2 recent expert commentaries:
A multi-decade thematic still in its infancy
Romano Sala Tenna, Katana Asset Management
"It is important for investors to recognise that 2017 will go down as the year that vehicle manufacturers’ commitment to EV’s transitioned from niche to mainstream.
In 2017, vehicle manufacturers from BMW to Volvo drew a line in the sand and irreversibly committed to a new paradigm. This will take time to play out, but this thematic will run for 30+ years.
Yes, 30+ years… Rarely do we ever get a thematic of that magnitude.
The main EV and battery ingredients – graphite, lithium, copper, nickel and cobalt – cobalt is the rarest in terms of commercially viable deposits.
Of the 3 ‘new age’ minerals, graphite is in abundant existence and lithium whilst a little rarer is still widely distributed. In time we will hence see ample supplies of both graphite and lithium meet the market.
But cobalt is somewhat different. At the current level of production, there is just over 50 years of known reserves available. And with the rise of EV’s, the demand for cobalt will grow at strong rates. If we assume a particularly conservative growth rate of 10% per annum, that’s a doubling of demand approximately every 7 years. On that trajectory, the known reserves will be consumed in less than 19 years. If demand grows at 15% per annum, existing reserves will be consumed in just 15 years.
Another factor that makes the cobalt play even more compelling is that currently 60-65% of all production is sourced from the Democratic Republic of the Congo (DRC). For China the issue is even more pronounced given that 93% of their supply is from the DRC."
Look for quality exposure to China and cobalt
Matt Langsford, Terra Capital
"There are two themes that may have been around for some time, but we think still have merit.
The first is businesses with exposure to the Chinese consumer. By now everyone in the market has seen what can be achieved if companies can get access to the right markets in China. We think this theme will continue to play out for many years.
The second is the battery-related commodity thematic and in particular, cobalt. Importantly though, investors must be specific about what type of cobalt projects they’re investing in. For small-cap investors, ideally, you want to be buying a sulphide ore project, which will generally have higher grades and far lower capex.
In contrast, lateritic cobalt projects will have lower grades, high reliance on by-product ores and will have a capex figure approaching $1B meaning that the vast majority of these projects will simply not get into production. In addition, you would ideally have your project in a first world location. Companies with the characteristics I have described will be in significant demand in the years ahead".
Those of us reading HC are probably aware that AML has the largest and most advanced cobalt sulphide project in Australia (as well as high grade copper and zinc).
Recent drilling just keeps getting better with next year's goal to drill out to figure out how much of the 20+kms of the Fish River Fault plumbing system at Walford Creek is mineralised. So far they've drill proven that 5kms of the fault are strongly mineralised with typical results per hole (just from the PY3 lens) at around 20m of 1.5% Cu and 0.18% Cobalt i.e. 3% Cu Equivalent). But its clear that there's a lot more to come e.g. historical hole 157 which is approx 2.5kms West of Vardy assayed at 75m 1.3%Cu, 0.18% Co, 2.6%Pb, 1.9%Zn & 81gtAg i.e. that's 4+% CuEq with the mineralisation thickening up out West....
I think that SH are going to need a lot of popcorn for a long and exciting ride?
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