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Ardent Listener
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 Posted - 08/30/2007 : 18:06:34
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Cobalt: Lithium-Based and Nickel-Based Rechargeable Batteries
By Jack Lifton
30 Aug 2007 at 05:48 PM GMT-04:00
DETROIT (ResourceInvestor.com) -- Natural resource investors should pay close attention to a story in today’s Toronto Star, which certainly got the attention of the purchasing departments at all of America’s - and Japan’s - OEM automobile manufacturers, as well as at the myriad of mostly small companies working on the development and/or production of both lithium-ion battery technology for future use and of the nickel metal hydride batteries used currently in vehicular power trains.
Last week I wrote about the fact that the world’s largest producer of lithium and of lithium-based chemicals had convinced me that there is not now and will not be a lithium shortage even if hybrid (HEV), plug-in hybrid (PHEV) and all-electric vehicle (EV) production should ramp up to meet the most optimistic projections during the next 5 to 10 years and all use some derivative form of today’s lithium-ion technology based battery for propulsion purposes.
But there is another metal, which at the moment is a critical material, one without which the current designs of lithium-ion technology batteries cannot be built: cobalt. I’ll explain why this is so in another moment. As it happens cobalt is also critical in the current technology for manufacturing nickel metal hydride batteries, which are as universally used today as they have been since 1999 in all production hybrid-powered vehicles made by Toyota, GM and the other large OEM auto makers.
Control of nearly half of the world’s cobalt production and almost exactly half of the world’s known cobalt reserves is part of the reason and part of the risk being taken by Central African Mining & Exploration Co. [AIM:CFM], which is making an unsolicited bid for Toronto Stock Exchange-listed Katanga Mining Ltd. [TSX: KAT]. Katanga, like CAMEC, operates in the Democratic Republic of Congo (DRC).
If the takeover is successful, then CAMEC’s DRC operations will produce 60% of the company’s cobalt and the DRC operations of Katanga Mining will produce 60% of the copper for the combined company. The critical issue will be where such refined metals will be produced, since up until now it has been common to ship concentrates of copper and cobalt to customers in countries where smelting operations have less than critical friendly local regulators. The final destination for most Katangese ores of copper and cobalt has been up until now the People’s Republic of China.
The OM Group [NYSE:OMG] is today the world’s largest producer of cobalt chemicals sourced primarily from its mines and ore refining operations in the DRC; OMG manufactures, outside of the DRC, a range of cobalt and cobalt containing chemicals for manufacturing rechargeable batteries, and although it has just completed selling off its global nickel operations to Russia’s Norilsk, OM still makes nickel/cobalt engineered materials for use in alkaline nickel, nickel cadmium and nickel metal hydride battery production. Note well that this last battery type, nickel metal hydride, is today universally used in all hybrid vehicle production by the world’s major mass production OEM automobile makers such as Toyota and GM.
A brief note about cobalt’s occurrence and forms in nature can be found here.
Western investors might think that any country with either of the words “Democratic” or People’s” in its official UN-registered name would be anything but democratic or oriented for the good of its common people. Further, one would think, such countries would have an affinity for one another. North Korea and China, for example, readily come to mind, so why not the DRC and China?
Occasionally even nations with names such as the Democratic Republic of the Congo will come under the control of rulers - I mean, of course, democratically elected officials, with the interests of their people at heart. I wrote on RI earlier this year about one such man, the governor of the DRC’s Katanga Province, one of the world’s true natural resource treasure houses.
This gentleman, educated in the UK, realised that his province, Katanga, and his country, the Democratic Republic of Congo, could never develop economically if it remained simply a mine from which the country’s most valuable current assets were removed by unskilled labourers - his people - and moved to other countries where skilled labourers, engineers and scientists could make use of them. He therefore changed the rules.
First, he had legislation enacted requiring that a high tax be placed on raw materials for export with a progressive lowering of the tax as the material was upgraded before shipping. The copper mining companies, which are also the cobalt producers, reacted by immediately undertaking the construction of smelters using best practices and best available technology to reduce or eliminate pollution. In addition, the mining companies agreed to educate both on the job and overseas a generation of local Katangese mining and manufacturing engineers.
The result has been first the growth and now the consolidation of the copper and cobalt industries in the DRC.
Why are copper, nickel and cobalt tied together? Because cobalt, although sometimes found by itself, is predominantly produced as a byproduct of copper and or nickel mining. Today, with cobalt uses growing and therefore demand higher than ever before, while at the same time copper and nickel demand and price have soared in the current supercycle, a cobalt buyer can be fooled into thinking that the more cobalt he buys, the cheaper it will get but that in any case if he is willing to pay enough he can always get cobalt. This, as CAMEC, Katanga and OM know well, is the logical fallacy of reasoning by false analogy. The reasoning would only be correct if all of the world’s cobalt were produced as a primary product and if there were no technical limits to its production other than declining ore grades.
