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| |  | |  | | | |   July 24, 2008
The hi-tech metal that could save the airline industry
Publisher: Moneyweek.com
Author: Chris Mayer
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| | In investing, the prospect of crisis has always been a sort of summons for me. It's like when I was a little boy and the ice cream truck's jingle sent me running for loose change on a hot summer day. These days, I'm just trying to get at goodies of a different sort -- profitable investment ideas, instead of ice cream bars.
And today's aviation industry has a big crisis on its hands. As a percentage of airline costs, fuel is now about 35% of the total -- up from only 13% at the start of the decade. It is the airline industry's No. 1 expense. The cost of fuel puts enormous pressure on the industry. At the same time, regulators are pushing for cleaner planes with fewer emissions.
"The price of oil has challenged and changed all realities for the aviation industry," says Tim Clark president of Emirates, a Dubai-based carrier. "This is the greatest crisis in aviation's history -- bigger than the Gulf wars, Sept. 11, SARS and past oil shocks."
If oil prices stay where they are and nothing else changes, the airline industry will lose about $6 billion this year, compared with a profit of $5.6 billion last year. Many airlines will be taking that familiar stroll into the bankruptcy courts. Globally, 24 airlines have already filed in just last the seven months.
The industry is trying -- and will try -- lots of different tactics to fend off elimination. One of these is to push for more fuel-efficient aircraft. And that is the opportunity for investors to cash in on this crisis.
It starts with the jet engine. Today's Wall Street Journal published "Jet Engine Makers Launch New War" -- all about the drive for new fuel-efficient engines. The piece notes that airlines worldwide want to replace their existing fleets with next-generation planes, not the current oil-guzzling models. The goal of the jet engine makers -- or rather, the mandate put to them by their customers -- is to deliver at least double-digit gains in fuel-efficiency.
As the WSJ reports: "Developing fuel-efficient engines requires the use of exotic alloys and ceramic coatings that can cope with internal engine temperatures that would be above the melting points of untreated metal components."
Enter cobalt. It's a tough metal with a high melting point of 2,700 degrees Fahrenheit. This higher melting point allows it to maintain its strength at higher temperatures than other metals can. Cobalt alloys have higher melting points than either nickel or iron alloys.
As a result, one of the main uses of cobalt is in superalloys such as those that jet engine makers need. In fact, the making of superalloys consumed about a quarter of global cobalt production, of which about 75% wound up in aircraft.
Cobalt would seem to have a nice backdrop of long-term demand. But it doesn't stop there. Defense spending is also on the rise globally. A Financial Times report on aerospace notes that India, China, Brazil and certain Middle Eastern countries are all upping their defense spending. India alone may spend $40 billion in 2009.
Cobalt is an important part of all that, too. In fact, the U.S. and the Soviet Union used to stockpile cobalt for defense purposes. Those stockpiles are long gone, but the role cobalt plays in defense still exists.
As exciting as the aerospace angle is, a potentially bigger market could be batteries for hybrid cars. As I pointed out in the last issue, there are 5-10 pounds of cobalt in a typical hybrid car battery. Hybrid car sales will probably hit 500,000 cars this year. And that is growing rapidly.
Kitco recently noted that cobalt holds an electric charge better than almost any other metal. That makes it hard to replace, even at $50 per pound. "And the current electric batteries work so well," Kitco notes, "[that] there is little incentive to change their structure (and other metal prices have skyrocketed, as well as cobalt -- nothing is cheap anymore)."
With the failure of banks and the troubles of big financials such as Fannie Mae, cobalt seems a nice place to be. A while ago, I recommended a "cobalt play" to the readers of my investment service, Mayer's Special Situations. The name of the stocks is OM Group (NYSE: OMG). I should warn you that the stock is a bit speculative. But let me share a few of the particulars...
OMG carries a seemingly absurd valuation. It's not often that you find profitable and growing companies with no net debt trading for big discounts to book value. The specialty chemical industry -- a tribe to which OMG belongs -- is undergoing heavy consolidation. Companies are getting bought out left and right. Dow Chemical bought Rohm and Haas for a 74% premium. And then Ashland came along and bought Hercules for a 38% premium.
Companies that make low-margin chemicals are looking to beef up on companies that make high-margin, or specialty, chemicals. Because OMG is cheap and very profitable, it has to be on someone's radar. I hope that it doesn't get bought out. I think we'll do better holding the stock. But the deal-happy scene in the chemical business is another potential backstop of value here.
