Tesla Battery Push Spurs ENRC Owner to Target Cobalt Mining

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  • Eurasian Resources develops $2.2 billion project in Congo
  • CEO sees cobalt prices rising on more demand for batteries

Eurasian Resources Group S.a.r.l. plans to use a $2.2 billion project in the Democratic Republic of Congo to become the world’s top cobalt producer and tap growing demand for batteries from companies including Tesla Motors Inc.

ERG, which earlier this month agreed on $700 million of Chinese funding for the project, has started construction and aims to complete it within 20 months, according to Chief Executive Officer Benedikt Sobotka. He sees the company becoming the largest cobalt producer when full capacity is reached. Chinese producers currently vie with each other for the top spot.

Cobalt prices should advance “significantly” in the next two years as demand for the metal used in rechargeable batteries increases, Sobotka said. The battery market is expanding as more consumers turn to electric and hybrid cars and look to store renewable energy to power appliances when there’s little wind or sunshine. Daimler AG and Tesla said they plan to sell batteries storing energy to homeowners and businesses.

“Given that companies such as Tesla are expanding and increasing the use of batteries, our project has very good prospects," Sobotka said in an interview last week.

ERG Assets

Luxembourg-registered ERG owns Eurasian Natural Resources Corp., which delisted shares in London in 2013 amid a fraud probe. It controls assets in Kazakhstan, Europe, Africa and Brazil and is 40 percent owned by the Kazakh government with the remaining held by private investors.

Cobalt to be mined at the Congo Roan Tailings Reclamation project will be shipped to China to supply materials for battery production to firms such as Panasonic Corp., before then going to companies like Tesla, Sobotka said. The facility will initially be able to produce 14,000 metric tons of cobalt a year, rising to 21,000 tons, according to ERG. Cobalt prices declined 12 percent on the London Metal Exchange since the end of December after rising in the previous two years.

Roan Tailings will also be able to produce 70,000 tons of copper annually, potentially expanding to 105,000 tons. Low output costs mean the project will still be economically viable even if copper prices, down 19 percent this year, drop by half from now, Sobotka said.

Targeting Africa

"We view our projects in Africa as key drivers of our future growth internationally," Sobotka said. "Places like Indonesia or South America no longer offer significant opportunities."

In Kazakhstan, ERG plans to build an aluminum smelter, a hot briquetted iron ore facility and two power units. It’s also seeking Chinese financing for those developments. Including the agreement for the Congo project, the company aims to raise at least $2.5 billion from China.

Its major lenders now include the Development Bank of Kazakhstan and Russia’s VTB Bank and OAO Sberbank. European banks aren’t comfortable lending due to the continuing fraud investigation over the company’s assets in Africa, Sobotka said. He expects the probe to be closed by the end of next year.

The producer refinanced its debt recently and sold more than $1 billion of assets. It is still open to selling small African assets but has no plans to offload any major production facilities.

"Currently, there are no appropriate buyers for these smaller assets, given the downturn in the commodities cycle," Sobotka said.

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