How a Dubai-based businessman has emerged as a key player in the world’s cobalt supplies

Updated 19 April 2018
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How a Dubai-based businessman has emerged as a key player in the world’s cobalt supplies

  • Virji has built up both copper and cobalt operations in the DRC since the early 2000s
  • The price of cobalt has quadrupled in the past two and a half years

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.

A woman separates cobalt from mud and rocks at a mine between Lubumbashi and Kolwezi in the Democratic Republic of Congo. AFP

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.

Cobalt is essential for rechargeable batteries in electric vehicles captionOviderci cuptasitate quia cum del earum quam rent volende

 

Decoder

How much cobalt is there in the world?

The identified cobalt resources in the world total about 15 million tons, with the majority found in Australia, Canada, DRC, Russia and Zambia. The copper belt in the Democratic Republic of the Congo (DRC) and Zambia yields most of the cobalt mined worldwide. The US uses about one third of total world consumption.


England’s northern ports look to prosper from Brexit

Updated 37 min 27 sec ago
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England’s northern ports look to prosper from Brexit

  • Tens of millions of pounds are being invested to prepare for a potential increase in shipping in northeast England
  • A pro-Brexit MP said the area would “without doubt reap a Brexit dividend”

IMMINGHAM, United Kingdom: Brexit has brought hope to the windswept docks of the Humber River, a key goods gateway in northeast England where tens of millions of pounds are being invested to prepare for a potential increase in shipping.
In Immingham, a gritty town of around 11,000 inhabitants in the shadow of the sprawling port and oil refineries, former dock worker Willie Weir said business was already “picking up.”
“I think we’ll end up a very rich country,” the 54-year-old, who now owns a hotel and lorry park, told AFP. “Within a couple of years I think we’ll be trading with a lot of other countries.”
Associated British Ports (ABP) — which owns four Humberside facilities — is spending big to attract new business, raising hopes for a return of the area’s former industrial glory.
The company is betting the country’s departure from the EU next March will snarl southeastern hubs like Dover, where limited space and hourly sailings could bump up against post-Brexit bureaucracy, leaving traders looking for alternatives.
“There are certainly some opportunities available for the Humber ports,” ABP’s head of Humber communications Dafydd Williams said during a recent tour of its vast Immingham complex.
The company reckons Humberside can better handle the burdens and delays that Brexit may bring, with space available for new customs facilities and waiting areas for trucks.
It believes the longer shipping routes across the North Sea from Europe will allow new bureaucracy to be done aboard vessels, which is difficult during a 90-minute crossing from Calais to Dover.
ABP has dedicated £50 million ($66 million, 57 million euros) to expanding its container terminals, spending £14 million last year at Hull, which led to several new European routes.
It now hopes for similar results in Immingham, Britain’s biggest port by tonnage, with investment in loading cranes, tugs and a re-engineered dockside.
Unifeeder — a shortsea carrier that imports most of its Britain-bound cargo through Immingham — said it is seeing more container customers switching from southern ports.
“The cargo naturally finds the easiest course,” said the company’s UK manager, Andrew Ellis. “It’s just economics.”
Amar Ramudhin, a logistics expert at Hull University Business School, believes leaving the EU creates “big potential” for a shift to the north.
“Brexit just gave a bigger chance for these ports,” he said.
Peter Baker, an industry analyst, said Humber ports offered better value, as they are closer to a raft of distribution centers for firms like Amazon and Ikea.
With more of the journey done at sea, costs, congestion and CO2 emissions all fall, he said.
But Baker said he doubted the Humber ports will be less adversely impacted by Brexit.
“If there are customs checks and port health (checks) and everything else, it’s going to be just as difficult in Immingham as it would be in Dover,” he said.
Andrew Byrne, managing director of DFDS Seaways — Immingham’s biggest shipping line with its own terminal and 35 sailings a week on eight vessels — also called talk of a Dover exodus “misguided.”
He said his company had also seen “no evidence” of a big shift to containers among its customers.
“We’re hoping for the best but preparing for the worst,” Byrne said of its Brexit preparations.
Brexit sympathies run high in North East Lincolnshire, the region where Immingham is located.
In the 2016 referendum, 70 percent voted to leave the EU — one of the highest results in the country and much higher than the overall national result of 52 percent.
Martin Vickers, a pro-Brexit MP from the ruling Conservatives representing Immingham, wants the government to spur regeneration by giving the region freeport status.
He predicted the area would “without doubt” reap a Brexit dividend.
But across the Humber, staunchly pro-EU Hull MP Karl Turner, who represents the most pro-Brexit constituency the opposition Labour party holds, is skeptical about Brexit benefits.
He predicts Britain leaving the EU next March without any kind of deal would be “an unmitigated disaster for the ports.”
“There’s a bigger risk to the wider economy which I think ABP have not really taken on board,” he said.
Back at Immingham’s waterfront control tower, where the Humber’s 40,000 annual shipping movements are directed from, Williams defends his company’s positive outlook.
“We can adapt our space to accommodate whatever the arrangements are and that’s why we’re confident about the future.”