Hard to believe that anyone could buy all of OMG for anything less than at least book -- which is $36 per share. And even that would bring howls of protest. After all, the stock was in the $50s for much of the past year. We will see.
In any event, let's bring this back around to the aviation crisis. A familiar theme in the pages of my letters over the years has been this Templetonian notion of focusing on the opportunities that problems present. The late great John Templeton made this idea a key component of his investment -- and life -- philosophy.
The high price of oil is a big problem for many industries.
So if you have a good way to mitigate the high price of oil, you have a business. I think the big winners over the next few years are going to be those companies that have a solution to the high price of oil. Those companies have products that other people will pay up for, because fuel-efficiency is a must. The aerospace industry must become more fuel-efficient.
Cobalt alloys will be a big part of that trend.
This article was written by Chris Mayer for Whiskey and Gunpowder
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| July 17, 2008
Cobalt prices soften over summer, but bullish trader sees $150/lb possible next year
Publisher: Metal-Pages
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| |
This is Not an Official Company News Release
- For the Information of Shareholders and Interested Parties Only -
Dear Shareholder/Interested Party,
Below find an article by Metal Pages regading the price of cobalt and future price projections:
Cobalt falls to 9-month low
LONDON (Metal-Pages) 17-July-08. The cobalt market has fallen to a nine-month low, trading at its lowest since November 2007, with market players saying they expect the price to fall further in the next few months.
The price for high grade material was quoted at a range of $ 38-40/lb and Russian material was quoted at $ 35-37/lb. BHP Billiton lowered its screen offer price this morning by $ 2/lb to $ 40/lb and Norislk Nickel also lowered its inidcative price for 99.3% cobalt today to $ 37.50/lb down $ 1.5/lb from $ 39/lb.
Traders reported that the cobalt market was trading at a $ 5/lb backwardation over the next three to six months.
A UK trader said: "The market is in a fairly stiff backwardation - there is business going on in ever decreasing numbers and the theme continues with the prices moving down and I think they are going to move down further. People are trying to find buyers, BHP is looking to sell, but consumers are waiting until they need metal. There is no weakness in demand, it's just that consumers are not going to buy until the price is lower still."
However, a more bullish trader said that while he anticipated further falls in the cobalt price in the next month, he expected the market to rally in September.
"The lower it goes the bigger the bounce, I wouldn't be surprised to see the price at $ 150/lb next year - I think it will catch everyone by surprise," he said.
He noted that Airbus has commissioned 40 billion dollars worth of aircraft over the next five years and that next year there will be demand for 5,000 tons of cobalt for hybrid cars.
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| June 25, 2008
Cobalt prices are easing back toward $40/lb
Publisher: Purchasing.com
Author: Tom Stundza
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| | Domestic cobalt prices have declined 13% since the peak in March and some analysts believe they will slide further off the $45.50/lb average in June determined by Purchasingdata.com in a survey of buyers. The metal has averaged almost $49/lb in the first half of this year, compared with $30 in 2007 and $17 in 2006.
Platts Metals Week's assessment for 99.8% cathode imports into the U.S. in the near futures has fallen to $44/lb for Zambian material and $43.50 for Russian and Australian metal. The near-future price from China, the largest foreign supplier, also is being reported as low as $40---a price last posted in December 2007---because of excess supply for world demand, which is highlighted by lagging 2008 demand in industrialized nations, including the U.S.
Cobalt is used to make superalloys, chemical compounds for a variety of applications, cemented carbides and diamond tools, magnetic alloys and specialty steels and metallic alloys. The analysts say buyers are in no rush to buy cobalt while prices appeared to be falling. And traders interviewed by Platts still are seeing consumers coming in for small volumes on a hand-to-mouth basis. MetalBulletin.com, a subscription website, agrees that cobalt prices will drift down this summer in what it calls thin trading as consumers anticipate even lower prices in the weeks ahead.
Looking ahead, some analysts see a pickup in pricing after Labor Day when hybrid car battery manufacture perks up after summertime vacations end. There are anywhere from 5 to 18 pounds of cobalt in every hybrid car battery. Even at 10 pounds cobalt per car, if the market did triple to 1.5 million units that would make 15 million new pounds of cobalt needed annually -- a substantial increase in a small 120-million-pound market.
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| June 18, 2008
Forest Service OKs new cobalt mine west of Salmon
Publisher: Idaho Statesman
Author: Statesman staff
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| | The developer will have to put up money to assure water quality and protection for endangered fish.
