FCX Freeport McMoRan Inc

Africa is key to cobalt supply, but if planned increases to production there take place prices are likely to fall, a trader from Standard Bank said Wednesday.

"If investment is directed correctly and major projects are completed, then large quantities of cobalt will reach the market," said Tony Southgate. "The inevitable result will be that cobalt prices should trend lower, although this may stimulate increased demand in the future."

Zambian cobalt cathode 99.80% was recently quoted as trading at around $20.50-$22.50 a pound. Zambian cobalt resources are normally a lower quality, Southgate said, but some Zambian copper output generates little or no recoverable cobalt, however.

According to Southgate, the majority of African cobalt metal and intermediates production is a byproduct of copper production in Congo's mineral-rich copperbelt.

"Congo cobalt resources are the highest quality in the world," Southgate told a Metal Bulletin conference in London. "Some projects are only viable due to revenue from cobalt.

"Some Congo concentrates require little upgrading to be economically viable to export," he said.

Congo-based Katanga Mining Ltd. (KAT.T) is a major producer of cobalt and copper metal, and is currently completing an expansion plan to increase its copper production capacity to 110,000 metric tons a year. If the cobalt ratio is maintained, this will suggest annual cobalt production of around 7,000 tons, Southgate said.

Katanga's ratio of copper tons produced to cobalt tons produced has varied between 16:1 and 20:1.

"The company was heavily impacted by the global downturn and lower copper and cobalt prices, just as production was ramping up," he said.

Other projects in Congo include the Tenke Fungurume project, a joint venture between U.S. producer Freeport McMoRan Copper and Gold Inc. (FCX), Canada's Lundin Mining Corp. (LUN.T) and Congo's state-run Gecamines. Production of cobalt from Tenke is expected to be 8,100 tons annually from 2010.

There is also significant cobalt production at Eurasian Natural Resource Corp. PLC's (ENRC.LN) Luita project, where output is estimated at around 7,000 tons annually. Part of this will be converted to metal inside Congo once a plant is commissioned, likely at the end of the year, Southgate said.

ENRC also recently took control of the Kolwezi tailings project, estimated to be able to produce 7,000 tons of cobalt annually, Southgate noted.

"Especially for projects in Congo, the revenue contributed by cobalt is key to the overall feasibility for these projects," he said.

Congo, Zambia, Uganda, Botswana, South Africa and Morocco are currently important cobalt producers in Africa; future production may come from Cameroon, Tanzania and Madagascar, Southgate said.

In 2010, Africa is expected to account for 35,920 tons of cobalt output, a jump from 23,779 tons in 2009. World cobalt output this year is set to be 63,654 tons, up from 59,253 tons last year.

-By Andrea Hotter, Dow Jones Newswires; +44 (0)20 7842 9413; andrea.hotter@dowjones.com

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