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Forget Bitcoin, Cobalt Is The Hottest Sector
BY JASON STEVENSON - 25/01/2018 | VIEW MORE ARTICLES BY THE DAILY RECKONING

My thoughts on bitcoin haven’t changed.

The cryptocurrency is terribly volatile. It moves according to global government regulation updates on a daily basis. That makes it an awful investment, in my view.

To make matters worse, the digital coin still isn’t widely accepted as a currency. In fact, it probably won’t be used as one in our lifetime. The transaction costs are a joke. And while that may change over time, it won’t happen anytime soon. So, in a world when we’re all looking to make a buck, I see more negatives than positives.

That’s for the entire cryptocurrency space, mind you.

Blockchain is real. But the technology is still in its early days, just like the internet was in the 1990s.

The internet led to the dotcom bubble, which started on Wall Street and moved to the retail market before it popped. With blockchain and cryptocurrencies, it started with the retail players and moved to Wall Street. But most institutions still haven’t accepted or invested heavily in the digital coin space.

It’s true that billionaires with too much money and nothing to lose are involved. But most institutions aren’t willing to back the sector, mainly due to the unregulated and decentralised exchanges. These ‘dark’ exchanges could go under or get hacked at any moment. That’s happened before. It’s also why regulation in this space is bound to increase.

Regulation could destroy the cryptocurrency space, sending prices sharply lower. That’s why bitcoin is trading back down at US$11,156.76 today. So, while crypto punters ignore the risks, we suggest following another sector instead: cobalt. The base metal is getting hotter by the day, and could potentially make you a lot of money.

The second cobalt run

Cobalt started to surge in December 2016. That’s when civil unrest broke out in the Democratic Republic of Congo (DRC). The country’s president, Joseph Kabila, refused to step down. His constitutional mandate expired at the time. He remains in power to this day.

You can see this on the cobalt chart below:

Cobalt Price USD - 24-01-2018


Source: Infomine.com
[Click to enlarge]

Technically, the base metal broke out last month. The red line shows support from the December 2016 low. The blue line shows resistance from the June 2017 high. The base metal is trading at resistance again. You can see this by the black line. Our first target stood at US$33 per pound, a level which cobalt is trading above today. If the situation in the DRC worsens, the base metal could retest US$51 per pound — the all-time high — this year.

Imagine what that could do for cobalt stocks…

History shows the best stocks could see their share price double, triple or quadruple in a short amount of time. Some may even become 10-baggers, making you 10-times your money.

Fox Business wrote on 3 January:

BMO Capital Markets expects current cobalt prices to double in the next two years as demand for electric-vehicle batteries continues to outstrip existing supply of the metal, the bank said in a report released in December.

The Congo produces roughly two-thirds of the world’s cobalt, or about 66,000 metric tons a year, but mines there have been criticized over reports of child labor and unsafe conditions.

Most cobalt currently comes from the Democratic Republic of Congo, where supply is threatened by political, legal and labor issues. That means car makers and battery suppliers are increasingly looking elsewhere for the mineral.

Volkswagen AG and nine other leading car makers, including Ford Motor Co. and Daimler AG, whose supply chains include cobalt buyers, in November set up a “raw materials observatory” that aims to address ethical and labour-rights issues in sourcing raw materials, including cobalt.

With a lack of near-term supply coming online from ethical sources in a politically correct world, consumers may find it difficult to meet electric vehicle demand. That could start a cobalt demand ‘war’ outside the DRC this year. Plus, to make matters worse for the country, the DRC wants to double taxes on cobalt exports.

Ethical mining

Bloomberg Markets elaborated on 10 January:

Congo, the world’s biggest cobalt producer, will increase the royalty miners pay on exports of the metal to 5 percent from 2 percent if it opts to categorize cobalt as a “strategic substance,” Mines Minister Martin Kabwelulu told the country’s Senate.

The new legislation will guarantee Congo “the flexibility to face unforeseen developments in the international market if the international economic situation demands it” by permitting the government to declare certain minerals “strategic substances,” Kabwelulu told senators Jan. 5, according to a transcript of his remarks.

Talk about another broke government doing what it does best — raising taxes. If the tax increase goes ahead, which looks likely, it could be another reason for cobalt consumers to abandon the DRC this year. If more car manufacturers leave the country, it could push the price of cobalt higher.

Cobalt prices reacted to the 3% tax hike last month, hence the price jump. But, with growing demand for outside ethical sources, the base metal may have just restarted its rally.

For too long, the Democratic Republic of Congo has supplied most of the supply without any competition. But that could be changing. First Cobalt Corporation [CVE:FCC] — a CA$250-million-capped company — pulled out of the DCR last year to focus on its Canadian deposits. It wants to build an ethical name for itself in Cobalt, Ontario — a province in Canada.

Ironically, Cobalt, Ontario — population 1,100 — was built on silver. But the last silver mine was closed more than 30 years ago. Today, there’s a cobalt rush in Cobalt. Bloomberg reported on 31 October last year:

‘“This area’s seen more airborne surveys in the last year than in the last hundred,” said Gino Chitaroni, a local prospector and geologist. “Two years ago, if you had a cobalt property you couldn’t give it away. All of a sudden, within six months, everything changed.”’

Cobalt, Ontario is attracting renewed attention as a competitor to the DRC. Bloomberg continued:

“Anybody who has cobalt outside the DRC is in a better situation because carmakers are very worried about their supply chains,” said Roger Bell, director of mining research at Hannam & Parters in London. Bell believes the amount of cobalt being used in electric cars could easily double in the next eight to 15 years. “Even in the most conservative assumptions, you’re looking at maybe a 20 percent gap between supply and demand for cobalt by 2025.”

I’m confident that you see the opportunity now to buy cobalt stocks exploring in hot and ethical environments.



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The Daily Reckoning's mission is to look at the investment world and the financial world in a sceptical and contrarian way. To do that day in and day out and tell you honestly what we see, even if it isn't always popular. If you'd like to subscribe to an alternative look at the mainstream interpretation of events, join for free here.



 

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