The federal government has approved a proposed cobalt mine west of Salmon in central Idaho, subject to conditions.
The U.S. Forest Service approved Formation Capital Corp.'s plan to mine cobalt - used in jet engines, batteries for hybrid and electric cars and other machines - in the Panther Creek drainage of the Salmon-Challis National Forest.
"As we have firmly believed, a sustainable, responsible mine plan can be designed without compromise to the environment," said Bill Scales, president of the Vancouver, B.C., company's U.S. subsidiary.
The agency will require Formation Capital to post financial assurances to guarantee long-term water quality management, forest Supervisor Bill Wood said. It also will require measures to protect endangered fish and to meet federal pollution-discharge rules.
Formation Capital also must obtain administrative access and power line easements across adjacent private land prior to commencing ground-disturbing activities. The mine should not interfere with efforts to restore salmon and steelhead fisheries damaged by past mining at the adjacent Blackbird Mine site, he said.
"This is possibly the most critical milestone the company has reached regarding the Idaho Cobalt Project," said Mari-Ann Green, CEO of Formation Capital Corp.
Copies of the Forest Service's record of decision are available at the Salmon-Cobalt Ranger District office and Forest supervisor's office in Salmon. In addition, a copy will be available at the public libraries in Salmon and Challis.
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| June 17, 2008
Formation Capital shares soar on plan of operations approval
Publisher: National Post, FP-Mining
Author: David Pett
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| | Formation Capital Corp. got one step closer to building its Idaho cobalt project after the U.S. Forest Service approved a modified plan of operations for the proposed mine located in the Panther Creek drainage west of Salmon.
Investors applauded the news, driving shares in Vancouver-based Formation up more than 9% to 72¢ in early afternoon trading Tuesday.
"This is possibly the most critical milestone the company has reached regarding the Idaho Cobalt Project," stated Formation Capital CEO Mari-Ann Green "After years of permitting efforts, the Forest Service has issued a Record of Decision that outlines the required modifications to the mine Plan of Operations that, once incorporated, will allow us to commence construction of the mine and mill facilities."
As part of the modified plan of operations, Formation Capital will be required to post financial assurance for long term water quality management and also address terms and conditions provided by the U.S. Fish and Wildlife Service and the National Marine Fisheries Service for management of endangered fishes. The company will also require the company to obtain a national pollution discharge elimination system permit from the Environmental Protection Agency.
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| April 28, 2008
Aircraft demand to keep hi-tech metals high
Publisher: Reuters
Author: Daniel Magnowski
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| | LONDON, April 24 (Reuters) - The global trend towards more frequent air travel should keep planemakers busy and in turn ensure prices of rare and hi-tech metals such as cobalt, rhenium and titanium stay strong for years.
Often mined in inaccessible and risky territories, these metals are prized for their exceptional strength and heat resistance, making them essential for jet engines and airframes.
"Two engines use twice as much cobalt and rhenium as one engine," said Stephen English, who trades cobalt for London-based merchant SFP (Metals).
On Wednesday, Boeing's commercial planes unit said it would deliver 475-480 aircraft this year, rising to 500-505 in 2009. It delivered 441 commercial aircraft in 2007.
"That's why we're in eye of the storm," English said.
"Today, you have evidence that refined cobalt supply is 54,000 tonnes, and demand is between 61,000 and 65,000 tonnes."
Though aluminium is the metal most widely used in aircraft, the aerospace industry represents only around 3 percent of world aluminium consumption, said consultant James F. King at an industry conference in Barcelona last week.
Aerospace is by far a more crucial end market for less well-known, but much higher-value, metals.
One of these is cobalt, a blue-tinted metal mined mainly in the Democratic Republic of Congo, Australia and Canada by firms including Camec, BHP Billiton, Xstrata and Vale.
It trades at around $50 per lb on world markets -- making it more than 30 times more expensive than aluminium -- near to an all-time high, and up more than 50 percent since last April.
In 2007, almost a quarter of the world's cobalt was used in materials known as 'superalloys' which are capable of withstanding temperatures of up to 1,100 degrees Celsius.
Some 75 percent of these went into aircraft, according to figures from industry group the Cobalt Development Institute.
Sustaining cobalt prices is the fear that as demand accelerates, supply may not be able to grow quickly enough to meet the world's needs.
Though there are new mines scheduled to come on-stream around the end of the decade, many in the market are uncertain they will reach production as quickly as their owners plan.
