestones
that they request are extremely high.
Another thing about this deal is the Altai government and the
Federal Government of Russia confirmed the commitment of CAD$475
) over the next five years. This is for mining related
infrastructure development. CAD$400M is allocated to the main
project, Karakul. The money is going for development, mine and
mill construction, and construction of the rest of the
infrastructure. The reason the Russians and the Altais are doing
this is because they want to kick-start industrial development in
Altai and build out a mining industry.
Puget Ventures is working on this transaction now. The company
expects it to be closed in a couple of weeks. Puget Ventures is
not trading as we speak and there is some risk that this deal may
not go through. But this is something that investors need to have
on their radar screen. Puget is working on a transaction to take
over a complete mining district with several deposits that
already have resources, feasibility studies and mine plans. This
is not greenfields; it's a development play with several very
It is quite an incredible deal. It should catapult the new
Global Cobalt into the forefront of junior resource developers
and the company is going to attract a lot of attention. The
Karakul project is the flagship asset and it has near-term
production potential from one of the largest known sources of
primary cobalt outside of Africa. A large amount of exploration
and predevelopment work has been conducted in the whole region,
which has a number of cobalt and critical metals projects,
including a past producing tungsten mine. They are all located
close to Karakul and are included with a right of first refusal
with Global Cobalt.
So, basically, the stock is halted at this point pending
all this coming together, and the expectation is that it will
start trading under its new symbol and new name in a couple of
weeks. Is that right?
Well, that should turn out to be a substantial operation
once it gets going.
I think people should be definitely watching it. You have
got to give hats off to the management team for seeing the
opportunity and taking it. The financing gets done and the
company is going to go in there and march these things down the
development path to production. In addition to cobalt, there are
also silver and tungsten, both named as critical metals in the
above-mentioned reports. So this is pretty exciting stuff!
Do you have any parting thoughts that you'd like to leave
with us as far as the general environment at this point either
economy-wise or specifically as far as these critical metals
Too many times I read that investing in the junior resource
market is akin to gambling. Too many investors take that to
heart. They think the junior market is a casino, in and out, a
quick trip to riches. In reality, nothing, and I mean nothing,
could be further from the truth. Occasionally somebody gets lucky
and their stock goes for a ride very quickly, but for the most
part people who are smart and have patience are the ones who make
the money in the juniors. Look at the two stories we talked about
today. What I want to do is get behind a management team that is
out to build something of real value and create real wealth for
the shareholders and themselves.
So, to me that is not gambling. Get in. Put your money behind
a team like that and sit back and watch the story unfold. Stick
with it as long as everything is staying the same with regard to
why you got into the story in the first place-a quality
management team with an exciting story to tell and they're
willing to tell it. It has got quality projects that are capable
of huge news flow and they fit into a dominant overriding theme.
That's a story that you follow and you leave your money in. You
let them go to work and build something of real value.
I believe that Puget Ventures to Global Cobalt has all the
attributes an investor needs. I think Formation is the same. Take
a position and watch the story unfold. These management teams
have vision for their companies and they're going to work. That
is not a gamble. That is a smart investment for smart, patient
people. And, the reward could be very nice.
Those are certainly a couple of very promising companies
with solid fundamentals and definitely something that people
should be watching. Thank you very much for your time this
morning. You've given us some good insight into an area that most
people are not acquainted with.
Richard (Rick) Mills
is host of
and invests in the junior resource sector. His articles
have been published on more than
The Wall Street Journal
, SafeHaven, Market Oracle,
, Stockhouse, Lewrockwell, Uranium Miner, Casey
, SilverBearCafe, Infomine,
, Mineweb, 321gold, Kitco, Gold-Eagle,
The Gold/Energy Reports
, Resource Investor, Mining.com,
, FNArena, UraniumSeek and
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1) Zig Lambo of
The Critical Metals Report
conducted this interview. He personally and/or his family
own shares of the following companies mentioned in this
2) The following companies mentioned in the interview are
The Critical Metals Report:
Puget Ventures Inc.
3) Rick Mills: I personally and/or my family own shares of the
following companies mentioned in this interview: None. I
personally and/or my family am paid by the following companies
mentioned in this interview: None.
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