If you were asked to rank the top exports of the struggling economy of Cuba, then you'd probably list a few predictable things: sugar, tobacco, pharmaceuticals. Those are the no-brainers, but dig a little deeper, and you'll see that the island nation is one of the top global producers of two important 21st-century metals: nickel and cobalt.
In fact, despite having just 1% of the land area of the United States, Cuba produces 550% more cobalt than the U.S. and owns the third-largest cobalt reserves on the planet. Those should be sobering statistics for investors and policymakers for several reasons. Chief among them is the fact that cobalt has become an indispensable component in the latest chemistries for lithium-ion batteries. It comprises up to 15% of the mass of some batteries (compared to just 1% for lithium) and currently sells for $80,000 per metric ton. Lithium sells for roughly $20,000 per metric ton.
Considering the severe risks and limitations in global production, which recently pushed Apple -- not even a producer of energy storage products -- to directly secure its own cobalt supply from miners, the material may present the single best argument for rapprochement with Cuba. That's especially true if the United States wants to have the best shot possible at becoming a leader in electric vehicles, renewable energy, and energy storage.
American cobalt insecurity is a huge risk for investors
The United States has by far the greatest geopolitical position on the planet: deep navigable rivers, friendly neighbors, two giant oceans on its borders, and bountiful reserves of natural resources and minerals. Unfortunately, when it comes to several important metals increasingly used in lithium-ion batteries, America ranks near the bottom of the global list. Can't win 'em all.
The nation's cobalt reserves and production output paint a depressing picture. Reserves total just 23,000 metric tons (MT), which is equivalent to 0.3% of the global sum. In 2017, the United States cranked out an estimated 650 MT of cobalt from a single mine in Michigan. By comparison, it generated 2,800 MT from recycling efforts. Those numbers, combined with the country's advanced industrial base, mean America depends on imports for over 70% of its cobalt consumption.
That hasn't been much of a problem yet, but current market dynamics aren't very favorable for countries heavily dependent on imports. Fifty-eight percent of global production originates in the Democratic Republic of Congo. Most of that comes from mining giant Glencore (OTC:GLCNF), which alone produced 25% of the planet's total cobalt in 2017. That was "only" 27,000 MT, which will increase to 42,000 MT this year and 63,000 MT in 2019. It's easily the best cobalt stock investors can buy right now.
But back to depressing statistics. Just 17% of global cobalt production occurs in the Northern Hemisphere. Remove production from the Philippines and Russia, and only 8% of global cobalt production comes from regions relatively close to the United States -- and that comprises just three nations: the United States itself, Canada, and Cuba. No wonder Apple decided to make the unusual (and controversial) move of securing cobalt supply directly from miners.
Cuban cobalt is key to America's EV future
The United States is not yet a major manufacturer of lithium-ion batteries, but it's about to be. The first Gigafactory from Tesla is ramping up production of energy storage products for mobile (electric vehicles) and stationary (grid storage and home batteries) applications. It's expected to become one of the largest battery manufacturing facilities in the world, with an initially stated 35 gigawatt hours of cell production capacity and 15 gigawatt hours of additional assembly capacity. That was roughly equal to total global production capacity just a few short years ago.
American cobalt insecurity may begin to rear its ugly head for Tesla shareholders beginning this year. While the company states that it has adequate material supply agreements in place, import data from 2017 show no increase in national cobalt purchases compared to previous years (a slight decrease, actually). That could be from underreporting, although well-known struggles in ramping up production at the Gigafactory 1 last year likely played a role. As production increases in 2018, the company's consumption should show up in import data, especially given the facility's enormous size. Given current selling prices, that could prove to be a challenge going forward.
Combine lackluster domestic production, ramping production at Tesla's first major lithium-ion battery manufacturing facility, and future production plans from other major automakers, and it becomes clear the United States needs all the help it can get when it comes to sourcing cobalt supplies. Enter Cuba.
The tiny island nation produced 4,200 MT of cobalt in 2017 and held reserves of 500,000 MT -- both vastly more than the United States. In fact, Cuba owns the third-largest global cobalt reserves in the world and ranks sixth in production. That mismatch in rankings presents a potential opportunity for Uncle Sam.
What the United States' geopolitical position lacks in domestic cobalt reserves, it makes up for with its proximity to Cuba. Potentially, anyway. The Caribbean country has yet to come close to its full potential in cobalt production because it suffers from a lack of investment. Cobalt is produced as a by-product of nickel production, and the nation's nickel manufacturing and processing facilities are well past their prime (and don't stand up to hurricanes very well).
In other words, some partnerships with deep-pocketed American companies could create a win-win situation in which Cuba receives much-needed investment, and the United States receives a significantly more secure (and ethical) source of cobalt. Unfortunately, the country's current foreign policy stance has restricted business dealings with Cuba. Continuing on the current course would mark a giant missed opportunity. Leading American companies, such as Apple and Tesla, should make the case for rapprochement -- with cobalt and the chance to build the economy of the future as the central argument. Otherwise, they'll continue to face massive supply chain risks that investors are largely overlooking.