Two years ago, Toronto-listed Wheaton agreed a deal https://www.reuters.com/article/us-vale-sa-cobalt-stream/vale-in-deal-with-two-canadian-companies-to-sell-cobalt-idUSKBN1J72IA that would give it access to substantial volumes of metal from January 2021 at a significant discount to the market price.
Cobalt metal is used in corrosion-resistant alloys that keep their strength at high temperatures. They are typically used to make jet engines, gas turbines and speciality steels.
Cobalt hydroxide, which is produced separately, is commonly used for electric-vehicle batteries.
Because Wheaton doesn't trade physical commodities, it sent out a tender to more than 10 commodity traders in April to sell between 50 and 75 tonnes of cobalt metal a month in 2021-2022 and between 75 and 100 tonnes a month from 2023.
Using London Metal Exchange prices, 75 tonnes of cobalt would be valued at around $2.5 million.
"Wheaton doesn't have the infrastructure to market the cobalt and Traxys does, it has been selling Vale's cobalt under a contract which expires in December," one source said, adding that the new deal was for up to five years.
"Traxys needs to fill that gap, they have the marketing knowledge and global customers. This deal puts Traxys on a par with Glencore on the metal side, consolidates their position."
Traxys did not respond to requests for comment.
Wheaton declined to comment on the result of the tender, but said in a statement: "We are still in the process of determining a suitable marketing/sales program to ensure we maximize the value we receive from the metal."
The schedule detailed in the tender, seen by Reuters, said the winner would be selected on Aug. 14.
London-listed commodity trader Glencore produced 46,300 tonnes of cobalt last year, of which 4,100 tonnes was metal. Most of Glencore's cobalt output is in the form of hydroxide from central Africa.
Last November, Traxys agreed to market large amounts of Norilsk Nickel's cobalt metal production for up to three years. The Russian company produces about 5,000 tonnes of cobalt metal a year as a byproduct of nickel.
The second source said Wheaton had struck a Sales Agency Agreement - where it would control who the cobalt was sold to as well as the quantities and price, with Traxys acting effectively as a middleman - rather than an offtake deal.
An offtake deal is where a trading company agrees to buy a specified number of tonnes a month or year at a fixed price and then it controls where it is sold, plus quantities and price.
By Pratima Desai