Cobalt Investors Eye Up Bottom of Market – #2 Joe Kaderavek

Conversation with Joe Kaderavek, CEO of Cobalt Explorer and Developer, Cobalt Blue Holdings (ASX: COB).

COVID-19: an “accidental catalyst?” Joe Kaderavek is a cobalt expert who has established himself through years of work engineering, investment banking, hedge fund operations and as CEO at advanced cobalt developer, Cobalt Blue. His company is aiming to deliver the largest greenfield supply of cobalt in the world to the market: 4,000t of Australian cobalt equivalent. In this interview, we discussed the wider cobalt macro story. COVID-19 has reduce short-term EV demand in China but purchasing has picked up thanks to the Chinese government reintroducing the automotive incentives it had removed prior toCOVID-19. , and all battery metals investors are aware of this. However, what is the long-term prognosis?

Interestingly, Kaderavek thinks there is a huge disconnect in market sentiment between what is a very positive long-term cobalt/battery materials demand story vs a very negative near-term story plagued by cobalt demand destruction and oil price decimation. He’s never seen such a gap before.

Matthew Gordon talks to Joe Kaderavek, 1st July 2020

During this COVID-19 period, there has been an acceleration of trends that were already in place. An example of these trends involves decarbonisation on the renewables side. While there have been no new radical government policies or company behaviours as a result of COVID-19, there are a number of “crossover points” where economics favour the battery outcome. Moreover, a number of policies have been reinstated at a much more aggressive level that could further accelerate this transition.

There has been reduced energy demand this year because of the coronavirus. As a consequence, energy prices have fallen, and some of the incumbent coal has been forced out by cheaper solar and wind power. In fact, for the last 2-months, Britain has been running on ZERO coal. In the US, it is predicted that this will be the first year in history that more power is generated from renewables (minus nuclear) than coal. This crossover point happened last year and has been accelerated by COVID-19. Wood Mackenzie estimates that by the end of the decade, solar and battery will become the lowest-cost peaking power sources in the world. Consumers, producers and funds have all started to focus on the ethicality and environmental friendliness of their supply chain, leading to a wave of momentum in the green energy space.

The scale of EV subsidies is currently so enormous that the purchasing price of mass-market vehicles is becoming “decidedly in favour of an EV purchase.” In Germany, there have been discussion pertaining to a €9,000 subsidy on vehicles up to €40,000. This is an enormous deduction: nearly 24%. The Germans are also considering mandating EV infrastructure at every gas station as part of government policy. It is an overwhelmingly positive idea, though it’s perhaps somewhat unrealistic. The UK government is discussing the potential of offering a GB£6,000 incentive for consumers to convert from an ICE vehicle to an EV. The French have earmarked €8Bn, largely to bail out the automotive industry. €5Bn is being allocated for Renault, and the government will use taxpayer money to develop its vehicle infrastructure into greener ICE vehicles and EVs. COVID-19 is causing countries to make positive decisions that otherwise may have taken several more years to occur. EV investors might be feeling a lot more bullish right now.

Right now, Kaderavek claims that COVID-19 hasn’t really changed Cobalt Blue’s plans; the company’s production philosophy involves a protracted data process of qualifying the company’s cobalt for tomorrow’s EVs, and this is proceeding forward as planned. A new EV takes 4-5 years of engineering and design to get into production, and it takes 2-years to pre-qualify a battery into specific EVs. For upstream players like Cobalt Blue, the company is currently being “tapped for interest” to pre-qualify right now, before eventually pre-qualifying for a specific battery type. For example, the 500,000 unit initial deployment of the Chevrolet Bolt in Europe has involved significant programmes with long lead times. Therefore, for upstream cobalt players, COVID-19 is nothing more than a blip. This is a long-term value proposition and investors need to settle in for the long haul. Contrastingly, copper and zinc, which are sold at a low value into a very liquid market for a variety of applications, have experienced completely different levels of difficulty because of COVID-19.

Investors need to be aware that no one technology will be the winner. Even in the cobalt vs no-cobalt battery space, there is room for both battery times. The LFP (non-cobalt) battery has a certain niche, especially in China, with a lower energy density and a cheaper price. The high-nickel market will also have its own mass-market in a longer range style. In terms of energy storage, a lithium-ion battery doesn’t necessarily have that many advantages, and flow batteries could come into play. There are enough niches and different technologies out there to guarantee that there is no vanilla solution to the energy needs of tomorrow. Do your research on the niche as well as the material you are looking at. Moreover, keep in mind that demand can often be overhyped; this has been exemplified by past expectations being unfulfilled: the EV industry was switched off in China! Be prepared to test the thesis. What happens if the artificial incentive of subsidies is taken away? Will demand remain in place? Is falling battery costs a catalyst on the upside? Carefully consider the risk factor and DO NOT be blinded by the long-term growth rates.

Right now, the short-term effects of COVID-19 are largely applied to price. The long-term picture is still exciting and positive, and investors should remain encouraged.

What did you make of Joe Kaderavek?

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