Cobham Share News (COB)

By Melanie Burton and Nicole Mordant

MELBOURNE/VANCOUVER March 19 (Reuters) - Nervous Asianbattery makers are turning to early-stage cobalt projects inAustralia and Canada to lock in supplies of the critical batteryingredient ahead of expected shortages as demand for electricvehicles revs up.

Mine developers say interest from Japanese and Korean firmsis particularly strong as they compete with rivals from China,which has built deep supply chain ties with the DemocraticRepublic of Congo, the world's top producer.

The central African country accounts for nearly two-thirdsof global cobalt output and production is set to rise despiteconcerns over the use of child miners and rising royalties.

"We are starting to see the first signs of an arms race tosecure long term cobalt supplies," said Joe Kaderavek, chiefexecutive of Australia's Cobalt Blue.

"With over 85 percent of new global cobalt supply over thenext decade coming from Africa, in a region where the Chinesehave entrenched relationships, the Korean and Japanese cobaltprocessing industries are very focussed upon Australian andCanadian projects."

South Korean battery maker SK Innovation Co Ltdlocked in a seven-year supply deal with Australian Mineslast month, helping to win funding for a project thathas yet to make a final investment decision and does not expectto produce any cobalt until at least 2020.

At least half a dozen Australian and Canadian minedevelopers are currently in talks on potential supply deals withbattery and automakers for production at some point beyond late2019-2021, company executives told Reuters.

These include Australia's Aeon Metals, NorthernCobalt and Cobalt Blue, and Canada's Ecobaltand Fortune Minerals.

China's Beijing Easpring Material Technology Co,which makes products for battery makers, has also signed abinding five-year deal with Australian mine developer Clean Teq.

"We are speaking to a number of parties about the balance ofthe offtake - that includes not just Chinese potential customersbut also customers from other parts of the world," Clean Teq'sCEO Sam Riggall told Reuters.

In an indication of heightened demand, Riggall saidautomotive companies were also showing interest, along withcathode manufacturers, the direct users of cobalt, a keymaterial in lithium-ion batteries.

DRC GROWTH

In the DRC, production is set to rise sharply, driven bycommodity giant Glencore Plc, the world's biggestproducer, and Luxembourg's ERG, taking DRC's share of globaloutput to over 75 percent by 2023, according to UK-based DartonCommodities.

Glencore last week agreed to sell around a third of itscobalt production over the next three years to Chinese batteryrecycler GEM Co Ltd.

Developments in Australia and Canada will be small tomid-size, producing around 1,000 to 5,000 tonnes each, in aglobal market expected to swell to some 157,000 tonnes by 2023.

Fortune Minerals said it has signed 25 confidentialityagreements, while Australia's Ardea Resources said ithas seen significant interest.

"Certainly some of the groups that we have spoken to havesaid that they won't look at DRC sources, they want cleanethical sources of cobalt," said Ardea Managing Director MatthewPainter.

Japan's Panasonic, the main battery supplier toTesla Inc, said it was aware of issues in the DRC andwas looking to source some material elsewhere, and it was alsolooking at lowering its dependency on cobalt.

"Regarding concerns about procuring cobalt and other rawmaterials, we are addressing this by establishing advanceprocurement contracts and developing new procurement routes,"the company said in emailed comments.

South Korea's Samsung SDI and LG Chemdeclined to comment specifically on procurement butalso said they were looking at other methods to source cobaltand to reduce usage.

RISKS REMAIN

Despite surging share prices for some cobalt developers,analysts warn the projects are not without risk, given fickletechnology and the high cost of processing out contaminants likearsenic, found in some North American operations.

Clean Teq shares more than doubled in the second half lastyear, but have since slipped 20 percent, partly because it hastwice delayed the date of its definitive feasibility study, saidLarry Hill, an analyst with Canaccord Genuity in Australia.

Still, the company easily raised A$150 million ($117million) this month, and pulled forward its production timelineby a year.

"There's still a lot of upside in any cobalt supply that isex-DRC," said James Eginton, an investment analyst with Sydney'sTribeca Global Natural Resources Fund, which took part in theraising.

"The challenges of the DRC make anything that comes out ofanywhere else a lot more attractive."

($1 = 1.2817 Australian dollars)

(Reporting by Melanie Burton in MELBOURNE and Nicole Mordant inVANCOUVER, Susan Taylor in TORONTO, Barbara Lewis in LONDON,Ritsuko Ando in TOKYO and Jane Chung in SEOUL; editing byRichard Pullin)