Electric vehicle (EV) makers are running into the law of supply and demand when it comes to battery metals:
squeezed SUPPLY + surging DEMAND = rising PRICES
The “surging demand” part in the equation above is easy to understand.
While global EV sales grew by a whopping 38% in 2020, last year EV sales more than doubled.1
By 2040, sales are expected to be 7x the number of all the EVs currently on the road today, according to the International Energy Agency (IEA).2
That means the already surging demand for battery metals may most likely increase.
And as demand continues to grow, it’s not only getting harder for auto makers to source the battery metals needed but they’re also finding the cost of those critical minerals is shooting up...a lot.
We’ll dive into the rising costs more when we look at Tesla Inc.’s TSLA ballooning battery metals bill in a moment.
We’ll also see how Canada and some of its enterprising companies are increasingly positioning themselves to offer solutions to these challenges.
That includes Electra Battery Materials Corporation ELBM ELBM, with North America’s only cobalt refinery, and battery metal exploration company Fuse Cobalt Inc. (TSX.V: FUSE) FUSEF (FRA: 43W3), with its 2 cobalt properties less than half a mile from Electra’s refinery.
“Canada has the potential to become a metals powerhouse for batteries and electric vehicles, harnessing its significant raw material resources, hydropower capacity and proximity to the large US market.”
– BloombergNEF (BNEF), Canada Could Become the Next Metals Powerhouse, July 2022
Cobalt Supply Squeeze
Nearly 75% of all the EVs sold today use batteries that rely on cobalt to deliver increased performance, superior safety, and longer driving ranges.
As EV sales increase, the overall demand for cobalt grows...but also growing is the share of demand that EVs take up. By 2026, EVs are expected to represent 50% of total global cobalt demand.3
Looking further forward, the IEA’s Sustainable Development Scenario points to cobalt demand growing by over 20x between 2020 and 2040.4
But cobalt supply is already falling behind demand.
According to the Cobalt Institute, the cobalt deficit of 2021 won’t be the last shortfall we’ll see. Instead, from 2024 to 2026, annual cobalt demand growth will outpace annual supply growth by 50%.5
In other words, we need to seriously add to our global mined cobalt supply.
Unfortunately, the exact opposite is happening. Mined cobalt supply additions are trending downward.
Chart from: https://stockhead.com.au/resources/high-voltage-cobalt-supply-deficits-are-about-to-get-very-serious/
Which brings us to the “supply squeeze” part of that equation we saw earlier. Here’s the equation again:
squeezed SUPPLY + surging DEMAND = rising PRICES
With growing demand and tight supply, EV automakers are feeling the price pinch.
Tesla’s Ballooning Battery Metals Bill
In August 2022, Mining.com published an interesting article: Tesla’s battery metals bill balloons to $100 billion.
The article explained how, back in 2020, Tesla’s CEO, Elon Musk, said the EV maker would probably hit annual production of 20 million vehicles before 2030.
By August 2022, Tesla TSLA reached the 3-million vehicle mark and are expected to deliver 1.4 to 1.5 million vehicles this year.
Along the way, however, the cost of producing those EVs has jumped dramatically largely due to the rise of battery metals prices.
At current prices, Tesla’s costs to build 20 million EVs would be just over $100 billion for the 12.2 million tons of raw materials needed.
That’s a 123% price increase since Musk announced Tesla’s production goal back in 2020.
It isn’t just the prices that are hard to take.
”As automakers (and the renewable energy sector) scramble for lithium, nickel, cobalt, graphite, rare earths, aluminum, manganese and copper securing supply may ultimately be a bigger issue than costs.”
– Mining.com, August 25, 2022
Just look at the massive amounts of critical metals Tesla will need to produce 20 million vehicles.
In the case of cobalt, the table above shows Tesla would need 36% of all the cobalt produced globally in 2021 to meet its goal of 20 million EVs per year.