The U.S., which did not mine or refine cobalt in 2006, nonetheless used an amount of cobalt equal to 20% of all of the cobalt produced in the world that year. Most of the cobalt the U.S. used in 2006 was imported from just three countries: Norway, Russia and Finland. It is likely that most of that material originated in Africa, primarily in the DRC, and was refined in those three countries, although the Russian material was most likely mined and refined in Russia by Norilsk as a byproduct of its nickel operations.
CAMEC (and to be fair OM) see the handwriting on the wall; they and Katanga Mining are either now or will shortly be refining in the DRC all of their ores produced in the DRC. This will give effective control of half of the world’s cobalt not just to them but to a combination - which cannot be ignored - of those companies and the government of the DRC. U.S. anti-monopoly and price fixing laws do not have any force within the DRC. However, greed, self interest, economic independence and resource nationalism are concepts that are alive and kicking in the DRC.
A world economic recession which slows down the demand for copper and nickel will severely impact cobalt production, so I believe that the companies mentioned in this article may well be hurrying to produce cobalt, ship it to warehouses and stockpile it while the global copper and nickel markets allow them to do so with this valuable byproduct.
So now what has this got to do with lithium-ion batteries, nickel metal hydride batteries and HEVs, PHEVs and EVs?
First, the USGS states that in 2006, “nearly one-half of the cobalt consumed in the U.S. was for use by super alloys, which are used mainly in aircraft gas turbine engines; 9% was in use in cemented carbides for cutting and wear resistant applications; 18% for various other metallic applications; and 24%, for a variety of chemical operations.”
What the USGS did not say was that lithium-ion rechargeable batteries, which are made today using cobalt, were made in the US in just tiny experimental quantities in 2006 and that no cobalt containing cathode material for nickel metal hydride rechargeable batteries was made in the U.S. in 2006!
Second, the USGS also said in 2006 that “in most applications, substitution of cobalt (by another metal) would result in a loss of product performance.”
Third, the best technology so far for manufacturing lithium-ion technology based rechargeable batteries for vehicular power trains is based on lithium-cobalt oxide as an electrode material. This technology, however, has been implicated in overheating and even occasional explosive behaviour by batteries using such technology. An excellent, brief, not too technical survey of lithium-ion battery technology issues including the present position of cobalt utilization in lithium-ion batteries can be found here.
There are other non-cobalt lithium-ion technologies known and being touted by public relations announcements of laboratory successes, but even so, as the USGS 2006 Cobalt Survey states, and I repeat, “in most applications, substitution of cobalt would result in a loss of product performance.” This has so far turned out to be true for not only lithium-ion battery technology but also - critically so - for nickel metal hydride battery technology.
American OEM automotive industry believes that the safety and reliability issues with the present lithium-ion/cobalt rechargeable battery technology may be solved in the near term. It is therefore interested in the global cobalt market. Also there is a real probability that nickel metal hydride rechargeable batteries may continue to be used indefinitely as all or part of the battery system for HEVs, PHEVs and EVs.
Arrogant individuals in western financial centres like to emphasize their lack of a moral compass - or a need for one - by saying that to them, the Golden Rule is: “Them that’s got the gold makes the rules.” The gentlemen who own and operate CAMEC, Katanga and OM, along with those who rule the DRC, might counter by saying: “Only them that’s got the cobalt determines where and if rechargeable batteries for vehicular power trains are made.”
I am wondering where CAMEC has come up with a starting offer of $1.4 billion for Katanga. For a private equity fund that amount of money would be trivial, even in the current financial climate. Yet, if a fund were to agree to take physical cobalt future deliveries as a guarantee for its proffered funding, it might have made a brilliant deal, which could be the model for many such deals in the future. It seems to me that corporations that critically need cobalt might be willing to buy a share of such a promise from a private equity fund even today. Gee, if the private equity fund sold enough of those promises, beforehand it would have made either a no-cost or an immediately profitable deal before the first dollar changed hands.
China produces very little cobalt; Japan and Korea produce none. Yet the three of them use together twice as much cobalt as the U.S. Not only that, but China was getting most of the cobalt ore from the DRC for smelting and refining. Now that will be done in the DRC, but China still needs material, more so now than ever. How much does China have in that
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Cobalt a critical metal
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