With governments of Western nations, including the US, Europe and now Australia, investing in developing domestic critical minerals capacity with mining and value-adding incentives, emerging Australian cobalt producer Cobalt Blue Holdings Ltd (ASX:COB, OTC:CBBHF) has adapted its commercial strategy for the integrated supply of cobalt.
The company’s strategy is already being geared up to take advantage of the evolving US critical minerals policy and the release this week of the Australian Government’s Critical Minerals Strategy 2023-2030 is likely to strengthen its efforts and provide material benefits to the nation’s critical minerals industry.
READ: Is the Federal Government’s critical minerals strategy a missed opportunity?
COB believes that the combination of the Australian Government’s support for developing strategically important projects and global legislation is leading to a rapid industry response, with the advanced state of its strategy placing it among the forerunners among Australian critical minerals companies.
The company’s long-standing strategy is to produce cobalt sulphate via an integrated mine/refinery process. At the Broken Hill Cobalt Project (BHCP) in Far West New South Wales, it will produce cobalt mixed hydroxide precipitate (MHP) and freight this to its Kwinana Cobalt Refinery in Western Australia to produce a battery-ready high-grade cobalt sulphate.
US Inflation Reduction Act
COB CEO Joe Kaderavek said the United States Inflation Reduction Act (IRA) would stimulate global supply of compliant critical minerals and provide a 10-year window until 2032 for this to occur.
Summary - Inflation Reduction Act (IRA) 2022.
Key IRA incentives include the Clean Vehicle Credit (CVC) system totalling US$7,500 per vehicle, including US$3,750 per vehicle if the critical minerals contained in the battery are extracted or processed in North America or in a Free Trade Agreement (FTA) country, such as Australia.
The 2023 threshold is 40% with the hurdle increasing in annual 10 percentage point increments to an 80% ceiling after 2026.
Kaderavek said it was important to understand the significance of the US$3,750 tax credit.
The table below estimates the cost of critical minerals (at long-term prices) for a 60kWh Nickel Manganese Cobalt (NMC 8:1:1) Li-ion battery.
The total cost of critical minerals (A) equates to ~US$1,500 per battery. These minerals are then processed (B) to produce constituent materials at a cost of ~US$580 per battery.
Inflation Reduction Act (IRA) 2022 – CVC credits.
As Australia is the only country globally that produces all these materials, Kaderavek said a focus on just four of these minerals (nickel, cobalt, lithium and graphite) would allow Australian producers to target ~US$2,000 in value (= US$1,380 direct + associated processing costs).
By extension, the US$3,750 would subsidise 100% of the critical minerals and associated processing for up to a ~100 kWh battery.
Emerging allied supply chain
The US has defined 'Foreign Entities of Concern' as excluded from assistance under the IRA. Their focus is instead upon 'Allied Nations' that include the EU, US, Japan, Korea, Australia and other strategically aligned countries with the mining and/or refining industries of these nations being incentivised to respond.
Unfortunately, Kaderavek said, the historical response of these nations to such challenges had been poor and instead, they became heavily reliant on China.
"Within the cobalt market, the price of metals sourced from unsustainable practices, for example, artisanal cobalt from Africa, is a disincentive to a supply response from sustainable and ethical sources,” he said.
"Both EU and US governments are encouraging new supply chains that include sustainable metals production – a so-called 'race to the top'.”
Over the next four years, as IRA compliance became more difficult, he said these volumes and price premiums would expand, which would likely lead to the creation of new pricing indices for lithium, nickel, cobalt and manganese in the battery materials space.
“The IRA continues strong financial incentives for compliance; however, it is not a complete answer to stimulate Australian critical minerals extractors or processors.”
Pros and cons
IRA – Australian benefits:
1. Clarity – following a period of policy dormancy, the US Government is targeting aggressive decarbonisation targets providing a target window for Australia's critical minerals mining and processing industries.
2. Inclusion – excluding FECs and non-FTA countries from participating in CVC credits creates a potential target market for complying Australian industries.
3. Collaboration – the IRA Act creates clear industry points of cooperation from extraction to end customers, thus stimulating robust US-centric supply chains.
IRA – Australian shortfalls:
1. Benefit uncertainty – Economic benefits of CVC credits are kept wholly within the US economy, with large vehicle OEMs benefiting directly, and uncertainty as to how much of this value is transferred upstream to extractive and processing industries. In the absence of stimulus, ‘China pricing’ will continue to dominate the global cobalt industry.
2. Industry agility mismatch – The IRA Act timeframe (2023-2032) is designed to stimulate a US market-centric EV response, Australian upstream industries may struggle to meet this window as they are burdened with long lead times to production.
How does COB fit in?
Cobalt Blue is targeting an integrated approach focused on mining (extraction, Broken Hill) and refining (processing, Kwinana) and strongly believes that large-scale extraction and processing in Australia will support secure compliant global supply chains.
The company’s strategy now incorporates the Kwinana processing component with Kaderavek outlining the strategic reasons for this decision:
1. Access to export markets - Kwinana has a deepwater port and export facilities. Cobalt sulphate is a fragile product that absorbs water (particularly in hot/humid regional conditions) if left exposed and needs to be stored/shipped carefully. Direct port access provides a meaningful advantage.
2. Cost advantage - Kwinana is a major chemicals district. Approximately 60–70% of the costs associated with conversion from MHP to cobalt sulphate come from reagent/chemical costs. This location provides ready access to low-cost chemicals.
3. Integrated business - Refining is fundamentally an economy-of-scale business. A single, larger refinery allows COB to process future material sourced from BHCP and (in future) other COB-owned cobalt projects, rather than build out individual refineries at mine sites dispersed through Australia:
- BHCP will produce ~12,000 tonnes of MHP per annum which equals ~230 tonnes or ~four rail wagons per week. The transcontinental railway line linking Broken Hill with Kwinana passes through the COB tenements;
- New Australian mining projects (typically nickel/cobalt producers) that wish to enter the battery production chain (providing the COB Refinery with a first-mover advantage). The projects are typically based in Western Australia; and globally sourced materials (for example Philippines, Indonesia) will likely qualify for significant US and EU financial incentives if processed via an approved country; and
- Cobalt in Waste Streams Project/s (CWSP).
This overall strategy has been condensed into the graphics below:
At the Kwinana refinery, stage 1 will refine third-party sourced material – likely international origin followed by stage 2 in which BHCP material will also be processed. Stage 3 refers to the CWSP-focused initiative.
A cobalt refinery of this scale is globally significant. In addition to cobalt, COB plans to process nickel in the refinery. This would be sold as nickel sulphate crystals.
An illustrative (4,000 tonnes per annum) cobalt sulphate refinery has been included in the global cobalt refinery comparison below:
Global battery-grade cobalt sulphate capacity, 2026 (kt cobalt).