DUBAI: A low-profile Dubai-based businessman has emerged as a key player in the race to secure global cobalt supplies to help power the electric vehicle revolution.
Dubai-headquartered Shalina Resources, headed by Shiraz Virji, is staking its claim to the increasingly precious commodity found in the copper-rich soil of the Democratic Republic of Congo (DRC), Arab News can reveal.
Cobalt is an essential mineral used for rechargeable batteries in electric vehicles (EVs), a market that is forecast to explode in the next quarter of a century as international car companies reduce their reliance on gasoline-powered vehicles.
And as the DRC contains 60 percent of the world’s copper deposits, mining concessions there have become prized possessions. (Cobalt is usually a byproduct of copper)
Virji is busy ramping up cobalt production at his DRC mines. In fact, he is expanding at such a pace that Shalina’s African subsidiary, Chemaf, might soon become the second largest cobalt producer in the resource-rich African country, trailing only the mighty Glencore.
In a statement linked to a recent deal to sell almost all of Chemaf’s current DRC cobalt output to Trafigura, the global resources trading house, Virji, Shalina’s chairman and founder, said: “We are one of the largest and most ambitious cobalt producers in the DRC — Trafigura is helping us fuel our ambition.”
He added: “This offtake (sales) agreement will enable us to work together to transform DRC’s precious cobalt resources into jobs and fiscal revenues for the country, as well as to meet rapidly increasing international demand.”
In the mining industry, an offtake agreement allows a buyer and seller to commit to a certain amount of production, which is typically struck before the construction of a facility.
This kind of arrangement helps to attract the necessary financing from lenders to develop a new prospect. With demand for electric vehicles set to rise exponentially in the coming years, Chemaf was said to be playing an increasingly important role in providing the market with “high-grade cobalt hydroxide” used in rechargeable batteries.
The price of cobalt has quadrupled in the past two and a half years. EVs are viewed as the cars of the future as there are no toxic emissions, and Western automakers and Chinese entities have been scouring the world to tie up supply as demand rockets at a time when there is a dearth of new supply.
Chemaf is building a processing plant at its Mutoshi mine in Lualaba province in the DRC which will open in September 2019 and six months later be capable of producing 20,000 metric tons of cobalt a year, Virji told Bloomberg recently.
“Added to output from Shalina’s existing Etoile mine, which was about 5,000 tons last year, that could make Chemaf the world’s second-largest producer,” the news agency reported.
Virji has built up both copper and cobalt operations in the DRC since the early 2000s. He has a residence in Lubumbashi, where Chemaf is based, but he travels to Dubai, the nerve center of the family business, where his son Abbas and daughter Shalina live.
Abbas is his father’s right-hand man on the resources side. He is said to deal with the marketing of cobalt and copper products, and is primarily responsible “for negotiating off-take contracts with all long-term strategic partners,” according to the company’s website.
Abbas and Shalina Virji are also joint CEOs of Shalina’s health care operation, which sells more than 250 lines of both prescription and over-the-counter drugs to countries such as Ghana, Kenya, DRC, Nigeria, Angola, Zambia and Cameroon.
Shiraz Virji, who is 70 and of Indian heritage, tries to keep out of the publicity limelight (he dislikes one-to-one interviews). But the company website said he began his career as an exporter of spices and timber from Mombassa, Kenya.
In 1981 he returned to India, where he started a pharmaceutical business and began exporting generic medicines to Zaire, now the DRC.
In 2001, he acquired several mining concessions in the country and built the first processing facilities of Chemaf, an abbreviation of Chemicals of Africa.
Under the terms of Trafigura’s offtake deal with Chemaf, the trading house has agreed to buy all of Chemaf’s current output at an undisclosed price until December 2020.
The price rise comes as carmakers from Tesla to Volkswagen are looking to secure long-term supplies of cobalt for use in their rechargeable batteries. Last year, VW put out a tender looking for a five-year supply deal.
Investec mining analyst Hunter Hillcoat told Arab News: “We believe those sorts of contracts (such as the one with Chemaf and Trafigura) will continue.
“That is because before end-users such as car companies and other original equipment manufacturers can commit to their EV or hybrid targets, they need to ensure they have the supply to match their business models.
But he warned: “Given ongoing conflict and political tension in the DRC, there are going to be certain force majeure clauses in (off-take contracts) just in case things go belly-up. Equally, if the price goes through the floorboards, suppliers such as Glencore will probably be able to get out of purchase contracts,” he suggested.
China last month tightened its grip on the market, signing a huge agreement with Glencore for three years’ supply.
Shenzhen-listed GEM said the accord would provide them with more than 50,000 tons of cobalt over three years for its battery materials production.
That figure represents about half the total amount of cobalt produced in the world last year and a third of the output of Glencore’s forecast production between 2018 and 2020, the Financial Times reported.
GEM is one of the largest suppliers of material to Chinese electric car battery company CATL, which said it had become the largest battery supplier in the world, based on its sales last year to companies including Volkswagen and BMW.
At the end of 2017, Ivan Glasenberg, Glencore chief executive, said he did not believe that the world could produce enough
cobalt to satisfy long-term electric vehicle demand.
Investec is forecasting an average cobalt price this year of $39 per pound, and $43 next year. But analyst Cash Kemal at BMO Capital Markets told Arab News: “There is a lot of supply coming on in DRC, particularly with Glencore ramping up at Katanga. They also have tailings reclamation projects over there. We see the price going back to $20/per pound in 2022.”
Wood Mackenzie expects the boom in EVs to bring a structural shortage in nickel (also used in rechargeable batteries) between now and 2025 — with demand expected to grow from 40,000 to 220,000 tons in 2025.
Some analysts say battery makers will increasingly look at nickel as a cheaper and easier-to-source alternative to cobalt, especially if the price of the latter continues its meteoric rise.
Investec said the consensus forecast for the cobalt price in 2021 was $23/per pound, which would mean a near 50 percent collapse from where the price is today.
However, the demand picture is breathtaking if US investment bank Morgan Stanley is to be believed. The bank is forecasting that global car sales will rise by 50 percent by 2050 and that EVs will account for most of that total.
No surprise, then, that Chinese automaker Great Wall Motor Co. recently acquired a stake in Australian lithium miner Pilbara Minerals in September (lithium is also an
essential component of rechargeable batteries).
That deal paved the way for a binding offtake agreement completed in December — shoring up lithium supply for Great Wall for the foreseeable future.
Supply agreements linked to cobalt and lithium have been rolling thick and fast, and more are expected amid announcements that Volkswagen will invest about $40 billion over the next five years to develop electric vehicles, while Volvo said at the Geneva Motor Show that half of its car production will be EVs by 2024, and the other half will be hybrid.
It explains why a cobalt producer such as Shalina suddenly finds itself in the spotlight. But that is what happens when you are in the right place at the right time.