Adding to the cobalt squeeze is the fact that all the other leading automakers building EVs are also looking to find and lock up these same key battery metals.
Which only underscores the need to seriously expand our cobalt supply chain.
Canada and Cobalt Refining
The first way Canada is stepping up to offer solutions to the cobalt supply squeeze is through domestic refining.
The Canadian province of Ontario is home to North America’s only battery grade cobalt refinery, which is owned by Electra Battery Materials Corporation (formerly First Cobalt Corp.) ELBM ELBM.
But Electra isn’t in this alone. They recently received investments toward the refinery of $5 million CAD from the Federal government and $5 million CAD from the Ontario government.6
Better yet, mining and commodity trading giant Glencore GLEN has made a loan commitment to Electra of $45 million CAD to help refurbish and reopen the refinery.7
Source: Mining.com
Once the refinery restarts, it will be able to supply materials for 1.5 million EVs annually.8
“The goal is to leverage Electra's existing footprint in order to bridge North America's mineral wealth with a growing domestic EV production base, completing the onshoring of the entire electric vehicle value chain and reducing vulnerabilities on foreign supply."
– Trent Mell, CEO of Electra9
Electra is also in discussions to build a new cobalt refinery in the Canadian province of Quebec to address the significant interest from the auto industry for a second refinery in North America.10
Mineral exploration companies, meanwhile, are actively seeking to sell their future cobalt mineral production to meet the upcoming demand. Fuse Cobalt Inc. (TSX.V: FUSE) FUSEF (FRA: 43W3) recently signed an MOU agreement with Electra to provide up to 2,000 tonnes per year of cobalt to the Electra cobalt refineries.
Electra’s CEO, Trent Mell, commented on the MOU by saying, “Having a domestic source of cobalt raw material produced ethically and with low-carbon emissions will help us to better address the demand for onshore EV battery materials. We look forward to working with Fuse Cobalt as they advance development of their projects and begin production.”
Canada and Cobalt Exploration & Production
The second way Canada is stepping up to offer solutions to the cobalt supply squeeze is through domestic exploration and production.
Canada is already the world’s fifth largest cobalt producer.11
Of particular interest is the region around the town of Cobalt, Ontario.
Between 1905 and 1961, the region’s Agaunico Mine produced over 4.3 million pounds of cobalt (Cunningham-Dunlop, 1979), which is greater than that of any other mine in the Cobalt Mining Camp.
By 1961, production stopped when cobalt prices dropped due to global over supply (Thomson, 1964).12
Today, the region offers established mining infrastructure that’s needed to explore for and produce cobalt, from an experienced labor force, to abundant water and affordable power.
Multiple mineral exploration companies currently have cobalt mineral claims in the area.
One of those companies is TSX Venture Exchange Tier 2 battery metal exploration company Fuse Cobalt Inc. (TSX.V: FUSE) FUSEF (FRA: 43W3).
Fuse Cobalt has 100% ownership of 2 cobalt mining exploration properties in the Cobalt, Ontario region. International cobalt mining giant, Glencore previously owned the properties...before the battery metals sector started heating up, that is.
The Fuse Cobalt properties have the major advantage of being less than half a mile from Electra’s cobalt refinery, as seen in the map below:
Fuse Cobalt properties (in yellow outlines); Electra’s cobalt refinery (to the immediate west)
Fuse Cobalt’s exploration efforts on the properties to date have returned significant cobalt values.13
Next steps for Fuse Cobalt include the $500,000 CAD exploration program they initiated on August 23, 2022.
According to a Fuse Cobalt news release, the exploration plan includes a state-of-the-art geophysical survey followed by a multi-hole diamond drilling exploration program. The goal is to “locate and test targets within the vicinity of known mineralization from prior drilling results.”
In other words, the program will expand the company’s understanding of the mineral potential of their 2 properties.
