Formation Metals Inc. (TSX:FCO,OTCQX:FMETF) is focused on its wholly-owned Idaho Cobalt Project (ICP), the only environmentally-permitted, primary cobalt deposit in the United States, which offers North American consumers a responsibly mined source of battery grade cobalt chemicals.
Formation Metals recently announced metallurgical results and the initiation of a Definitive Feasibility Study on the ICP, as well as a financing of $4.4 million dollars. Investing News Network spoke with President & CEO Paul Farquharson to follow-up on this and other milestones they expect in 2016.
Investing News Network: We hear a lot about lithium when it comes to electric car batteries, but what many people may not know is that cobalt also plays an important role in the battery chemistry. For investors that are new to the cobalt space, can you give us some insight into what makes this an exciting market?
Paul Farquharson: The supply demand situation for cobalt is really the key catalyst for the renewed excitement in the cobalt sector. There are many analysts out there that believe that cobalt is currently, or will be very shortly, in a deficit situation and will remain so for quite some time. Probably into 2018 to 2019 mainly due to the electric vehicle market, which is the key driving force. Forty nine percent of cobalt used is now driven by rechargeable batteries and the growth rate is phenomenal, over 11 percent year over year growth.
Another key factor is the consideration of human rights abuse and child labor. Approximately 60 percent of the world’s supply of cobalt comes from the DRC, and about 20% of that is attributed to artisanal mining—where children as young as seven years old are being sent down small tunnels to extract raw ore. The problem here lies in the ethically-sourced cobalt being co-mingled with artisanal DRC cobalt produced from child labor shipped to smelters outside of the DRC for distribution around the world. Amnesty International did quite a large report on this issue back in March targeting the electronics industry who use cobalt in their rechargeable batteries for such things as smartphones, tablets, laptops etc. So the issue here, I believe, is the supply chain of raw materials and making it transparent. Formation Metals’ project will be mined safely and responsibly in the United States, who, by the way, is the world’s largest single consumer of cobalt.
INN: Thank you. Formation Metals has been able to demonstrate through metallurgical testing that high purity cobalt salts for rechargeable batteries can successfully be produced. Could you elaborate on these results and tell us what they mean for Formation, as well as the progress made in the development of the Flow Sheets?
PF: In March of this year, we announced metallurgical test results that were a year in the making. We partnered with General Electric, who will be providing us with the crystallizer units, and Cytec Industries, who will be providing the reagents for our process. Ore from our deposit—on a bench scale test—produced a high purity cobalt sulfate heptahydrate, which is the cobalt salt of choice for the battery industry. This is a huge step for us in getting the attention of potential off-takers, because basically we know what sort of product they need and what sort of product we can produce. Now we have a preliminary spec sheet that we demonstrate to these off-takers what kind of product we can produce.
INN: Excellent! You recently announced the initiation of a bankable feasibility study for the Idaho Cobalt Project. Would you please give us some insight about the work you are doing for the study and would you be able to provide us a timeline for completion?
PF: The current feasibility study aims to improve the confidence level of our previous technical report—which was a PEA—and it will include updates to the flow sheets and new economic assumptions. The purpose of this more detailed study is to mitigate the lending risk to potential financers.
We hope to have this study completed either by the end of this year or first quarter of 2017. As we move along the next 6 to 8 months, we will be discussing the project and updating potential financers.
INN: I know you may have already addressed this in the question, but are you looking to improve on anything from the PEA that you did last year?
PF: Absolutely. As you tighten up your studies and have more definitive data, it just gets more confident… more cost effective. The engineers have told us that with the potential improvement in the flow sheets, there could be a reduction of the equipment that will be required. We will certainly have a much better idea of the CAPEX requirements as we advance through the feasibility study. There is a signification amount of contingency placed in the PEA assumption, so we hope we can tighten that up and hopefully shave off some of our CAPEX, but time will tell. As the study unfolds, we will have much better information that we can relay to the public.
INN: How well financed is Formation heading into this study and beyond?
PF: We announced June 1 this year the successful completion of a $4.4 million dollar financing. The bulk of the proceeds are earmarked to complete the study, so we are really well-financed to move forward.
INN: You have alluded that Formation’s Idaho Cobalt Project is the only environmentally-permitted primary cobalt deposit that is a pure play in the United States. What is the value for investors in having this unique position in the North American market?
PF: It gives us a tremendous advantage: this is a very unique deposit due to its status, grade and location; we have successfully permitted a primary cobalt deposit located in the United States. Once we get our CAPEX in place, it can be fast-tracked to full production in approximately 21 months, so this is considered a very near term value for our shareholders. One of the other advantages is what we have is that our operations are not affected by falling copper and nickel prices unlike the majority of cobalt produced worldwide which is a by-product of copper and nickel mining.
INN: Have you made any progress in procuring off-take agreements for the cobalt?
PF: Yes we have. We’ve been in touch with several potential off-takers, and this will be an ongoing process. We are confident that the feasibility study will demonstrate we can produce the product that they need. Another, perhaps more of an intangible benefit, is knowing that the raw materials will be sourced ethically and locally with a minimal carbon footprint. With the United States being the largest single consumer of cobalt and the booming EV sector, we believe this domestic source will be a valuable asset to the sector. In fact, the Defense Logistics Agency recently announced they are now stockpiling cobalt chemicals for the rechargeable batteries sector and this is for the National Defense of the United States… so pretty important consideration here moving forward with off-takers.
INN: Good. Will you be able to tell us some more about the potential upside in terms of increasing the resource at the Idaho cobalt Project?
PF: Absolutely, there is plenty of upside on the project. The deposit that hosts the resource base of the Cobalt Project remains open along strike and at depth. Additionally, there are well over a dozen untested or under-tested targets on the property. Of these additional targets, we have drilled four of them and each target returned cobalt intercept values above our cutoff grade. So there is definitely room to expand this project.
INN: On a final note, what catalysts should investors look out for in the next 6 to 12 months?
PF: This is a tremendously exciting time for the company and our shareholders. We will be extremely busy with the advancement of the engineering and the potential financing. For the first time in several years, the cobalt markets are heading into a deficit situation. The last time that happened and cobalt markets were in deficit in 2008, the price of cobalt reacted sharply with a really nice spike in it. Cobalt prices have the largest impact on our IRR’s and NPV’s of the project, so if history repeats itself, this could bode well for the project, the company and our shareholders moving forward.
INN: Excellent. Paul, thank you for taking time to give us some education about the opportunity here.
PF: Thank you for having me.
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