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Editorial Coverage: As cobalt becomes increasingly important in
powering technology, the U.S. government has identified it as a
critical mineral for securing national interests. This reflects a
rise in demand that is already affecting a number of companies.
First Cobalt Corp. (TSX.V: FCC) (OTCQX: FTSSF)
(FTSSF
Profile) is using the opportunity to
establish mining and processing facilities in the United States and
Canada, powered by a recent merger. Glencore PLC ADR (OTC:
GLNCY) continues to benefit from its Katanga mine, which
is expected to produce 42 percent more cobalt this year in response
to demand. eCobalt Solutions, Inc. (OTCQX: ECSIF)
is developing a fresh source of cobalt in Idaho, increasing
America’s ability to provide for itself. Demand for the precious
mineral comes from tech companies such as Tesla, Inc.
(NASDAQ: TSLA), which needs cobalt to power a dramatic
rise in production of its electric cars. Tesla is competing for
resources with the likes of Apple, Inc. (NASDAQ:
AAPL), which is moving towards directly sourcing the
cobalt needed for its device batteries.
The Critical List
Since the election of President Trump, the United States has
been moving towards a strategy of self-reliance in mineral
resources. The introduction of trade tariffs on steel and aluminum
(http://nnw.fm/4riEA), justified on grounds of
national security, are just part of a wider plan to ensure access
to critical resources. As part of this, the Department of the
Interior has published a list of 35 minerals it considers critical
to the country’s economic and national security (http://nnw.fm/5KroN).
This presents an opportunity for North American manufacturers of
the minerals on the list, including cobalt. As the United States
seeks to ensure ready access to these materials, it will create
opportunities for companies with existing connections within the
country. And with global demand for cobalt already rising, there
are increasing opportunities for North American cobalt
producers.
Mining in America
As a fast-growing North American cobalt company, First
Cobalt Corp. (FTSSF
Profile) is in a strong position to make the most of this
shift.
First Cobalt’s recently acquired Iron Creek Project in the
prolific Idaho Cobalt Belt presents a unique opportunity to fast
track mining in America. The project, which has a historical
resource estimate of 1.3 million tons grading 0.59% cobalt
(non-compliant with NI 43-101 standards) could be ready for
development in just a few short years.
First Cobalt is currently in the process of completing a new,
compliant Mineral Resource Estimate on Iron Creek, expected to be
completed in September. The company is also in the process of a
70-hole drill program intended to double the known strike length of
this deposit, which could increase from 1.3M to just under 4M tons
of cobalt.
First Cobalt is also the largest landowner in Canada’s
cobalt-producing region, controlling more than 10,000 hectares of
mineral rich land, including 50 historic mines. These sites — once
mined for minerals such as copper — are now coming back into use as
sources of cobalt and silver.
First Cobalt has combined this historical data with modern
high-tech surveying techniques to identify where cobalt can now be
found. Based on this work, the company has carried out further
research on these sites, using test drilling and analysis of the
minerals found. The results so far have been positive, particularly
at the Bellellen mine, where drilling has increased after early
work found high-grade cobalt and nickel.
This has let the company prepare a $C7 million mining program
for 2018 that include plans to further explore and exploit these
sites. This mining program has been made possible by a financing
deal established in late 2017, which brought in $30.6 million
(http://nnw.fm/c7NKv). The financing and
successful testing has led its share price to rise 350 percent over
2017, and the company now has one of the largest market caps of any
pure-play cobalt exploration company in the world.
Building a Bigger Company
One of the biggest challenges for a new company such as First
Cobalt is that of scale. With demand for its product growing, it
may be a challenge for a small company to meet customers’
expectations.
First Cobalt has countered this problem through a strategy of
targeted growth, including the recent acquisition of US Cobalt,
Inc. The deal, just recently completed, required approval by not
only the boards of both companies and their investors but also the
Committee on Foreign Investment in the United States (CFIUS).
