Panic, Trading Halts and One Resource That Could Absolutely Soar
Next time you get pumped about a hot new mining stock…don’t forget to look where it’s digging.
Why? Because there’s a little thing called ‘sovereign risk’.
Tanzania is dishing up a good example of this right now…
Last week the parliament of the East African country passed two new laws. And it rocked the mining world.
These laws let the government essentially tear up existing mining leases and contracts.
Tanzanian President John ‘the bulldozer’ Magufuli is doing this for one reason…
He wants more money for the country’s natural resources.
It’s left some Aussie junior explorers stranded and potentially short of cash. The ASX put some of those affected into trading halts last week.
Tanzania is a hot bed for graphite exploration as part of the electric car battery boom.
Now any company that had some sort of development plan is going to find it much harder to raise money to get on with it.
This a problem.
The Australian reports this morning that more than half the stocks caught up in this have less than $2.5 million in cash. Most of them will need a top-up in the near future to keep operating.
Consdering what’s happening in the region, I wouldn’t put my money in there.
Bloomberg team ramps up
electric car estimates
Of course, any graphite team that’s outside Tanzania must be cracking out the champagne and caviar.
Bloomberg just came out with a new report on electric cars…
It’s predicting graphite demand to go from 13,000 tons in 2015 to 852,000 in 2030.
The report rolls out the same kind of soaring projections for lithium, cobalt, manganese and nickel.
Bloomberg’s New Energy Finance team now says the electric car boom will be even bigger than they already thought.
This report says the world will need the equivalent of 35 Gigafactories. That’s referring to Tesla’s factory in the Nevada desert.
Tanzania’s latest move sure makes me wonder about sovereign risk for cobalt supply.
See, most of the world’s cobalt comes from the Democratic Republic of Congo. And there’s some savage fighting going on here. Some say the place is on the verge of total anarchy.
That’s not going to be helped by the latest news.
President Kabila refuses to stand down. And now the president of the electoral commission says a vote to replace him isn’t going to happen anytime soon.
According to Al Jazeera the opposition leader is saying the commission president ‘had declared war on the Congolese people’.
You would think this puts a fairly heavy premium on supply that can come out of a more stable jurisdication. Even the stuff that does make it out of Congo is tainted with how its produced — slave wages and extreme danger, mostly.
That’s not a good look for companies that source it.
This could be why cobalt prices are going through the roof.
In October last year it was around US$28,500 a tonne.
It’s now around US$58,000.
That’s more than double in nine months.
It also might explain the latest Reuters ‘exclusive’.
See if you can stay with me on this one…
Reuters exclusive suggest
resource rush is on
Apparently there’s a three-way deal coming to light. It’s between a major commodity producer (Glencore), a Chinese battery firm (CATL) and the German auto firm Volkswagon.
Here’s the what the sources whisper…
Glencore will supply up to 20,000 tonnes of cobalt over four years to CATL.
The size of the deal put the Chinese firm off originally. But it went ahead after Volkswagon agreed to buy batteries from CATL.
This is said to have happened last October.
Here’s what I’m thinking: Volkswagon wants to lock down battery supplies.
The catch is Volkwagon is currently denying making any ‘guarantees’ with any company.
Still, the same Reuters report says Glencore has now spent just under US$1 billion this year to up its stakes in copper and cobalt mines. It’s sourcing cobalt for somebody.
These projects Glencore is investing in are in the Democratic Republic of Congo. So that’s serious money in a country about as high risk as they come.
There’s more happening in this space…
Now the French government has come out saying it wants to end sales of petrol and diesal vehicles by 2040.
This comes a day after Volvo said it was switching to electric cars or hybrids after 2019. India is apparently going for the same thing in 2030.
Of course, governments say all sorts of things all the time. Whether or not it actually has any bearing on reality remains to be seen.
Still, keep an eye on events in the Congo.
It could send every battery maker scrambling for cobalt reserves from anywhere but there.
Editor, The Daily Reckoning Australia