First Cobalt CEO Trent Mell joined the Investing News Network to discuss challenges in the global cobalt market.
First Cobalt (TSXV:FCC,OTCQX:FTSSF) CEO Trent Mell joined the Investing News Network to discuss the role of cobalt in the electric vehicle (EV) market and the commodity’s challenges, specifically in the control exerted by China over the supply chain.This has led companies like First Cobalt to develop alternate supply chains, thereby alleviating concerns over the critical mineral.
First Cobalt is working to produce a battery-grade cobalt sulfate from its permitted Canadian cobalt refinery. The company’s hydrometallurgical refinery is located only 600 kilometers from the US border, and is currently permitted at a throughput rate of 12 tonnes per day.
The company has partnered with Glencore (LSE:GLEN,OTC Pink:GLNCF) in order to restart its cobalt refinery, which would become the only primary refiner of cobalt in North America. Following an initial investment of US$5 million, Glencore is prepared to invest another US$40 million to recommission and expand the refinery upon completion of a positive feasibility study for a 55 tonnes-per-day refinery.
Below is a transcript of our interview with First Cobalt CEO Trent Mell. It has been edited for clarity and brevity.
Investing News Network: What is the name of your company, what is your symbol, and what market are you in?
First Cobalt CEO Trent Mell: First Cobalt Corp, based out of Toronto. Our symbol is FCC on the TSX Venture exchange and our market is cobalt.
INN: What is the market for cobalt at the moment? Why would I care about cobalt?
TM: We started our company in 2017 on the heels of what I call the EV revolution. We’re changing the way we get around. It has massive implications for our economy and for the auto supply chain. If you back up 20 years ago, cobalt was a bit of a boring metal. We used it in magnets, we used it in hardeners and more importantly we used it in jet engines and things of that nature. Today, half of the global production goes into batteries. Initially, it was in phones, laptops and power tools. Today the biggest application is electric vehicles, and we’re just starting that transition from combustion engines to EVs.
INN: And the appetite for it is just going to increase, isn’t it?
TM: It is, and it’s darn hard to find. Which is why we put this company together.
INN: So what is the resource that you’re able to tap on here in Canada and the United States?
TM: When we put the company together, we went to the Democratic Republic of Congo. We went to the Congo because three-quarters of the global mine supply is coming out of there, but we got discouraged pretty quickly. I’ve been with big companies like Barrick Gold (TSX:ABX,NYSE:GOLD) and Sherritt International (TSX:S,OTC Pink:SHERF) and I’ve been to Mexico and Russia, so I’ve operated around the world, but the DRC is at a different level when it comes to operational challenges. So we built up our resource here. We’ve got a big asset base in a town called Cobalt in Northern Ontario and we have our flagship assets in Idaho, which is one of two places in the world where you can actually get a primary cobalt deposit and not as a by-product. Our third asset, which is really our focus, is our refinery that is also located in Ontario.
INN: Well let’s just talk about some of the challenges out of the DRC and why it makes what you’re doing that much more attractive because of the stability the Canadian and North American markets bring.
TM: China really has a lock on the DRC. As part of their Belt and Road Initiative, they’ve invested a lot of money in infrastructure and the quid pro quo with that is “if we’re going to invest in roads, ports and power infrastructure, we want to own the resources,” and they’ve done a fabulous job of it. It’s a tough jurisdiction for any Western company to operate in. There’s a way of doing business there that could get you or I into trouble. Not everywhere, but it’s the reality you’re going to face in an emerging jurisdiction. As a junior miner, you are more likely to face those obstacles than if you are a global conglomerate. So for us, it just wasn’t worthwhile.
You have the corruption challenge, you have a really difficult geopolitical situation and you have instability in a massive country with poverty and poor infrastructure. On top of that, you have the artisanal labor issue. Artisanal mines are a legitimate way for an emerging economy to allow its citizens to make money and to earn a subsistence living when you don’t have a social safety net, but there is a portion of those that are run with child labor and poor human rights practices, including conscripted labor. The issue was historically limited to the northeast of the country, where there is gold, tin, tungsten and tantalum mining, but it has found its way into the copper belt where cobalt is mined, and this has become a really big issue. Amnesty International did a great job shining a light on the problem, and it has forced us to take a closer look at where we are sourcing cobalt.
INN: Rightly so. If this is our market and where we call home, then we want to adhere to the principles that we believe to be fundamentally important in the kind of society that we want to live in. The fact you’ve brought everything home and your focus is here really makes a big difference. So let’s talk about the refinery that gives you this unique position. Tell me about the refinery.
TM: First Cobalt came out of the gates really strong in 2017 when we put the company together. Having looked around the world, we recognized there was a lot of untapped potential here in North America. We looked at Australia, Sweden, Chile and of course Africa, and then got our hands on some good assets in Canada and the US. Our entire team comes out of the majors: First Quantum (TSX:FM,OTC Pink:FQVLF), Inmet Mining, Falconbridge and Barrick, so we have seen what can go wrong. It isn’t just the juniors that can blow things up — majors can get it wrong as well. Hiring a team from major mining companies was a very deliberate, thought-out strategy. We merged with three other companies and in the process, we got our hands on this refinery. I would say we didn’t really appreciate how valuable it was at the time.
We had great exploration assets and that has given us a strong market capitalization. We were the best-followed cobalt story on the planet in 2017, but we suffered the ups and downs of the commodity. We, the broader market, got ahead of ourselves, as cobalt went from US$15 to US$43 and back down to US$11, so we saw a big sell-off. That caused us to focus further down the supply chain, and we started looking downstream to our chemicals business, our refinery.
