3 Ways to Invest in Cobalt (Sustainably)

Used as blue coloring in glass, ceramics, and pottery for thousands of years, Cobalt has received high demand from high-tech sectors in recent years. The metallic element has proven vital for electric car manufacturers, and we’re seeing a rush for fresh deposits as we’ve never seen before. With market prices doubling and a twenty-first-century cobalt rush underway, is it time to invest in cobalt?

The battery sector is one of the biggest cobalt consumers, as lithium-ion battery production requires it. With this said, the cobalt market is rife with potential. Smartphones, computers, electric vehicles, and many modern industries require batteries.

The metal’s use in lithium-ion batteries accounts for more than 62% of the world’s consumption in 2020, with cobalt demand from the battery sector expected to rise 5-10% year-on-year in 2020. Analysts predict this demand will steer the cobalt market even further in the following years.

While the rush for cobalt is steadily rising, the supply may be riddled with issues. Human rights abuses in the Democratic Republic of Congo (DRC), where most of the world’s cobalt is manufactured, have strained its production.

Considering all these factors, it is highly recommended that all potential investors conduct thorough research on cobalt supply, demand, and the various investment options available before joining the cobalt profit party.

What exactly is cobalt?

Cobalt ore

Like its cousin nickel, cobalt is a hard, silver-gray metal derived from the earth’s crust in a chemically combined form, except for small deposits found in meteoric iron. Because of its low concentrations in the earth’s crust (0.002%), it isn’t found as a native metal. Instead, cobalt is often produced as a by-product of copper and nickel-mining activities.

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Cobalt supply

If you’re looking to invest in cobalt, it’s essential to know the status of its supply and demand. Since 50% of cobalt production is nickel-related and 35% copper-related, cobalt production falls when mining for nickel and copper drops. Only 15% of cobalt is produced by primary cobalt operations.

As mentioned, most of the world’s cobalt reserves are located in the Democratic Republic of Congo (DRC). Known as a DRC copper belt, this region holds nearly half of the globe’s cobalt reserves.

In 2019, the DRC produced the most cobalt at around 100,000 metric tons. Eastern Europe followed second in the same year, followed by Australia and the Philippines as third and fourth-largest, respectively. Today’s cobalt is produced in around a dozen countries around the world.

While most of the world’s cobalt supply is derived from DRC, China plays a huge part in its refinement. China is responsible for 80% of the world’s global output of cobalt sulfate and oxides in 2020; the region is also the largest consumer of cobalt.

While DRC and China play significant roles in the production and refinement of cobalt, there are notable issues. Due to power outages, water shortages, and political and economic instability, DRC can be inconsistent with production.

Cobalt is still not considered a conflict mineral today, but several human rights groups are already lobbying for it to receive this distinction. Most of DRC’s cobalt mines and operations are poorly managed and dangerous, and these human rights groups believe that end-users should source their metal elsewhere.

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Cobalt demand

Experts seem to believe that future growth for cobalt demand will be substantial. A massive demand driver is the lithium-ion battery market, thanks to the surge in electric vehicles and other electronics.

Climate change is partly to blame for the popularity of electric vehicles today. As such, more cobalt is being refined for use in the batteries of these vehicles. For perspective, an electric vehicle’s battery requires 9kg of cobalt and a smartphone only requires 30 grams.

The boom in electric vehicles is just beginning, and it’s unlikely that the demand for cobalt will wane in the following years. According to experts from Benchmark Mineral Intelligence, demand for cobalt will increase four-fold.

From 219,679 tonnes by 2023, this will grow to 276,401 by 2028 at full battery capacity. The general opinion seems that cobalt’s current supply and demand dynamics will push the material into a deficit in the next couple of years.

If you’re an investor, the best way to take advantage of this situation is to purchase shares in companies that mine copper and nickel, and by default, also cobalt, worldwide.

Risks of investing in cobalt

If you want to invest in cobalt, know there are risks. First on the list and mentioned numerous times in this article is the location of most of the world’s cobalt supply: the DRC.

Civil unrest and political instability have the potential to affect supply chains, and there is no guarantee of the security of cobalt operators. Cobalt mining is also rife with conditions that may violate human rights.

Because of these sentiments, several companies that rely on cobalt, including Tesla, are actively seeking ways to avoid dependence on the metal. As electric vehicles rise in demand, several manufacturers are already developing new electric power methods that either eliminate or reduce the need for cobalt.

Regardless, such a solution is still years away from mass production, and industry experts believe that electric vehicle manufacturers will still continue to rely on cobalt.

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Tips on investing sustainably

If impact investors wish to invest in cobalt sustainably, they must do so while applying due diligence, considering the upstream risks and downstream cobalt supply chain expectations. Before dabbling in e cobalt investments, here’s everything you need to know about the upstream and downstream cobalt supply chain according to the Principles of Responsible Investment.

The many risks in the upstream supply chain

The upstream cobalt supply chain is divided into two: Artisanal and Small-scale Mines (ASM), which is carried out by communities or individuals using hand tools and manual labor, and Large-scale Mining (LSM) or industrial mining, which represents 80% of cobalt sourced from the DRC.

LSM-related risks include exposure to high levels of toxic metals, poor occupational health and safety conditions (lack of equipment), poor community relations (forced evictions around mines), and potential human rights violations when preventing ASM miners from accessing LSM sites.

ASM-related risks include child labor, poor working conditions, unfair compensation of miners, and the legality of mining.

Expectations for downstream companies

The OECD Guidance for Multinational Companies has different due diligence requirements for companies, depending on their responsibilities and location in the supply chain. Here are the expectations for downstream companies.

