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Fortune Minerals - North America’s Next Vertically Integrated Cobalt Chemicals Supplier

Fortune Minerals – North America’s Next Vertically Integrated Cobalt Chemicals Supplier

Overview

Fortune Minerals Limited (TSX: FT; OTCQX: FTMDF) is developing its 100% owned vertically integrated, NICO primary cobalt project in Canada to produce cobalt chemicals for the rapidly expanding lithium-ion battery industry, together with gold and bismuth by-products.  NICO is comprised of a planned mine and concentrator in the Northwest Territories and refinery in Saskatchewan where concentrates from the mine will be processed to energy- and eco-metals for the growing green economy, with a significant gold component that can be easily converted into currency.  As a Canadian proposed producer of cobalt, NICO will be able to demonstrate supply chain transparency and custody control of ethically produced metals from ores through to the production of value-added chemicals, and that are independent of the Congo, China, and copper and nickel mining which have been identified as supply chain risks.

Investment Highlights

  • Building a reliable vertically integrated North American project to produce cobalt chemicals for the rapidly expanding lithium-ion battery industry
  • Approximately 2,000 tonnes of annual cobalt production
  • More than 1 million ounces of gold and 12% of global bismuth reserves as by-products
  • One of only two advanced stage cobalt projects in North America
  • Primary cobalt production that is independent of nickel and copper mining
  • Positive Feasibility Studies, test mining, pilot plants, Front-End Engineering and Design, and environmental assessments have already been completed
  • A high concentration ratio of valuable metals using simple flotation at the mine site to recover metals in a bulk concentrate for transport and cost effective processing at the proposed refinery
  • Strong relationship with the local people and ; the Federal, Northwest Territories and Tlicho (First Nations) governments, who participated in the approvals for the NICO mine and access road
  • Pursuing off-take agreements with globally recognized firms
  • Plan to deliver the project financing for construction
  • Value added processing at the refinery near Saskatoon
  • Potential for additional business at the Saskatchewan refinery from toll processing concentrates from other mines and diversification into the metals recycling business

Fortune Minerals has expended approximately $120 million to date preparing technical, environmental and social information to support development of the essentially shovel-ready NICO cobalt-gold-bismuth-copper asset. Environmental assessment approval and the major mine permits have been received for the facilities in the Northwest Territories and the proposed refinery near Saskatoon has also received its environmental assessment approval.  A positive Feasibility Study was completed in 2014 identifying Mineral Reserves of 33.1 million metric tonnes containing 82.3 million pounds (37,341 tonnes) of cobalt, 1.1 million ounces of gold, 102.1 million pounds (46,325 tonnes) of bismuth and 27.2 million pounds (12,296 tonnes) of copper to support a 21-year mine life at a production rate of 4,650 tonnes of ore per day (see details below).  Although NICO is planned to be mined primarily by open pit methods, underground test mining was carried out to validate the deposit geometry, grades and mining conditions, and collect large samples of ore for pilot plant verification of the process flow sheet, metal recoveries, and to produce samples of cobalt sulphate heptahydrate that meet the specifications required by lithium-ion battery producers.  The Feasibility Study is being updated by Hatch Ltd., Micon International Limited and P&E Mining Consultants Inc. to assess project economics at current costs, updated commodity price and exchange rate assumptions, and a higher throughput rate producing approximately 2,000 metric tonnes of cobalt units per year in sulphate.  NICO is being re-engineered at a higher production rate because the cobalt market is in deficit and is expected to be in short supply for the foreseeable future based on strong demand fundamentals and concerns about the current supply.  The Company has also received feedback from potential international strategic partners interested in securing a larger cobalt supply. Fortune Minerals has retained PricewaterhouseCoopers Corporate Finance Inc. (PwC) to arrange the Project Financing for the construction of the NICO Project through a combination of strategic partnerships, debt and equity.  The Company has executed confidentiality agreements with a number of financial institutions and potential strategic partners.

The cobalt market has experienced 20-year, 6% compounded annual growth (CAGR) and consumption is now more than 100,000 tonnes of refined cobalt units per year. The cobalt market has transitioned into deficit and current producers, primarily in the Congo cannot meet future projected demand.  Most of the growth in demand is due to the use of in the cathodes of rechargeable batteries.  This is because cobalt delivers superior energy density for power performance and charge life in the low volume batteries used in portable electronic devices, electric vehicle (EV’s) and electrical grid storage.  Batteries are now responsible for about 50% of global cobalt demand, up from 1% of a much smaller market in the mid-1990’s. Cobalt is also used in superalloys for the aerospace industry, cemented carbides, cutting tools, permanent magnets, surgical implants, catalysts, pigments and agricultural products.  The 20-year inflation adjusted price of cobalt is approximately US$25 per pound.

