February 23, 2018
The Black Panther, Vibranium,
and Apple's Cobalt mission
Took my 6
th grader and a few of his buddies to see Black Panther last weekend. Two thumbs up. Their main comment: "it was so cool".
I'm not giving anything away if you didn't see it yet - Wakanda, a make-believe country in Africa, about where the Northwest corner of Democratic Republic of the Congo is, sits atop a mountain made of the imaginary rare metal Vibranium. This metal is both very rare and special and it has allowed Wakanda to develop into a hidden, technologically advanced society. Aside from its deep social undertones; colonialism, oppression, slavery, nationalism, and most importantly, that a black child could see a superhero who looks like him or her, it is getting some comparison in financial press to Apple entering into talks directly with miners of Cobalt.
Cobalt is super important in the production of batteries for cellphones and EV's. If Apple or one of its competitors couldn't get it, it would be at a major disadvantage - like no more batteries to power their products! Hence, Cobalt has gone mainstream as an investment opportunity, despite its substantial rise in price over the years. Since about half of it comes from the war-torn DRC, a country with severe human rights violations, dangerous mining conditions, and terrible child labor conditions, Apple is looking to lock in supplies as well as buy from suppliers that are less controversial.
Another metal used in batteries for cellphones and EV's is lithium, the lightest of metals. Too bad it isn't very stable and can burn. This is where metals like nickel and manganese come in; quality batteries for portable devices is about finding the right mix of metals and chemicals that optimizes both holding a charge and stability. Cobalt affects the time it takes to charge a battery, its energy density, stability, and it is the main component of the battery cathode. Electrons move back and forth between the negatively charged anode and positively charged cathode, depending whether or not the battery is recharging or discharging. The cathode, of which cobalt is the primary material, is the most expensive part of the battery and is also where experts believe has the greatest potential for battery improvements going forward. But I digress.
Betting on any commodity has risks, particularly volatility. Nowhere in financial services is the supply vs. demand rule more pronounced than in this asset class. Fortunes are made and lost and long standing industries rise and fall. This brings me to an anecdote I wrote in 2010, during the last big oil price spike:
"Natural resources: But a lot of novice investors who haven't been burned by commodities are crowding the market. The real threat to commodities is when supply catches up to demand. Due to bone crushing drops in the price of gold, silver, oil, and other commodities in the '80s and '90s, mining companies either under-invested in new production or shut down mines altogether. This has left the world with supply constraints. Now mining companies are running full-out to increase mining productions, which is a slow process."
Lithium and Cobalt are no different than any other commodity in that respect; subject to the laws of supply and demand. But what could change its current condition of tight supply and strong demand? New mines in friendlier places could be discovered. Chemists could come up with replacements for Cobalt or at least find ways to use less of it. But those two things look a long way off. What should investors look for when evaluating the merit of an investment in Lithium or Cobalt, or any commodity for that matter?
My answer comes from the same 2010 anecdote above:
But there has never been a time in recorded history when production doesn't eventually catch up with demand. So, watch the earnings reports from mining companies; that will be your "canary in the coal mine" early warning system."
Given that a few ETF's that track the stocks of metals and rare earth metals are near their 52 week highs, it's clear that investors are optimistic about the sector. It's also one more way to evaluate the sector.
PICK: iShares Global Metals & Mining Producers ETF
REMX: VanEck Vectors Rare Earth/Strategic Metals ETF
XME: SPDR S&P Metals & Mining ETF
LIT: Global X Lithium & Battery Tech ETF
Making investment recommendations is not the purpose of my posts; it's to educate my clients about the goings on within the investment industry to help raise their potential to reach financial goals.
Another thing my posts aren't purposed for is to make you feel good every week, as much as I'd like to. Sorry about that, by the way. Investing is about compromising between potential reward and risk. I applaud Apple for making the choice to go for more humanely sourced Cobalt, even if it may be for optics and to lock up vital supplies for the future. Regardless, I hope more companies follow its path.
The Apple products in my pocket, my kids' pockets, and in my home are ubiquitous parts of our lives. Yours too, I'm sure. This conflict is obviously much harder to swallow than the reward vs. risk one, but it's becoming equally compelling, nonetheless, when it is time to invest in the search for consumer pleasure and corporate profit.
Wakandan's, as it turned out, discovered conflicts that they didn't even know they had. But they moved to remedy them, which is what superhero movies are all about.
I'll leave it off with a quote that I wish was from a fantasy movie; from an expose about Cobalt mining in DRC by The Washington Post:
He sat next to a series of small food stalls, stout squares of discarded mining sacks stretched over sticks, where a digger could buy a bread roll for 100 Congolese francs, equal to about 10 cents. The bread came with a free cup of water.
"You eat what you make," Mboma said finally.
And eating would have to wait.
Thanks for reading,
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