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When Tesla Powerwalls and the Congo Basin Collide

This article was written by Greg Silberman, Chief Investment Officer of Atlanta Capital Group Investment Management, and was first published on VintageValueInvesting.com.

“Doctor Livingstone, I presume?”

It was the age of Exploration!

Dispatched in 1869 by the New York Herald, journalist Henry Stanley undertook a roving commission of the Middle East and Africa which included the relief of Dr. David Livingstone.

A Scottish explorer of whom little had been heard since his departure for Africa in 1866 in search of the source of the Nile.

During the 700-mile expedition through the tropical forest, Stanley’s thoroughbred stallion died within a few days after a bite from a tsetse fly, many of his porters deserted, and the rest were decimated by tropical diseases.

Stanley found Livingstone 3-years later in present-day Tanzania.

Preserving a calmness of exterior which was hard to do, Mr. Stanley approached the group and said these famous words: – “Doctor Livingstone, I presume?”

Too which the pale white man answered: “Yes, and I feel thankful that I am here to welcome you.”

Congo Basin

Both explorers wandered through the jungles of Central Africa.

The Congo Basin.

In what can only be described as the Ultimate Omnipotent Paradox, the Congo basin is an incredibly wealthy area, abundant in natural resources, yet witness to human tragedy and suffering beyond equal:

  • Arab Slave traders;
  • A brutal colonial occupation under the Belgians (Belgian Congo) – who evacuated the country overnight allowing it to collapse;
  • A dictatorship regime under Mobutu Sese Seko (Zaire);
  • Who was overthrown in 1997 by Laurent Kabila (who renamed Zaire the Democratic Republic of Congo – DRC) and was subsequently assassinated.

Beneath her fertile soil lies abundant deposits of copper, gold, diamonds, cobalt, uranium, coltan, and oil, just some of the minerals that should make it one of the world’s richest countries.

Instead it is the world’s most hopeless!

Ironically, if history is any guide her misery is set to continue!

Whether it’s the seemingly unstoppable march toward Electric Vehicles (EV):

Or storing off-grid electricity from your home solar panels:

The Global BATTERY Storage demand is set for Elephant Bull Market proportions:

There are over half a dozen battery Gigafactories being considered in the US, and a further half-dozen in Europe, far in excess of current capacity.

The 3-main natural resources that go into batteries are:

  1. Lithium;
  2. Graphite;
  3. Cobalt – a byproduct metal – it comes to market after having been refined out of nickel or copper mining.

More than 60% of the world’s cobalt originates in the Democratic Republic of the Congo!

The 3-largest producing mines are all in the DRC.

  • Tenke Funurume produced 16,000 tonnes of cobalt in 2015 owned by China Molybdenum;
  • Glencore’s Katanga mine, which is expected to open next year with a capacity of 22,000 tonnes per year.
  • The next large resource, Eurasian Resources’ restarted Metalkol project, also in the DRC, should provide 14,000 tonnes per year starting in 2019.

It doesn’t take a genius to figure that highly volatile supply mixed with through-the roof-demand MUST be favorable towards higher prices.

In fact, in the 111-page draft prospectus of Tesla’s proposed $1.5bn senior note offering that came out in August 2017, the word “cobalt” appears only once.

“Tesla has always been a company of the future funded by investors’ equity. The problem with a debt issue (the $1.5bn note matures in 2025), is that there is a more certain date with material reality. It has become more apparent that cobalt supply could be the choke point for the mass production of electric vehicles that are capable of replacing the standard car or light truck.”

Cobalt Price since July 2005

Despite a 2.5x increase since the 2016 lows, Cobalt prices are still far off their “Super cycle” high of $53/lbs in early 2008. Unlike now, Electric Vehicles and Tesla Powerwall’s were only emerging concepts back then.

Fortunes could be made…?

Regards,
Greg

Thank you for reading my post. I regularly write about private market opportunities and trends. If you would like to read my regular posts feel free to also connect on LinkedIn, Twitter or via Atlanta Capital Group Investment Management.

Nothing in this article should be interpreted as a recommendation to buy any security. Please conduct your own due diligence.

Greg Silberman is the Chief Investment Officer of Atlanta Capital Group Investment Management [ACGIM]. Atlanta Capital Group Investment Management specializes in creating custom private market solutions for RIA/Family Office clients.

Advisory Services offered through Atlanta Capital Group Investment Management.