Cobalt27 is likely to hold one of the largest stocks of physical cobalt in the world, through its fund. Anthony Milewski, its CEO brings us closer to the nature of this business and shares his views on the involvement of financial players in physical minor metals market.
Lithium Today (LT): Maybe at first let’s get back in time a bit. When was the first time when you realized that cobalt prices may skyrocket.
Anthony Milewski (AM): I don’t think at first we were focused on price, we were focused on demand. We started looking at EV revolution and basic materials that it was based on. We were looking at nickel, copper, lithium in particular. Each one had its own supply and demand dynamic and one of the unique things about cobalt was its importance inside batteries chemistries. We immediately could see tremendous growth in demand in coming years, immediate future but also in the coming decades. It really sparked our interest in thinking about what that demand will mean for cobalt in the coming years.
LT: When was it in terms of years?
AM: It’s been about two and a half, three years, now.
LT: Have you ever considered investing in lithium in any form?
AM: We did look at lithium and what we have decided, there is already a large number of players who have already sort of moved down the track, and for us focusing on nickel and cobalt made more sense from the point of lead time. More opportunities in terms of investable situations.
LT: So do you mean that it would be difficult to compete with producers and traders in terms of stockpiling lithium?
AM: Our business is really streams and royalties business. We do have a cobalt stockpile but it is really the smallest portion of our business. When we looked at lithium, we couldn’t really see a place where there is a lot of opportunities, simply because lithium is a primary commodity and cobalt is a byproduct. So it is easier to approach a miner about a stream of a byproduct than a primary commodity.
LT: How long can cobalt stay in a warehouse without loosing on quality. Can it stay in warehouse indefinitely?
AM: In the metal form it can stay indefinitely.
LT: Do you have any problem in sourcing more at this state of the market?
AM: We are not focused on acquiring more additional physical cobalt. We are focused on streams and royalties, with many opportunities in this space moving forward.
LT: How liquid is a physical cobalt market? How quickly could you exit the position if you wanted to?
AM: A cobalt market is definitely not like copper market. It is a small market, it is probably 115 000-120 000 MT market, maybe even slightly larger today. We have approximately 3000 MT-2950 MT. So you would probably do that in one of two ways. A strategic sale to a battery maker or other end user, or you would enter formula contracts, where you state you deliver X MT/month – and specify the number of months and then you sell the stock over time. So minor metals, you have to appreciate, are not like copper or gold. You cannot go and sell as much as you want, within a week.
LT: When I look at Minor Metals Trade Association website, there are different cobalt grades and origins specified. For what grades and origins there is the biggest demand right now? Or it doesn’t matter from the point of view of end-consumers?
AM: Different consumers use different form, it’s really what we are talking about here. Norilsk produces Russian ingot, Vale produces Vale round. What happens is that certain kind of users grown accustomed to certain metal in a certain form. Also, higher purity metal with low level of impurities as cadmium, goes for certain applications, as jet engines, some of the cathodes which won’t be as pure will likely go to the chemical industry and end up in the batteries.
LT: What is your sales pitch to investors when you sell your fund? Do you offer mainly a diversification opportunity? I would imagine the cobalt as an asset class is low correlated to asset classes in which institutional investors usually invest. Or do you talk more of possible rate of return?
AM: Well, it depends on what level. On a certain level it is a story about growth of EV market, supply and demand dynamic which unfolds in coming years. On the other level, there is the share price level, we have today, so I am talking about trading at a significant discount to NAV. NAV would be of course on the basis of cobalt price, doing present value on the streams and royalties and then doing the same on the physical. I think there is a big picture which is an adoption of EV and the acceleration of that adoption. The micro is that a stock is trading at a big discount today.
LT: I am a bit surprised that there is so little interest from the side of institutional investors in investing in minor metals and rare earths.
AM: I think this is about liquidity, look at big financial players managing tremendous sums of money. If you are running a five billion dollars position, think of your “rounding error”. So one of the issues these players have, they can’t put a position of size and scale and if they do put a position large enough, they are not having a liquidity. So this is a very challenging type of investment.