Power supply and infrastructure issues in the DRC may hinder project development, while the generally higher cost of bringing mines to production, linked to rising steel and energy prices, can lead to delays or cancellation, according to a presentation given by J. Scott Bending, president of Canadian metals explorer and refiner Formation Capital.
"Very few entrants into the high purity cobalt market within the next decade are anticipated," he said.
On Tuesday, mining firm Lundin said capital expenditure estimates for the Tenke project in the DRC, said to be one of the world's richest cobalt deposits, had doubled to $1.75 billion from last October's figure of $900 million.
Several other projects in the DRC have been delayed, or production forecasts reduced. For a FACTBOX on Congolese cobalt mining.
RHENIUM ROCKETS
Another speciality metal to benefit from a growing aerospace industry is rhenium, which is mined in Chile, Kazakhstan and the United States.
It sells for around $10,000 per kg, up around fivefold from late 2005, according to data from Anthony Lipmann, who trades metals for British firm Lipmann Walton & Co.
Though prices have risen dramatically, buyers such as Rolls-Royce, General Electric and Pratt & Whitney, a division of United Technologies, have not cut their consumption of the metal.
"Even at $10,000 per kg, the price as a proportion of a jet engine is peanuts," said a trader who attended the conference.
Another metal used in aircraft engineering is titanium.
China is projected to require 2,600 new jets worth $280 billion over the next 20 years, and India more than 900 large jets worth $100 billion within the same period, according to data from Mirko Grosso, account manager at titanium producer RTI International Metals.
As more planes are built, world titanium demand from the commercial and military aircraft industries will grow, he said, putting demand for the ultra-strong metal at around 170 million lbs in 2015, up from just under 100 million in 2007.
(Editing by Nigel Hunt)
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| March 24, 2008
Majors Under Fire in DRC
Publisher: ResourceInvestor.com
Author: Stephen Clayson
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| | LONDON (ResourceInvestor.com) -- The saga of the review of mining contracts being carried out by the DRC (the Democratic Republic of Congo) took a new turn last week as the country's government released the full text of the review, in French only, on its website.
Mining companies active in the DRC were informed of the outcome of the review by the government last month, and some made announcements in view of this, but others did not, and those that did revealed little of substance.
Therefore the full implications of the review were unclear, although it had been apparent since a leak in November last year that numerous 'renegotiations' and even cancellations of the contracts under which foreign miners were working in the DRC were in the offing.
Now however, the cat is out of the bag, and it seems that the big boys, including Freeport-McMoRan [NYSE:FCX], BHP Billiton [NYSE:BHP; LSE:BLT], Anglo Gold Ashanti [NYSE:AU] and De Beers, are all in the line of fire.
Freeport-McMoRan is undertaking perhaps the DRC's biggest mining project, the development of Tenke Fungurume, a gargantuan copper-cobalt deposit, and the DRC government has said that it wishes to renegotiate the terms of the project.
Likewise, Anglo Gold Ashanti's Kilo gold exploration joint venture, where last year a 2.93moz inferred resource was outlined, is up for renegotiation, as are diamond projects held by BHP Billiton and De Beers.
The DRC government participates in the country's mining industry through a small number of state mining companies, which hold equity stakes in projects and receive payments on behalf of the government, and it is these companies that will be the main beneficiaries of the renegotiations.
Smaller Western companies active in the DRC include Anvil Mining [TSX:AVM; ASX:AVM], Katanga Mining [TSX:KAT], Metorex [JSE:MTX], the Central Africa Mining & Exploration Company [AIM:CFM], First Quantum Minerals [LSE:FQM; TSX:FM], Moto Goldmines [AIM:MOE] and Banro Corporation [AMEX:BAA; TSX:BAA].
Outlook
It seems likely that the renegotiation process will rumble on for some time yet, and could conceivably result in undesirable outcomes for some operators.
It is impossible to say exactly what sort of settlements may eventually be reached, or how long the renegotiation process will take. We have no way of knowing what discussions are taking place behind the scenes, and some companies have suggested that they will try and take the issue out of the DRC and into the international courts.
How the government of the DRC would respond to such a move is unclear, but it is quite possible that the government sees the review as a starting point for talks, not necessarily as a collection of take it or leave it offers to the operators of the various projects concerned.
That said - the DRC government would probably prefer not to have the renegotiating process too open to international scrutiny. After all, this is a country where the army makes a bit on the side by smuggling minerals out of the country and the leader of the opposition is in exile claiming that he fears for his life.