The acquisition of an American asset is particularly important,
given that Canada is among the companies targeted by recent U.S.
mineral tariffs. Gaining US Cobalt’s Iron Creek project in the
Idaho Cobalt Belt means that First Cobalt could be a manufacturer
of cobalt mined in the United States and, thereby, in a position to
potentially benefit from protectionist trade policies rather than
being damaged by them. It also means that the company would be
producing minerals closer to America’s major hubs of electric
vehicle manufacture in areas such as California and Michigan, and
so able to easily exploit the rise of electric cars.
With the only permitted cobalt refinery capable of producing
battery-grade material in North America, the enlarged company is
set to become a leader in North American cobalt. “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,” First Cobalt President and CEO Trent Mell said. “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.”
Why Cobalt Matters
What makes this one particular mineral so valuable for companies
such as First Cobalt?
The answer lies in technological change. Cobalt is used in a
wide variety of products, from airbags to diamond tools to
superalloys. But recent years have seen a dramatic rise in one
particular set of products — rechargeable batteries.
These batteries are integral to products that the modern world
have come to rely upon. Smartphones in particular are reliant upon
cobalt-using batteries, and as these devices have become integral
to everyday life, demand for cobalt has risen. In addition, other
rising technologies need these batteries. Electric cars, for which
companies such as Tesla are pushing so hard, need cobalt-using
batteries. With major industrial countries such as Britain and
France looking to phase out the sale of fossil fuel cars over the
next thirty years, demand is set to soar.
This has led to a rush to find new sources of cobalt, mostly by
reopening old mines. So far, the largest source is in the
Democratic Republic of Congo (DRC), but political uncertainty,
unethical working practices, and rising taxes have combined to make
DRC cobalt hugely problematic (http://nnw.fm/W2Kyy). Some companies are looking to
find more reliable sources, while others, including Apple, want the
mineral provided in more socially and environmentally responsible
ways.
This adds to the opportunity for companies such as First Cobalt.
By focusing on sources outside the DRC, these companies can provide
reliable, ethical supplies for a growing market.
Sources of Supply and Demand
Several significant players are taking an interest in the growth
of cobalt, either as producers or as customers.
Glencore PLC ADR (OTC:GLNCY) is the leading
global manufacturer of cobalt, thanks to its ownership of the
Katanga copper mine in the DRC. Glencore has revived the mine as a
source of cobalt, giving it a significant foothold in the cobalt
market. The company has predicted a 42 percent jump in cobalt
production at the mine this year (http://nnw.fm/0zG8p), to 39,000 metric tons. As a
large global minerals firm, it has so far been able to maintain its
output from Katanga despite the problems in the DRC, producing
copper as well as cobalt at the facility.
In North America, First Cobalt’s main peer is eCobalt
Solutions, Inc. (OTCQX: ECSIF). The company is currently
developing a mine in Idaho that is expected to be operational
within two years, providing another source of American cobalt,
however without the production facilities to process the cobalt
into battery materials, the company is looking to ship it outside
the US for processing. A growth in the number of American cobalt
mining firms creates the possibility of more custom for First
Cobalt’s processing operations.
One of the leading customers for this cobalt is Tesla,
Inc. (NASDAQ: TSLA). The company has seen a dramatic rise
in demand for electric cars, with a 40 percent increase in
production in the first quarter of 2018. Batteries are vital to
this production, and analysts believe that Tesla may be struggling
to provide the batteries it needs (http://nnw.fm/1ks8J). The company’s presence ensures
that there will be growing demand for cobalt in North America, as
drivers shift towards more environmentally friendly vehicles.
Meanwhile, Apple, Inc. (NASDAQ: AAPL) is
looking to secure sources of cobalt for its device batteries. As
demand from car manufacturers threatens to swallow up supplies, the
company is abandoning its policy of letting battery producers
source their own cobalt and is instead looking to acquire the
mineral directly. This competition between car and mobile device
manufacturers ensures that demand and prices for cobalt will
continue to stay strong.
The demand for cobalt is rising around the world. Its
identification as a strategically critical mineral in the United
States only increases the need to develop sources in North America.
With this trend set to continue over the next decade, the future
looks bright for American cobalt manufacturers.
For more information about First Cobalt Corp, please visit
First
Cobalt Corp. (FTSSF).
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