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Editorial Coverage: Demand for high-efficiency batteries is
leading to growth in the cobalt industry, but new ventures are
threatened by the Democratic Republic of Congo’s (DRC) dominance in
mining and China’s in processing. Some companies are now trying to
break this stranglehold, with First Cobalt Corp. (TSX.V:
FCC) (OTCQX: FTSSF) (FTSSF
Profile) establishing the largest
integrated operation in North America and eCobalt
Solutions, Inc. (OTCQX: ECSIF) joining in with the
construction of a mine in Idaho. Katanga Mining Ltd Ord
(OTC: KATFF) dominates the DRC-sourced market despite
legal troubles besetting its mining operation in the country. The
backing of parent company Glencore PLC ADR (OTC:
GLNCY) may give Katanga the resources to weather the storm
and allow these linked companies to become the world’s largest
producers in cobalt. Meanwhile, investment companies such as
Cobalt 27 Capital Corp. (TSX.V: KBLT) are
investing in both cobalt and its producers, showing the wider faith
the market has in this mineral.
A Vulnerable Industry
Cobalt mining is vital to supporting many up-and-coming
technologies, in particular the batteries needed to power electric
cars, but, while it is an increasingly important industry, it is
also a vulnerable one. Two-thirds of the world’s cobalt production
currently takes place in the Democratic Republic of Congo (DRC),
with this proportion expected to rise past 70 percent by 2021. The
processing of cobalt is dominated by China, which produces 80
percent of the cobalt mineral used in lithium-ion batteries. Of the
processing not done by the Chinese, half involves materials from a
majority-Chinese-owned mine in the DRC. Global supplies of cobalt
are therefore controlled by these two countries and vulnerable to
the political and economic climate there.
Cobalt mining is extremely profitable, but, as long as it is
tied to just two countries, it is also very vulnerable. Is there
another path for cobalt companies?
Canadian Cobalt
The executives at First
Cobalt Corp. (TSX.V: FCC) (OTCQX: FTSSF) certainly
think so. A North American mining company, First Cobalt is set on
diversifying its sources of cobalt production.
The company’s operations are based in Canada (http://nnw.fm/2ucsI), where it has acquired a string
of claims in former silver mining country. Cobalt is often found in
the ground alongside other minerals in these abandoned claims, and
former exploitation has left the cobalt exposed. What makes First
Cobalt’s camp unique is that it is a silver-cobalt camp rather than
the more common copper-cobalt operation. With cobalt now an
important resource, First Cobalt has been able to obtain these
abandoned mines with the aim of using them to produce new
wealth.
The company has already acquired 50 historic mines covering
nearly 25,000 acres of Canadian mining country, making it the
largest landowner in the country’s cobalt region. This provides a
unique opportunity to bring meaningful cobalt production into North
America, reducing the vulnerabilities to political and social
unrest that have come with work in the DRC. And moving production
closer to North American tech companies also provides the potential
to reduce shipping, possibly providing cobalt more quickly and cost
effectively for these companies.
First Cobalt has been quick to make the most of this
opportunity. By combining a century of historic mining data with
modern analytical techniques, it has quickly identified the most
likely locations of cobalt deposits and moved to exploit them. The
results of test drilling quickly produced positive results. Recent
work near Kerr Lake (http://nnw.fm/fmjQ0) has discovered mineral deposits
at least twice the size of those previously known to exist there.
Through a vigorous strategy of expansion and exploration, First
Cobalt has created one of the most valuable potential sources of
cobalt in North America.
A Larger Cobalt Company
First Cobalt is now reinforcing their position through an
ongoing merger with US Cobalt, Inc. (TSX.V: USCO) (OTCQB: USCFF),
expected to close the end of this month. The absorption of US
Cobalt into First Cobalt is a friendly transaction, with the two
companies working together to combine into a more powerful and
streamlined cobalt operation. This adds the Iron Creek Cobalt
Project in Idaho to the company’s resources, including a historic
resource (non-compliant with NI 43-101) of 1.3 million tons grading
0.59% cobalt, allowing it to mine significant cobalt deposits in
the United States as well as Canada.