The world today is now chewing through a surplus of cobalt hydroxide, cobalt feed that was produced by the commercial and artisanal miners in the DRC and needs refining. Almost all of the supply right now in the DRC finds its way to China. That is why China today controls the global cobalt market, and that is why cobalt is a critical mineral for Canada and the US. So our refinery is a really interesting strategic asset and a very near-term solution to the critical minerals issue. Instead of sending all the cobalt to China, we can send it right here to the only permitted facility in North America and have production as early as this year.
INN: So when do you anticipate that you’ll be producing?
TM: We have two feasibility studies underway right now. One is a quick restart where we prove the concept and the other is a 4.5 times expansion that we are planning one year later. With the feasibility study slated for the end of Q1, we anticipate a joint decision with Glencore say 30 to 60 days thereafter. We will then get working on recommissioning the facility. I am targeting November of 2020 right now, so not far away.
Our conversation with Glencore is ongoing and I am off to see them again next week. The closer we get to the feasibility study completion date, the better position I will be in to firm up a timeline. But right now, there is no reason, from a technical perspective, that we could not start that facility this year. An important reason for this is that all the work we have to do for recommissioning is within the four walls of the building. We have permits, we have the infrastructure and we have the geological model covered as well. So the three biggest risks that you face when building a mining operation are not on the table for us.
INN: Yeah and you have a team as well.
TM: Yes, we do have a great team. We were exploration-heavy in the early days. We then retrenched and refocused our efforts on processing. We have got to keep our general and administrative expenses low, so I took a salary cut and we haven’t paid bonuses in quite some time. We are keeping it tight, as we are owners as well. Our focus has been on partnering with some of the best. We have Ausenco Engineering leading the study and SGS doing the metallurgy along with our own internal team. Things are moving ahead very quietly, very deliberately. But we have got a jump in our step right now that we didn’t have last year because we are near that finish line. Things seem to be aligning well with the previously public scoping study results.
INN: What is your projected production capacity?
TM: This facility ran in the past as a custom refining facility. It was taking the material nobody wanted and processing on a campaign basis. So it might process some complex feedstock for 90 days and then shut down, bring the next batch in and adjust the plant flow sheet accordingly. It was a hard way to run a business. Typically, it was receiving difficult material with lower grades and lower recoveries and they were always tweaking the flowsheet and retooling.
With Glencore, we will have high grade material that is easy to treat and we will have consistent feedstock for the next four to five years. They will provide the feed, they will provide the off-take solution and they are prepared to provide the capital in exchange for that. So the run rate is initially 12 tonnes per day. At that rate, we could produce about a thousand tonnes of cobalt units per year which translates to 5,000 tonnes of cobalt sulfate. Once we do the expansion to 55 tonnes per day, we should produce 5,000 tonnes or 11 million pounds of cobalt. Bloomberg New Energy Finance estimates that is about 5 percent of the world market within two years. So we would become a meaningful player and the only player on the North American continent.
INN: And you’re confident you’ll have the supply?
TM: Yes. There is no shortage of supply. We obtained this surplus material in the DRC and we tested a fairly representative sample. In fact, it was a lower grade sample than what we are looking at right now and we found it to be perfectly suited to our hydrometallurgical facility. We can receive the feed and put it into solution and it leaches very well. The extraction process has worked exceedingly well compared to some of the tougher feeds that the refinery historically treated. It is not just Glencore but almost all of the DRC copper-cobalt mines that produce cobalt hydroxide, so we had lots of opportunities, but Glencore turned out to be the best partner for us.
INN: OK. From the investors’ perspective right now, what’s the opportunity?
TM: We are coming off the tax-loss selling season from December. We went down to as low as 11 cents and we are now bouncing around 15 to 16 cents, so a good recovery. My cost-base is double that; I bought up and down, so certainly as a CEO I am motivated to see a much stronger price than this. The commodity is coming back — we went from US$43 per pound down to US$11 and now we are sitting close to US$18. The outlook is much more constructive today. Last year, about 2.8 percent of global vehicle sales were either electric, battery-powered or plug-in variants.
INN: And it’s increasing?
TM: Yes, it is increasing. It is a constructive environment and I think the market has learned to be a little bit measured with its exuberance. I am seeing a steady progression both in our stock price and the commodity. When you look at how an investor gains exposure to cobalt, it is hard to do. Most of the cobalt is found in diversified base metal producers and we are one of the few pure plays. We are the only junior that has the opportunity to achieve cash flow this year at a modest cost, for the mining industry at least, of C$60 million dollars. In fact, this year will only be a fraction of that because we are doing a restart.
It is a small CAPEX on a permitted facility that is already built, with a guaranteed feed and the world’s biggest cobalt miner as a partner. So I am not going to say there is no execution risk but we have a lot of those things checked. We will probably have Ausenco help us build it and run it so as a junior we won’t try to swing for the fences and stumble out of the gate on our first year of production.
This interview is sponsored by First Cobalt (TSXV:FCC,OTCQX:FTSSF). This interview provides information which was sourced by the Investing News Network (INN) and approved by First Cobalt, in order to help investors learn more about the company. First Cobalt is a client of INN. The company’s campaign fees pay for INN to create and update this interview.
INN does not provide investment advice and the information on this profile should not be considered a recommendation to buy or sell any security. INN does not endorse or recommend the business, products, services or securities of any company profiled.
The information contained here is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Readers should conduct their own research for all information publicly available concerning the company. Prior to making any investment decision, it is recommended that readers consult directly with First Cobalt and seek advice from a qualified investment advisor.