For investors involved in high-growth market segments, the electric car theme is a huge investment thesis that holds massive potential for those involved in the metals central to the construction of the type of batteries that power this revolution.
One of the most important in that mix is cobalt. Cobalt is critical for increasing the energy density of lithium-ion cathodes. In addition, the extra power provided by cobalt impacts other themes as well: it allows for longer battery life in smart phones, extended driving ranges between charges for electric cars, efficient storage of energy produced through solar and wind harvesting techniques, and extra efficiency in design and functionality for laptop computers.
In short, it’s a focal point for a number of themes that have sticky application over the intermediate and long term future for many 21st century core industries.
Right now, due to complex geopolitical issues, battery producers are dealing with a potentially critical supply shortage looking ahead in the cobalt market, and several companies may be poised to take advantage as output margins set up to soar higher.
Vale SA (ADR) (NYSE: VALE), together with its subsidiaries, produces and sells iron ore and iron ore pallets for use as raw materials in steelmaking in Brazil and internationally. It operates through Ferrous Minerals, Coal, and Base Metals segments. The Ferrous Minerals segment produces and extracts iron ore and pellets, manganese, ferroalloys, and others ferrous products and services, as well as engages in the provision of related railroad, port, and terminal logistics services. The Coal segment is involved in the extraction of metallurgical and thermal coal; and provision of related logistic services.
The Base Metals segment produces and extracts non-ferrous minerals, including nickel, as well as its by-products, such as ferro-nickel, cobalt, gold, silver, copper, precious metals, and others.
The company was formerly known as Companhia Vale do Rio Doce and changed its name to Vale S.A. in May 2009. Vale S.A. was founded in 1942 and is headquartered in Rio de Janeiro, Brazil.
Given its positioning as the global heavyweight, soaring cobalt prices would naturally help the bottom line here, and this is one of the biggest players on the cobalt playing field. However, there’s so much more here going on that the signal-to-noise level might be a bit low.
In any case, the stock has been holding support along the 50-day simple moving average in recent action just under the $14/share level. This action comes in the context of a broad and durable three-year upward trend that has its roots in the beginning of the Fed hike cycle in late 2015. However, investors in at the start of this trend have already sextupled their money.
PACIFIC RIM COBALT ORD (OTCMKTS: PCRCF) focuses on the acquisition and development of cobalt deposits for lithium-ion battery industry. The company is a Canadian publicly listed company currently focused on the development of cobalt projects within Indonesia.
Its TNM cobalt project encompasses cobalt and nickel mineralization as well as excellent infrastructure for year-round development activities. The Company believes cobalt will be the next dominant investment trend related to the critical components of lithium-ion batteries.
As discussed above, Cobalt is currently in a global supply deficit, has a vulnerable supply chain, and is part of an emerging sector with extraordinary potential. Pacific Rim believes that the quality of our assets and our proximity to markets give us the opportunity to be a leader in the cobalt development space.
One of the interesting elements in the Pacific Rim story is that it is powerfully focused on the rich Indonesia potential and is looking to capitalize over the next twelve months, which could position the company to benefit from the supply deficits in the years ahead, avoiding any potholes along the way.
The stock has pulled back to find support at the $0.25/share level. And that support translated into a sharp pop higher to retake the key 50-day simple moving average. This suggests that a pivot base may be in place here leading to the potential for retest of the 2018 range highs up near $0.60/share.
One of the key factors suggesting this speculative play may be interesting is the fact that it really is a pure-play on this story. If this turns out to be the type of boom for the cobalt market that many experts are predicting, investors with a starting point in a stock like this at such cheap levels could end up reaping the benefits in a manner that far exceeds the potential found in a more diversified play.
SUMITOMO METAL/ADR (OTCMKTS:SMMYY), together with its subsidiaries, engages in mining, smelting, and refining; semiconductor and advanced materials manufacturing; and other businesses in Japan and internationally. It operates through three segments: Mineral Resources, Smelting & Refining, and Materials. The Mineral Resources segment is involved in the exploration, development, production, and sale of non-ferrous metal resources, such as gold, silver, copper concentrates, and copper. The Smelting & Refining segment primarily engages in smelting and selling copper, nickel, ferro-nickel, and zinc, as well as chemical products; and precious metals, including gold, silver, and platinum.
The Materials segment is primarily involved in the manufacture, processing, and sale of semiconductor materials comprising lead frames, tape materials, and substrates; and advanced materials consisting of pastes, powder materials, battery materials, and crystalline materials. This segment also manufactures and sells automotive exhaust processing, chemical, petroleum refining, and desulfurization catalysts, as well as autoclaved lightweight concrete products; and lubricants.
The company also engages in real estate and technical engineering businesses. The company was formerly known as Seika Kogyo (Mining) Co., Ltd. and changed its name to Sumitomo Metal Mining Co., Ltd. in June 1952. Sumitomo Metal Mining Co., Ltd. was founded in 1590 and is headquartered in Tokyo, Japan.
Sumitomo is in a position somewhat similar to VALE, as we discussed above.
The stock got a later start in the cycle, bottoming in early 2016, but has run up severalfold in that time. At present, shares are battling for key support around the 200-day simple moving average near the $10/share level. This is a highly complex, large, multinational corporation even though it trades on the OTC on an ADR level.