  • Downstream companies must have a clear and responsible sourcing policy for cobalt. This includes accountability mechanisms, senior oversight, and various systems to measure the effectiveness of the policy. An explicit timeline for implementation is also required.
  • Downstream companies must be able to identify refiners and smelters in their supply chain and assess if they conduct due diligence in compliance with international standards. If the refiners and smelters do not comply, downstream companies must use leverage to force suppliers into taking the necessary steps.
  • Downstream companies must be able to an annual report on their targets and their progress in reaching their goals, as well as report on both the expected and socio-economic outcomes of their actions.
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Expectations for upstream companies

  • Upstream companies must be able to trace their cobalt back to mining sites while being able to identify the circumstances of trade, handling, export, and extraction of the mineral.
  • After due diligence and mapping of the supply chain to downstream customers, upstream companies must be able to provide information about their due diligence and disclose it publicly.
  • Refiners and smelters must have a traceability system or chain of custody leading to the mining sites.
  • Upstream companies must be able to submit themselves to regular third-party audits in order to monitor their compliance with international standards while disclosing the audit results to their downstream customers.

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Three ways to invest in cobalt

Investment software

1. Find cobalt stocks to invest in

Cobalt isn’t usually exclusively mined, as it is acquired in conjunction with another metal. This means most of the companies listed below don’t deal exclusively in cobalt.

If you’re looking to invest in cobalt, know that most cobalt stocks require an international brokerage account to trade, as very few of these multinational companies are available in US exchanges.

The price of cobalt has been incredibly volatile with prices continuing to fall year after year. Despite what would seem like a dismal investment, experts in the industry believe that the metal would soon pick up.

Metal analyst CRUGroup expects a small surplus in cobalt over the next few years before it drops again. As more electric vehicle manufacturers demand cobalt, its value is projected to increase.

Here is a list of the best cobalt companies to invest in.

1. Carpenter Technology Corporation (NYSE: CRS)

This Pennsylvania-based company manufactures, develops, and distributes metal alloys used for various products, including aircraft, electronics, and electric vehicles. Founded in 1889, Carpenter Technology Corporation is now a market leader in producing several alloys including nickel, titanium, and cobalt. The company has a $2 billion market cap with a $2 billion revenue posted in June 2020.

2. Clean TeQ Holdings Limited (ASX: CLQ.AX)

This company based in Australia offers industrial treatment water services and metal recovery. They also provide high-tech extraction and purification technologies of base and precious metals, and an interest in mining nickel. The company has a $200 million market cap with more than $22 million in earnings annually.

3. Wheaton Precious Metal Corp. (NYSE: WPM)

This Vancouver-based precious metals streaming company has various streaming agreements with several minds worldwide. The company has proven reserves of tens of millions of pounds along with reserves of silver, palladium, and gold. Wheaton has a market cap of around $18 billion, with $1 billion in revenue in December 2020.

4. Australian Mines Limited (ASX: AUZ.AX)

This Brisbane-based mining firm focuses on developing and mining metals for emerging technologies, with interests in cobalt-scandium-nickel projects in Australia. It has a market cap of around $63 million and annual revenue of around $17 million.

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5. Vale S.A. (NYSE: VALE)

This metals and mining company is based in Brazil. It focuses on the mining industry’s base metals, ferrous metals, and coal segments. Vale S.A. has a market cap of around $92 billion with over $40 billion in revenue in December 2020.

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2. Invest in cobalt futures

If you’re wondering how to invest in cobalt futures, you may do so under the London Metal Exchange under the ticker CO. Cobalt futures began trading in 2010 and are quoted in US dollars per tonne. You’ll find contracts that range over 15 months, which will allow you to make bets over different periods.

Do note that buying cobalt futures may be much riskier than dabbling in stocks and ETFs, as you are directly exposed to the material’s price movements. Cobalt investment stock offers more safety with more people behind them, increasing the shareholder’s wealth. If you’re confident about cobalt’s price spike, futures are your best bet.

3. Invest in Cobalt Exchange-Traded Funds

Another way to invest in cobalt is through ETFs. An ETF is a portfolio of securities that are publicly traded. The value of the asset or portfolio depends on the value of the traded ETF. As such, they are a great way for investors to gain exposure to investment vehicles, as they are not limited to traditional common stocks when they can be traded.

One of the biggest cobalt ETFs available is the Amplify Advanced Battery Metals and Materials ETF (NYSE: BATT). This ETF is managed by professional traders who are looking to offer investors the best possible exposure to the roster of battery processing materials, including graphite, nickel, manganese, lithium, and of course, cobalt. It has a 30% stake in lithium, 30% in nickel, and 26% in cobalt.

BATT ETF invests in publicly listed companies dealing with these metals and companies researching these materials. Some ETF investments include Umicore China, Lithium Americas Corp, and Glencore, among others.

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Should you invest in cobalt?

Your cobalt investment strategy depends on your risk appetite. If you’re an investor looking for a quick profit, the best strategy involves buying cobalt investment stocks at low prices and selling them when the price rises. This is a short-term approach to cobalt investing. If you’re looking to invest in cobalt for the long run, you may be better off investing in ETFs.

Ultimately, one question remains: should you invest in cobalt, and is cobalt a good investment? You’ll find a number of headlines overhyping cobalt, and for a time, it will be here to stay. Consider, however, that a number of efforts are already being made to power electric vehicles without the use of cobalt, mainly because of the human rights violations in DRC.

Several advisors are still bullish on the metal, even if it hasn’t recovered the prices it reached in 2018. It’s also very challenging to tell which cobalt companies will lead the market. This requires investors, especially those investing with ECG in mind, to do their research and take an educated position.

With this said, impact investors can profit from investing in cobalt, but only if they do lots of research. Ensure you have a deliberate strategy before hopping onto the cobalt party train if the market sentiment starts to move against you.

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