Could this be the next hot metal?

A recent technical breakthrough in battery research has raised the possibility of a next-generation battery with at least twice the power storage capacity of existing lithium-ion cells. It is still some way from commercialization, but the early signs are promising. As reported in the Economist, the new battery is the brainchild of Ju Li of the Massachusetts Institute of Technology. It is a version of what is known as a lithium-air battery, something that has been the holy grail of energy storage research since the 1970s. In theory, such batteries could hold more than four times the energy per kilogram of lithium-ion batteries. But building them has been difficult. The batteries need air to work, specifically oxygen. However, other atmospheric gases such as water vapour and carbon dioxide often damage them. In this article, I explain the advantage of Dr. Li’s design, and what it means for cobalt.
Marcus Tuck

Mason Stevens

Even versions that run on pure oxygen have been plagued with problems. Using and recharging existing lithium-air batteries wastes a huge amount of energy because the process involves changing the oxygen from a gaseous state into what is, in essence, a solid, and then back again. Such phase changes require a lot of energy and often waste more than 30% of the input electricity. Moreover, the changes in volume that accompany the shift from gas to solid to gas put a strain on the battery's electrodes. They rapidly degenerate to the point where the battery can no longer be recharged.

The crucial difference between Dr Li's design and previous attempts is that no actual air is involved. Instead, the cell is hermetically sealed and uses oxygen stored inside the battery itself, in a chemical called lithium superoxide (LiO2). Because this compound is unstable, it is easily induced to surrender some of its oxygen. To stop the superoxide disintegrating spontaneously, Dr Li embedded it in the voids of a matrix made of cobalt oxide. This gives the superoxide's structure stability.

When the new battery is discharging power, lithium ions from a liquid electrolyte that bathes the matrix, enter the solid and react with the oxygen in the superoxide to form either lithium peroxide (Li2O2) or lithium oxide (Li2O), both of which are also solids. Those chemical reactions drive electrons around an external circuit, where they can be put to use running anything from a mobile phone to a vehicle's electric motor. Push electrons the other way around the circuit, though, by connecting the battery to a power supply, and the chemical reactions will go into reverse, thereby recharging the battery.

That the oxygen remains in a solid state throughout these processes is crucial to the new battery's success. Instead of 30%, it loses just 8% of the energy put into it. Similarly, its life is prolonged. In trials which discharged and recharged the battery 130 times, it lost less than 2% of its capacity.

Scientists who have peer-reviewed the work agree that it is a major technical breakthrough. Dr Li hopes to turn the prototype into something that can be manufactured within a year. That is an ambitious goal but, from an engineering perspective, the challenges are similar to conventional lithium-ion batteries so rapid development should be possible. For electric vehicle manufactures such as Tesla and its rivals, such a battery would open the way for lighter cars with longer ranges. Dr Li and his team have filed a patent and have begun talking with manufacturers. It remains to be seen who will license the technology first.

Assuming all goes well for Dr Li and his team, cobalt looks likely to become the next hot metal. The world obtains most of its cobalt from the by-products of nickel and copper mining and smelting. According to the British Geological Survey, the copper deposits in the Katanga Province of the Democratic Republic of the Congo are the main source of cobalt, accounting for almost 40% of world production. The notoriously volatile political situation in the Congo influences the world price of cobalt from time to time.

The Mukondo Mountain project, operated by the Central African Mining and Exploration Company (CAMEC) in Katanga, may be the richest cobalt reserve in the world. According to some estimates, it is capable of producing about one-third of total annual global production of cobalt. In July 2009 CAMEC announced a long term agreement whereby CAMEC would deliver its entire annual production of cobalt concentrate from Mukondo Mountain to a private Chinese company called Zhejiang Galico Cobalt & Nickel Material Co. Ltd. China has been very strategic about positioning itself in certain key commodities.

Several methods exist for the separation of cobalt from copper and nickel. They depend on the concentration of cobalt and the exact composition of the ore, but usually involve flotation separation of the concentrate, followed by roasting and leaching with acid. The resultant cobalt oxide (Co3O4) can then be reduced to metal through further processing.

According to the metals research house, CRU Group, in their latest Cobalt Market Outlook Update, published on 20th May 2016, the global market for cobalt will move into a 4,800 tonne deficit in 2016, as global demand exceeds 100,000 tonnes for the first time. They expect sustained pressure on supply will help lift prices to over US$15/lb by 2020. And that was before the latest battery research breakthrough, which will further increase demand for cobalt.

When it comes to investing in metal companies it is better to be early on the scene rather than late. So what listed exposures are available?

The biggest listed cobalt producers are not pure plays as they are usually copper or nickel producers that produce cobalt as a by-product. They often have other mining interests as well. Two of the largest are Freeport-McMoRan (FCX.NYS) and Glencore (GLEN.LSE). Through a joint venture business, Freeport has a large ownership stake in a cobalt mine in the Congo that it uses to supply Freeport's Kokkola cobalt refinery in Finland with cobalt concentrate. Glencore operates the largest nickel refinery in the western world in Norway. Their refined cobalt output accounts for about 10% of global production. Umicore (UMI.BRU) is a Belgian company that, among other things, refines cobalt for its Advanced Materials division.

Closer to home is the mining minnow Broken Hill Prospecting (BPL.ASX). With a market cap of only $11 million, it is one the few relatively pure-play listed cobalt explorers in the world. They own 100% of the Thackaringa Cobalt Project near Broken Hill. The value of the inferred cobalt resource is many times the current market cap of the company but BPL is still very early-stage so any investment should be regarded as speculative.

Article contributed by Mason Stevens:  (VIEW LINK)

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Marcus Tuck
Marcus Tuck
Head of Equities
Mason Stevens

Responsible for identifying domestic and international equity investment opportunities. 25 years of financial markets experience as an equity strategist, economist, analyst, portfolio manager and consultant.

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