In recent years, cobalt has gained a lot of interest as an alternative to platinum in some applications. Most of the time, this metal is obtained as a byproduct of copper deposit of nickel refining. As a result, it’s found in electric vehicle batteries, industrial equipment, and paint.
Cobalt is a rare, costly, and highly coveted metal. However, investing in cobalt isn’t as simple as it appears. Before investing, investors should be concerned about the hazardous and violent circumstances that contribute to cobalt scarcity.
What is Cobalt Stock?
Cobalt is a chemical element that occurs in the Earth’s crust. While cobalt isn’t new, demand for it will rise in the coming decades. Lithium is essential for creating energy storage batteries used in electric vehicles (E.V.s). As E.V. production increases, so will lithium-ion battery demand. As a result, lithium output will rise in the future. Cobalt is a critical raw material in rechargeable batteries for electric power vehicles (E.V.s). As the usage of electric cars grows, more cobalt will be required. Cobalt prices are expected to rise as a result of this increasing demand.
The cons of investing in cobalt
Cobalt is controversial, and supply is concentrated in the DRC.
The Democratic Republic of Congo is home to about two-thirds of the world’s cobalt reserves, where corruption, safety concerns, and issues with child labor are rampant. The Democratic Republic of Congo DRC is one of the most economically distressed countries. The majority of people there do not even have access to electricity. In addition, BMW has avoided buying cobalt from the DRC due to child labor allegations.
The DRC is also not a reliable or constant supplier of materials. As a result, automakers are attempting to figure out how much cobalt they can use without affecting performance.
Carmakers are trying to use less cobalt and develop alternatives.
Carmakers are working to reduce the amount of cobalt in electric vehicle batteries. For example, Tesla claims it is “working toward a low-cobalt future.” Other carmakers strive to use less cobalt and more nickel-cobalt refinery or manganese.
However, achieving net-zero cobalt is quite challenging: low-cobalt batteries are more prone to overheat and ignite. And, even if less cobalt is used in each automobile, demand for the metal could rise due to the growing number of electric vehicles on the road.
Alternatives to cobalt-based batteries are also being researched. Lithium-iron-phosphate (LFP) is the most popular alternative, albeit vehicles with LFP batteries have shorter ranges. The second alternative, solid-state batteries, is still in the research stage.
Features to Look for in Cobalt Stock
The mines that a firm owns or invests in are one of the essential aspects of a cobalt stock because cobalt is often a byproduct of nickel and copper mining. Glencore’s cobalt-producing mines are primarily located in the Democratic Republic of the Congo, accounting for a significant percentage of the world’s cobalt. Still, political upheaval may endanger Glencore’s stock price.
As with any company, you should assess the firm’s fundamentals and see whether they are presently profitable or have good potential for future profitability. In addition, the company’s financial situation, including the stock’s earnings per share and other important indicators of the company’s financial health, can provide further insights into how well the store might perform.
Because many mining firms are located outside the countries where their cobalt-producing mines are located, local miners frequently join forces with international mining companies. These business partnerships may impact cobalt production and are often the primary organizational structure for small mining enterprises.
Investing in cobalt stocks
In recent years, the cobalt mining company has been a profitable investment. Cobalt prices, like other commodities, are occasionally volatile. Cobalt is also a byproduct of the metal mining sector, which means there are no pure-play cobalt equities within the industry. Many cobalt equities aren’t traded on a U.S. exchange.
Buying shares in an international mining exchange-traded fund (ETF) that invests in companies involved in battery technology, such as the iShares MSCI Global Metals & Mining Producers ETF (NYSE: PICK) or Amplify Lithium & Battery Technology ETF (NYSEMKT: BATT), is another viable alternative.
7 Cobalt Stocks to watch in 2022
BHP Group is a large mining firm based in Australia with operations worldwide. The firm mines metals, base materials, and energy resources. BHP is the world’s largest cobalt producer and one of its top recyclers, so it is no surprise that they are at the forefront of this movement. BHP mines cobalt (one of the byproducts of refining copper and nickel) due to its extensive recycling business.
BHP 2021 signed a cooperation agreement with A.I. computing company Kobold Metals, which applies algorithms to land acquisition and exploration decisions. In addition, BHP Billiton and the South African government have reached an agreement that will allow BHP to get metals such as cobalt and nickel used in producing electric vehicle batteries and other renewable energy initiatives.
BHP’s mining operations are cyclical, but the firm is consistently profitable and generates operating profit margins that frequently reach double digits.
Another top metal and base material producer is Vale, based in Brazil and one of Latin America’s major firms. It is the world’s largest iron creek project and nickel producer and a significant source of metals such as manganese and copper used in battery production.
Vale is a cobalt supplier as well since it mines nickel and copper. It isn’t Vale’s primary source of cobalt, but the firm is notable because it is a significant miner of essential metals utilized in many sectors.