It isn’t only Fuse Cobalt and its investors that are eager to hear the results of the exploration program. EV automakers can only hope they’ll gain access to new cobalt production from a domestic, mining-friendly jurisdiction such as Ontario, Canada.
Especially since the area offers multiple advantages, from avoiding regions of geopolitical conflict, to creating greater convenience and lower operating expenses...all of which is a far cry from the Democratic Republic of Congo (DRC), the world’s leading supplier of mined cobalt with ~70% of global output.14
Glencore also stands to gain. They arranged for the option to enter an off-take agreement where Fuse Cobalt would sell all ores and/or concentrates it produced from its 2 properties, and for the option to buy 51% of Fuse Cobalt upon the discovery of $100 million or more in underground mineral value.15
Electra, meanwhile, recently signed a Memorandum of Agreement (MOU) with Fuse Cobalt regarding a potential definitive cobalt raw material supply agreement.
“Having a domestic source of cobalt raw material produced ethically and with low-carbon emissions will help us to better address the demand for onshore EV battery materials. We look forward to working with Fuse Cobalt as they advance development of their projects and begin production.”
– Electra’s CEO, Trent Mell16
Fortunately for all the players hoping to benefit from a new Canada-based source of cobalt production, Fuse Cobalt has the experience to pull off such a venture. The company’s leadership team has proven experience in raising capital and building world-class businesses. Among them is Chairman Greg Reimer, formerly the Executive VP of BC Hydro’s Transmission & Distribution business group.
Fuse Cobalt also benefits from an exceptional advisory team including cobalt exploration expert Matthew Halliday, P. Geo, with over 15 years of experience in mineral exploration and development17, and cobalt exploration and mineral extraction expert Frank J. Basa, P. Eng, with 37+ years of experience including decades of cobalt mineral exploration experience in the immediate area.18
Summary
Squeezed supply, surging demand and rising prices are expected in the EV battery metals space for the foreseeable future.
Those factors will further drive the EV industry’s value for reliable, nearby cobalt supply chains.
All of which is good news for Canada and companies such as Fuse Cobalt (TSX.V: FUSE) FUSEF (FRA: 43W3) with its 2 ideally located cobalt exploration properties and Electra ELBM ELBM with North America’s only cobalt refinery.
Investors interested in the potential of the emerging battery metals market can consider taking a closer look at Fuse Cobalt, with its 2022 exploration program underway and about to start creating news flow for the company.
To keep up to date with Fuse Cobalt’s latest news alerts, visit www.fusecobalt.com (TSX.V: FUSE) FUSEF (FRA: 43W3) or speak to your financial advisor.
1https://www.visualcapitalist.com/visualizing-10-years-of-global-ev-sales-by-country/
3https://www.cobaltinstitute.org/wp-content/uploads/2022/05/FINAL_Cobalt-Market-Report-2021_Cobalt-Institute-3.pdf
4https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions/mineral-requirements-for-clean-energy-transitions
6https://financialpost.com/commodities/mining/first-cobalt-secures-government-backing-ontario-refinery
7https://www.mining.com/glencore-commits-45-million-to-restart-first-cobalt-refinery-in-canada/
9https://www.newswire.ca/news-releases/government-of-canada-to-fund-electra-glencore-and-talon-metals-study-885667476.html
11https://pubs.usgs.gov/periodicals/mcs2022/mcs2022.pdf
13https://fusecobalt.com/presentation/
14https://www.cobaltinstitute.org/cobalt-mining-in-the-democratic-republic-of-congo
15(NOTE: This news release is from LiCo Energy Metals, which later changed its name to Fuse Cobalt Inc.) https://www.juniorminingnetwork.com/junior-miner-news/press-releases/781-tsx-venture/fuse/43246-lico-energy-metals-completes-its-final-payment-to-glencore-canada-corporation-and-finalizes-the-purchase-of-100-for-the-mineral-rights-on-the-glencore-bucke-property.html
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