Cobalt on Critical List as US Moves Towards Mineral Independence
05 Jun 2018
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) (OTC: 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. (OTC: 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. (TSX-V: FCC) (OTCQX: FTSSF) 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 Statesonly 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. (TSX-V: FCC) (OTCQX: FTSSF).
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