On 16 August, Chinese cobalt refiner Huayou Cobalt announced that its overseas unit, Huayou International (HK), will terminate investment in the exploration and development of a copper-cobalt mine in the DRC operated by NMI, a wholly owned subsidiary of Lucky Resources Holdings. In December 2017, Huayou had announced plans to obtain a 51% stake in Lucky Resources Holdings for US$66.3M on the condition that a future feasibility study confirmed a mineral resource of no less than 400kt copper and 20kt cobalt. Having terminated the investment agreement, Huayou cobalt should see the US$10M it already paid (15% of the total investment) be returned from relevant parties by July 2021.
Huayou cited a slump in profits triggered by plummeting cobalt prices as the main reason for holding back on the mine investment. Accounting for roughly 15% of global refined cobalt production, the company is the world’s largest refined cobalt producer and a major supplier of battery raw materials. With such large-scale production, the company’s financial performance is tied to the price of the metal. Additionally, limited captive feedstock and prolonged procurement lead time makes Huayou (and most other cobalt refineries) inherently more vulnerable to price volatilities and/or raw material availability. As a result of the falling cobalt price, Huayou’s operating profit for Q1 2019 dropped sharply, nearly halving quarter-on-quarter.
Following Glencore’s recent announcement to mothball Mutanda, Huayou’s decision to pull out of a greenfield mine project has further raised concerns that the increasingly challenging operational environment in the DRC could disrupt supply and deter further investment. This could cause more volatility in the cobalt market.
It may be too early to see a roller coaster ride in cobalt price as tightness in raw material supply has not yet materialised. In the longer-term, however, non-DRC alternatives such as recycling could become an interesting consideration for downstream refiners and consumers in an effort to minimise supply risks. Meanwhile, demand for cobalt is growing, with the metal being essential in the ongoing global trend of electrification, especially for the automotive sector.
Roskill’s NEW Cobalt: Outlook to 2029 report was published in August 2019. Click here to download the brochure and sample pages or to access further information.