Like BHP, Vale also profits from its enormous size. As a result, it has one of the best operating profit margins in the mining business.
Another global mining business is Glencore, which is based in Switzerland. The production of essential metals such as copper produces, nickel, and cobalt are among its energy, recycling, and mining assets. Glencore is known for being one of the world’s largest cobalt producers, mostly from its copper mines in the Congo.
Glencore is not listed on a U.S. stock exchange, so investors in the United States should be aware that Glencore is unlisted. Instead, shares can be bought as an ADR (which stands for a foreign firm’s stock) through a broker who does business over the counter. There are a few dangers to holding shares in an ADR. Glencore, on the other hand, has not maintained the same high-profit margins as rivals such as BHP and Vale in recent years.
Another extensive mining and energy firm is Freeport-McMoRan, based in Arizona. Freeport-McMoRan is one of the leading producers of copper, which is utilized across the world economy. In addition, cobalt is part of the company’s assets as a copper-cobalt miner.
In 2019, Freeport-McMoRan reached a deal to sell $200 million worth of its cobalt venture. The cobalt refining business is still owned in part by the firm. Freeport-McMoRan, like other global mining firms, has historically produced extremely high operational profits from its mineral assets.
Wheaton Precious Metals
Wheaton Precious Metals Corp is an investment in metals like gold and silver, as the name implies. It is not, however, a mining firm. On the other hand, Wheaton is a commodity “streaming” firm that agrees with a mining company to pre-purchase all or part of the miner’s output at a set price. Wheaton acquires significant quantities of cobalt as well as other precious metals.
Wheaton is a unique niche in the global production mining industry. It’s also very lucrative and returns dividends to investors who want an income from their investments.
China is the world’s primary market for electric automobiles. It also consumes a lot of cobalt, and China Molybdenum is one of the top producers. In reality, China’s Molybdenum is the second-largest cobalt produced in the world (which it creates as a byproduct of copper refining).
China Molybdenum is not traded on a U.S. stock exchange, like some other global mining businesses. So before making a transaction through the over-the-counter market, be careful. For example, funds such as the Amplify Lithium & Battery Technology ETF have China Molybdenum as a component in their portfolio rather than buying the stock.
Cobalt Blue Holdings
The fourth firm is a penny stock, a typical sort of offering in the mining business. Cobalt Blue Holdings presently generates no significant income. This is a venture and research firm with a focus on Broken Hill Cobalt at the moment.
The company’s newest cobalt project is in New South Wales, Australia. If the project’s development is successful, the firm hopes to be able to supply raw materials for the battery industry as the top cobalt stocks.
This stock is not mentioned as a suggestion. On the contrary, Cobalt Blue is extremely risky as a development firm and a penny stock, with success being dependent on the company’s ability to operate its mining facilities. So take precautions with firms like this. Nonetheless, if my mine begins operations, Cobalt Blue may become a frontrunner in cobalt production, so keep an eye on it.
What is the best way to invest in cobalt?
Cobalt is rarely extracted in isolation since it occurs with other metals. This implies that most businesses listed below don’t exclusively deal in cobalt.
Know that most cobalt stocks need an international brokerage account to trade since very few of these multinational corporations are available on U.S. exchanges.
Cobalt has been highly volatile in pricing, with prices continually declining. However, industry experts believe that the metal will soon recover despite what may appear to be a negative investment.
Invest in cobalt futures
If you’re looking for a way to invest in cobalt futures, the London Metal Exchange has you covered. C.O. is the ticker London Metal Exchange traders use when buying and selling cobalt contracts. The price of cobalt futures began trading in 2010 and are priced in U.S. dollars per tonne. Contracts with terms ranging from 15 to 30 months may be found, allowing you to make wagers on various time frames.
Cobalt futures are a lot riskier than dabbling in equities and ETFs because you are directly exposed to the material’s price changes. There are no questions about cobalt’s long-term potential. Investment stocks in the cobalt industry offer more stability and a more significant number of investors supporting them, resulting in more incredible investor wealth. Futures are your best bet if you’re confident in cobalt’s price increase.
Invest in Cobalt Exchange-Traded Funds
ETFs may also be used to invest in cobalt. An ETF is a collection of assets that are publicly traded and can grow or shrink as market conditions change. The value of the fund or portfolio is determined by the price of the ETF being sold. They are also a fantastic technique for investors to get exposure to different investment instruments since they may be traded throughout their available time.
How To Choose the Right Cobalt Stock
Investing in commodity production, such as cobalt might be difficult. Prices fluctuate wildly; supply and demand shift monthly and year to year. As a result, stocks in the business that produce such goods can also change drastically in price. If you’re a trader seeking more reliable or consistent earnings, invest in established firms with proven track records of earning high-profit margins.