The merger takes First Cobalt from a cobalt explorer to a
vertically integrated cobalt solution, with potential to cover the
mining, refining and sale of cobalt in the growing North American
battery market. It’s an invaluable position to be in, as interest
in electric cars grows, and American industry moves to serve this
market. It also makes First Cobalt one of the leading politically
“clean” cobalt companies, remaining clear of the human rights
issues and regulatory turmoil that have affected mining operations
in the DRC.
With a strong balance sheet, a global institutional shareholder
base and a proven management team, the merger should create a
greater profile in the global markets for the company. First Cobalt
was already potentially in a strong position to secure finance,
with a raise in late 2017 bringing in $30.6 million (http://nnw.fm/831pS). This has helped the company keep
up its excellent financial performance, with share prices rising
350 percent over the course of 2017 to give it the largest market
cap of any cobalt exploration company in the world.
First Cobalt President and CEO Trent Mell said, “We foresee a
shortage of cobalt over the next five years, yet there are few
companies doing significant work to identify new sources of supply.
This transaction creates a larger platform to discover and develop
cobalt projects for the growing electric vehicle market by
combining high-quality North American assets in two of the best
cobalt jurisdictions outside the DRC.”
North America’s Only Cobalt Refinery
One of the most important features of this integrated company is
the ownership of a unique asset — the only permitted refinery in
North America capable of producing battery-grade cobalt.
Located east of the town of Cobalt in Ontario, the refinery is
currently inactive, having been shut down in 2015. Care and
maintenance of the facility has continued, and now First Cobalt is
investigating the potential not only to start it up again but also
to expand the facility (http://nnw.fm/5jUH3). A study being conducted by
engineering firm The Primero Group will provide an assessment of
the costs and practicalities of reopening and expansion. This would
allow First Cobalt to process minerals from mines in both Ontario
and Idaho, as well as to process materials for third parties that
don’t have their own facilities.
On the subject of the refinery, Mell said, “We view the First
Cobalt Refinery as a strategic asset as it is the only permitted
cobalt refinery in North America capable of producing battery
materials.” It’s this unique facility that puts First Cobalt in a
position to become the first fully integrated North American clean
cobalt producer, providing a reliable source for an American market
previously reliant on the DRC and China.”
Other Cobalt Market Players
In the wider cobalt market, companies are profiting from the
rise in demand for the mineral while facing challenges stemming
from the sources of their products.
Katanga Mining Ltd Ord (OTC: KATFF) is Swiss
giant Glencore’s way into the cobalt market. The company has worked
in partnership with others in the DRC to transform the Katanga
copper mine into a major source of cobalt. It has the resources to
run a major site such as Katanga, but its presence there has made
the company vulnerable as the DRC’s politicians seek to assert
control and extract more wealth from cobalt production.
Glencore PLC ADR (OTC: GLNCY) itself is looking
to profit from the rise in the cobalt market. The company predicted
a 42 percent rise in cobalt production at the Katanga mine
(http://nnw.fm/M9k7W) over 2018, along with a
smaller increase in copper production. The impact of a recent
lawsuit over the mine remains to be seen, but the company has the
resources to put up a fight in court.
Cobalt 27 Capital Corp. (TSX.V: KBLT) is an
investment company focused on the cobalt market. It is best known
for stockpiling physical supplies of cobalt — at 3,000 metric tons
(http://nnw.fm/dCir5) this is the largest
privately owned supply in the world. It has also acquired rights
and shares in other companies (http://nnw.fm/FEVs0), helping to finance a growing
industry.
In North America, the only other significant cobalt producer is
cobalt Solutions, Inc. (OTCQX: ECSIF). With a mine
in Idaho that could be up and running in the next 18 to 24 months,
it’s showing the growing faith of investors in the long-term future
of North American cobalt. As North American producers find their
own niches, collaboration between them could bring extra profit for
all parties.
Demand for batteries will ensure that the cobalt market keeps
growing. And as companies shift away from reliance on China and the
DRC for production and processing, we’re starting to see a diverse
and exciting market.
For more information about First Cobalt Corp, please visit
First
Cobalt Corp. (TSX.V: FCC) (OTCQX: FTSSF).
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