Why Fortune Minerals Stock Is Headed Lower

The slide in cobalt prices has knocked the wind out of Fortune Minerals [stock_market_widget type="inline" template="generic" color="default" assets="FT.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] this year. The stock got off to a solid start in 2019 and rose as much as 90% in the first few months, but it has come crashing down of late as cobalt prices have dropped.

In fact, cobalt prices had jumped to two-year highs in February this year thanks to tight supplies and strong demand for electric vehicles. The price of cobalt was at more than $16 per pound in April this year, but it slid to less than $12 a pound in July. This slide has impacted Fortune Minerals, which was flying high when prices were strong.

Fortune Has Been Forced to Pull Back

Earlier in October, Fortune announced that it has scaled back its expansion plan for the Nico cobalt mine in Canada owing to the price crash. The cobalt market has been under pressure thanks to oversupply, which has reduced prices from as high as $47,000 per tonne in January to just over $35,000 per tonne in October.

As a result, Fortune has said that it won’t be prudent to go ahead with the expansion of the mine from the current daily mill production rate of 4,650 tonnes to 6,000 tonnes at Nico. According to CEO Robin Goad:

An environment that has seen curtailment from the world’s largest cobalt mines is not conducive for an expanded, capital intensive project at this time.

This statement comes in the light of the fact that Glencore had decided to stop production at the Mutanda mine in Congo for a period of two years owing to the oversupply. As such, the oversupply in the cobalt market is going to weigh over Fortune Minerals’ prospects.

What Next for Fortune?

The good news for Fortune is that cobalt prices have witnessed a turnaround of late. The price of the metal has recovered 40% from the lows that it hit in July, driven by Glencore’s decision to halt production at Mutanga.

However, until and unless there is an uptick in demand, don’t expect cobalt prices to witness a sustained recovery. Demand for passenger electric vehicles is going to be the biggest driver for cobalt as it is used in the batteries.

But that market is expected to gain critical mass only from 2021, and it could take as long as 2023 for cobalt demand to exceed supply. Demand is expected to catch up to supply by 2022, and then the market is expected to witness a supply deficit that could increase each year. So, expecting a turnaround at Fortune Minerals in the near-term isn’t the right idea.

As such, investors who have already put their money in the stock should consider taking money off the table in the near-term. Despite its recent crash, Fortune stock is still sitting on 13% gains for the year, which means that it would be prudent to make an exit.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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