However, cobalt is a strong candidate as a raw material. Moreover, the decade ahead may be very profitable for producers of the element if battery technology continues to develop and the demand for electric cars and renewable energy projects rises.
Cobalt Stocks: The Bottom Line
With demand projected to double by 2030, cobalt appears to have a bright future. Around the world, countries have established aggressive goals for either boosting electric vehicle cobalt sales or replacing internal combustion engine vehicles entirely. In addition, cobalt is another difficult-to-find mineral, so those with the means of production are now well-placed for continued growth.
That is not to say cobalt isn’t hazardous. On the contrary, toxicological concerns about its origin in central Africa and worries about the safety of its supply have prompted talk of a rise in output. Today, cobalt is an essential component of battery manufacturing, but research is ongoing to minimize or even eliminate the metal from batteries. As a result, cobalt production is expected to rise for the next several years, although whether it will continue to expand indefinitely is less confident.
Frequently Asked Questions
Are cobalt stocks a good investment?
In 2021, the price of cobalt doubled, and cobalt mining stocks rose as a result. Cobalt’s application in electric vehicle batteries and battery storage is fueling demand. Cobalt was an excellent investment ten years ago, but past performance doesn’t predict future results. Cobalt prices have been highly unpredictable, and automakers are searching for cobalt-free alternatives.
What is the best way to invest in cobalt?
There are two significant ways you can invest in cobalt. One is by investing in cobalt futures contracts on offer on the London Metal Exchange’s trading floor (LME), and the second is by purchasing shares of cobalt-producing companies.
A futures contract on cobalt is another way to get it. The London Metal Exchange is the only custodian of cobalt futures contracts.
The Financial Conduct Authority (FCA) of the United Kingdom has created a commodity exchange that allows high-value investors and mining companies to hedge or bet on metals like cobalt without stealing their money. Battery producers, mining firms, electric vehicle businesses, and large merchant traders are represented here.
You can buy a 3-month Eurocurrency futures contract and hold it for 15 months. You may acquire an LME commitment in cash or with a duration of three months, although the value rises to 15 months if you do so. Even though LME gives cobalt exposure, it is not suitable for small investors.
Investing in and trading the metals cobalt and nickel can also give a taste of the metal element. You may gain exposure to the metal element by owning shares of copper and nickel companies actively looking for cobalt.
The price of cobalt fluctuates a great deal. In 2018, the price of cobalt rose to $44 per pound before falling to $25 in the second half. In 2019, the cost of gold fell further, ending the year at $14.50. Despite what many would characterize as a poor investment, analysts anticipate that the metal components will recover.
Cobalt prices are anticipated to rise in the coming years, according to metal analyst company CRUGroup. There will be a small surplus of cobalt over the next few years before it decreases, according to CRUGroup. Demand for electric vehicle battery production materials would boost the value of cobalt after that.
Why is Cobalt So In-Demand?
Cobalt is an essential component in the manufacture of lithium-ion batteries. However, because it isn’t even included in the name of li-ion, why does cobalt play such a significant role? Why is cobalt used in batteries? It’s essential for increasing battery energy density, which is why it’s utilized. This is critical in electric cars since batteries with insufficient energy density would be too heavy and therefore unusable in consumer vehicles.
Batteries have long suffered from a lack of energy density. For example, gasoline is about 100 times more energy-dense than a typical lithium-ion battery, which means increasing the energy density of batteries is a must. In addition, internal combustion engines are more energy-inefficient than electric automobiles Manufacturers, however, must compensate for the lower energy density of batteries.
Are there alternatives to cobalt?
While cobalt demand is expected to rise, production is not yet specific. And this might be a danger for cobalt stockpiles. As previously said, the DRC is the world’s primary source of cobalt. Because of its high price, cobalt has become a highly sought-after commodity, with some people raising concerns about potential human rights abuses. Cobalt is also an extremely poisonous metal, making matters worse.
However, researchers are working to not only improve the energy density of Li-ion batteries but also to minimize or eliminate cobalt. For example, a research team at the University of Texas revealed the results of new cathode chemistry that contains no cobalt.
The chemistry produced energy using a nickel-rich cathode and an experimental lithium-ion pouch cell. As a result, energy density was somewhat lower, but charge times were not significantly impacted. Notably, the battery continued to function well after more than 1,000 cycles of charging and discharging – another role for cobalt.
Other alternative designs, such as cobalt-free solid-state batteries, are also intriguing. While this is all early study right now, it does have the potential to alter how lithium-ion batteries are manufactured.
Just Start Investing is a personal finance website that makes investing easy. Learn the simple strategies to start investing today, as well as ways to optimize your credit cards, banking, and budget. Just Start Investing has been featured on Business Insider, Forbes, and US News & World Report, among other major publications for its easy-to-follow writing.