Namibia Perfect European Cobalt Supplier

Andrew Deaville - 5th September 2018


Major European automakers such as BMW, Mercedes and Volkswagen will soon be in need of direct supplies of cobalt if they are to loosen China’s grip on the supply chain. While Glencore (LSE:GLEN) and ERG Africa face yet more tax-hikes and legal challenges over Congolese operations, Celsius Resources (ASX:CLA) has just delineated the largest cobalt sulphide deposit outside of the DRC, in politically stable and mining-friendly Namibia.

Existing Supply Chain Favours China

China has a proven history of capturing high-growth supply chains by aggressively securing the lowest production costs, and the energy storage market is no exception. With control of the world’s cobalt supply at stake, a few subpoenas here and there hold little sway, and operating in one of the world’s poorest countries only provides a competitive edge. The national government also controls the fate of all Chinese refineries, which are regularly consolidated in pursuit of the greatest efficiency.

Glencore’s Katanga mine will continue to dominate ore supply in 2018, but through its state-mandated processes, China has become responsible for almost 90% of refined cobalt output. If European and American automakers are to compete, new cobalt refineries in more stable jurisdictions are required. Particularly considering that the LME will soon step-up audits and inspections of companies with DRC-linked cobalt supplies, delisting those that fail to meet standards; it’s never been more important to source elsewhere.

Celsius Represents A Non-Chinese Cobalt Supply

The Opuwo project touted by Celsius Resources is an ideal candidate for a cobalt-first mine in a stable jurisdiction with strong ties to Europe. 126,100 tonnes of contained cobalt in sulphide ore has been located on the Kaoko Belt in northern Namibia. Kaoko is thought to be the western extension of the Central African Copperbelt that spans the DRC containing 40% of the world’s cobalt and 50% of its copper.

Historically, cobalt is mined as a byproduct of nickel and copper, predominantly on the copperbelt. While these projects can ramp up cobalt production, they are more affected by the fundamentals of the nickel and copper markets, meaning that cobalt output is frequently out of sync with demand; an increasingly unfavourable situation considering the growing necessity of the material. The Opuwo project is a large and primary cobalt deposit able to provide a stable supply.

While it’s true that a large number of new projects have come to the fore, the majority are marginal at best and would make for uneconomical primary deposits. Too many nickel laterite projects have been rebranded as cobalt plays, but this is a marketing ploy that won’t fly with investors for long. When considering which cobalt developments will become producing mines: high-grade, large resources with efficient processing will always make the most sense as their operating costs stay low enough to survive a long-term game and to have any chance of competing with China.

A Refinery In-Waiting

Crucially, Namibia offers a ten-year tax holiday should Celsius choose to build a refinery there. A scoping study is currently underway, but the Sub-Saharan region is a natural fit to supply the German auto industry. Exporting higher-value materials generates higher export taxes, and so there is benefit to be had all-round should Celsius proceed with the construction of the plant.

What’s more, Namibia has strong current and historical ties to Germany and, unlike South Africa and the DRC, imposes no forced joint ventures on foreign miners. These indigenization policies are renowned for discouraging investment in African mining as they can significantly dilute shareholder value. The political risks associated with investing in Namibia have been reduced to almost negligible, a great comfort for shareholders.

Moody’s has noted that Namibia’s sovereign debt rating is still supported by the country’s strong growth prospects, and Fitch Ratings still has Namibia on an investment-grade rating. The country has a well-developed financial system with easy access to South Africa’s deep capital markets and ranks amongst the top for doing business in the Sub-Saharan region. The nearby Port of Walvis Bay also eliminates the excruciating headache that is moving goods overland across several African countries.

Namibia's Cobalt Represents a Highly Competitive Alternative

As Congolese infrastructure and working conditions continue to degrade, Namibia has taken great strides in its economic development and maintains a strong rule of law that steadily improves year-by-year. According to Deloitte, Namibia has a positive growth outlook with investment potential combined with a robust macroeconomic environment that is politically stable and regionally competitive.

In 2016, Apple conducted a survey of cobalt refiners that had completed a third party audit and were said to be compliant - none of these refineries are in Africa. There is considerable potential for Celsius to develop its plant in the Walvis Bay area and become the first compliant refinery in Africa, decoupling the cobalt supply from Chinese plants and contributing to a better Sub-Saharan Africa.

Celsius Resources (CLA:ASX) secured a JORC-compliant mineral statement demonstrating 126,100 tonnes of contained cobalt in 112.4 million tonnes of sulphide ore, cementing its status as the largest cobalt sulphide deposit outside of the DRC. At 0.11% cobalt grade (cut-off:0.06% cobalt/600ppm), the project is suitable for conventional & simple processing techniques, boasting grades that should remain economical with a metal price over $40,000/tonne, considerably lower than the inflation-adjusted historic mean of $55,197 since 1938.

 

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More Information:
Glencore
Celsius Resources
ERG Africa

Disclaimer: One or more of the companies mentioned above are public relations clients of Core Consultants. As such, Core Consultants holds options in one or more of these companies. Nothing in this article is to be construed as investment advice.

Copyright © 2018 Core Consultants Pty Ltd.

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