Nickel miners big winners as cobalt rallies

Uncertainty about cobalt supplies from Zaire, the Western World’s primary producer, continues to buoy the price of the metal in the range of US$25-$30 per lb.

In early November, the free market cobalt price soared from US$17 to a yearly high of US$27 on rumors that Zaire’s major producer, Gecamines, had suspended deliveries and removed its list price of US$11 per lb. Although the speculation proved to be false, Gecamines said it was forced to halt production temporarily due to civil unrest and technical problems at its operations.

Traders say the political turmoil in Zaire, which accounts for 50-60% of the Western World’s cobalt production, is unlikely to subside anytime soon. Consumers have been told to expect supply shortfalls in 1992. But the gloomy outlook for Zaire has an upside for Canadian mining companies that produce cobalt as a byproduct, including Falconbridge, Inco (TSE) and Sherritt Gordon (TSE). Even a $1 increase in the price of the metal can add millions of dollars to their coffers.

For instance, in 1990, Falconbridge — the third largest cobalt producer in the world — sold 4.2 million lb. of the metal at an average price of US$8.42 per lb. for proceeds of US$35.4 million.

At recent prices, those shipments would be worth more than US$100 million, or about 5% of the mining giant’s 1990 revenues.

John Gillies, vice-president of marketing and sales for Falconbridge, says that although some of the company’s cobalt production is locked into long-term sales contracts, the company has been able to take advantage of the recent price escalation through sales on the free market.

In a bullish prediction for the cobalt price, he says he suspects supplies from Zaire will be inconsistent throughout 1992.

There are some advanced exploration projects that have considerable cobalt values. For example, Geddes Resources (TSE) ranks its Windy Craggy project in northwestern British Columbia as the largest copper-cobalt deposit in Canada, and one of the largest in the world.

Windy Craggy’s North zone, which contains the biggest reserve among the different zones, hosts 138.3 million tonnes in all categories grading 1.44% copper, 0.22 grams gold, 4.0 grams silver, 0.066% cobalt and 0.25% zinc. Would-be producer Black Hawk Mining (TSE), currently arranging permits for its Knox nickel deposit in Maine, also stands to gain from a sustained cobalt rally. Black Hawk estimates that at current free market prices, cobalt production from the deposit would provide enough cash flow to cover total annual operating costs.

Results of a recent feasibility study indicated that the Knox deposit could be mined at an operating cost of US$1.90 per lb. Scheduled for startup in 1994, the mine would produce an estimated 7.5 million lb. nickel, 4.4 million lb. copper and 350,000 lb. cobalt annually. At that stage, Knox would be the only source of newly mined cobalt the U.S.

Cobalt is used as an alloy in high performance speciality steels. The Western World produced about 23,000 tons of the metal in 1990, while consumers used up just over 25,000 tons.