Seemingly, the government of the DRC sees the rises in commodity prices since many contracts were negotiated as grounds for renegotiation in its favour, and feels that it can decide when rates of return on mining projects are 'excessive' and intervene to redress matters to its satisfaction.
Sentiments like this are of course completely anathema to the investment community, which craves a predictable fiscal and regulatory environment when considering whether to undertake mining projects, and this is exactly what does not, and may never, exist in the DRC.
The ever present undercurrent is that with the Chinese pouring money into Africa in general and the DRC in particular, Chinese groups may stand ready to pick up projects if current holders don't like the new terms being offered.
Ultimately, the DRC's government is taking this line because it believes it can afford to. If commodity prices were at rock bottom, maybe investors just wouldn't bother with the country. If the Chinese weren't scouring the globe for resources and throwing money around to ensure they get them, maybe the Western mining companies would have a stronger hand to play.
However, the DRC should be careful not to take things too far. In the environment of uncertainty and under the table horse trading that now exists in the country, marginal projects may not be developed, and the DRC will lose out. But projects like Tenke Fungurume are attractive enough that their operators may choose to bite the bullet and endure some turning of the screws by the government.
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| February 22, 2008
Cobalt sees another bull run
Publisher: Metal-Pages
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| | LONDON (Metal-Pages) 22-Feb-08. The cobalt market is seeing another bull run similar to the gains seen at the end of 2007, with traders saying they expect the market to go higher and that Russian grade material will also soon hit the $50/lb mark.
The current screen price for Russian material shown by Norilsk Nickel however is $46.40/lb, and this price was published on the 20 February.
Meanwhile BHP Billiton raised its screen offer price to $52.50/lb this week following a sale of 5 tonnes of material at $51/lb on 19 February. However, BHP Billiton has yet to find takers at the $52.50/lb level.
A trader said: "The bull run continues, the price will soon go to $60-65/lb, in the next year consumption is is expected to reach 75,000 tons and there is a 30% growth in demand. Consumers are ringing me up at midnight." He quoted a price of $51-53/lb for high grade material and $48-50/lb for Russian material.
Another trader agreed: "The market is very strong, it has come into its own, consumers are short and are desperate for material for March delivery, they are looking for ways to pause the bull run but they can't he said, adding that demand is particularly strong from Japan.
He quoted $52/lb for Falconbridge material and $47/lb for Russian material. However a third trader said that while there is no question the market is firmer, the bull's views are to be taken with a pinch of salt. "We have had a lot of enquiries, but have not bookd a lot of high grade material, customers are reluctant to pay the higher prices and no one will pay $50/lb for Russian material. The higher numbers are partly due to market manipulation," he said.
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| February 14, 2008
BHP-Billiton raises its cobalt offer price to $50
Publisher: Metal-Pages
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| | LONDON (Metal-Pages) 14-Feb-08. The BHP-Billiton cobalt website made a further 5 tonne sale into Asia this morning at the company's offer price of $49.25/lb. It follows a similar deal yesterday at $48.75/lb, its first screen sale since 6 February when it sold 15 tonnes into North America at $48.50.
BHP-Billiton has subsequently moved its price up to $50/lb -- the market's target level and one which has been meeting a fair amount of resistance.
One UK-based trader commented: "The next stage has begun. Now watch for the low grades to catch up."
Russian producer Norilsk Nickel, meanwhile, maintains its offer price at $45.50, having sold 10 tonnes in one transaction at $45.55/lb last week.
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| February 06, 2008
Congo deals major blow to miners
Publisher: MINING REPORTER
Author: ANDY HOFFMAN
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| | Government reopens all contracts, saying it wants a bigger slice of profits
Scores of mining companies hoping to tap the billions of dollars worth of mineral riches in the Democratic Republic of the Congo were dealt a major setback yesterday after the government indicated it wanted a bigger slice of their profits and said that all mining contracts would have to be renegotiated.
Congo's vice-minister of mines Victor Kasongo said that a "brief and open" appeal process will be created to help "fast track" the renegotiations.
In an address to a mining conference in South Africa, Mr. Kasongo said that when a government panel was formed last April to study the validity and fairness of 61 mining contracts, it expected it would have to rectify a few agreements.
"We actually found that we had not a single contract that was properly constituted. What was meant to be a minor corrective has turned out to be multiple, major surgery," he said.
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