Future demand for cobalt is expected to accelerate, particularly after 2020 from the proliferation of EV’s and growing demand in grid storage enabling the use of renewable energy generation from wind and solar and off-peak charging from the electrical grid.  Tesla has started production from its US$ 5 billion Giga-Factory in Nevada, which will require about 7,000 tonnes of cobalt when it reaches full production targeted in 2018.  More than 20 battery megafactories (>1 GWh) are under construction or announced including a 100 GWh facility in China by CATL that is estimated to require 23,000 tonnes of cobalt per year.  With EV adoption rates accelerating and penetration rates forecast at between 12 and 25% by 2025, institutions like Exane BNP Paribas are estimating cobalt production will need to triple to 300,000 tonnes per year over this period.  A number of countries, particularly in Europe, have announced future bans on cars with internal combustion engines and countries like China (the largest car market in the world and EV leader) has transitioned incentivizing the purchase of EV’s to invoking penalties for the purchase of cars with internal combustion engines.

Whereas the most battery raw materials have numerous identified potential new deposits, cobalt is the bottleneck with supply chain concerns about future supply.  There are also significant risks associated with current cobalt supply because 62% of mine production is from the politically unstable Democratic Republic of the Congo (Congo), and 52% of refinery production and 80% of refined cobalt chemical supply is in China and has policy risks.  About 98% of non-artisanal cobalt supply is produced as a by-product of nickel and/or copper mining where the primary metals dictate production criteria.  Responsible sourcing has also become an issue with child labour, conflict minerals, poor environmental practices in some jurisdictions, and supply chain transparency issues under US Dodd-Frank and European Union Conflict Mineral legislation.  There is also increasing pressure from the Electronics Industry Citizens Coalition (EICC), which all of the major electronics companies in the world are members.

NICO will be a reliable Canadian vertically integrated producer of cobalt sulphate to the rapidly expanding lithium-ion battery industry, with supply chain transparency and custody control of metal from ores through to the production of cobalt sulphate. NICO is a primary cobalt project with ~60% of project revenues from cobalt, ~30% of revenues from gold, and ~10% revenues from bismuth at current prices.  NICO will be independent of the Congo, China and copper and nickel mining.  It will also be an ethical supply of cobalt to mitigate electronics industry concerns about unsustainable supplies with poor labour and environmental practices and that does not financially contribute to conflicts.

NICO Project

Excellent infrastructure in place and under development

The NICO cobalt-gold-bismuth-copper deposit is an IOCG or Olympic-Dam type deposit situated on 5,140 hectares of mining leases located 160 kilometers northwest of the city of Yellowknife in Canada’s Northwest Territories. The proposed mine is 85 kilometers north of the highway to Edmonton, Alberta, 50 km from the community of Whati and 25 km from the Snare Hydro Complex and the electrical grid.  Earlier in 2017, the federal, Northwest Territories and Tlicho (Aboriginal) governments announced Canadian Government funding for 25% of the cost of the Tlicho All-Season Road (TASR) to the nearby community of Whati.  The Government of the Northwest Territories subsequently announced that it had completed the Request for Qualification phase of the proposed Private-Public-Partnership (“P3”) to design, build, finance, operate and maintain the TASR and has selected three consortiums of large Canadian and International firms to advance to the Request for Proposal (“RFP”) stage, subject to progress of the EA. The winning consortium will fund the remaining 75 per cent of the cost of the road and will be repaid with interest over the life of the contract by the GNWT. Fortune already has environmental assessment approval to build a spur road to the mine and is included as part of the Feasibility Study for the project.  Fortune plans to construct the NICO mine and concentrator facilities using the existing winter ice roads to align the production schedule with availability of the all-weather roads and enable trucking of metal concentrates to the rail head at Hay River, Northwest Territories.

Large, well-defined polymetallic deposit

Large, well-defined polymetallic deposit

NICO is an IOCG (iron oxide copper gold) deposit which hosts open pit and underground Proven and Probable Minerals Reserves totaling 33.1 million tonnes, containing 82.3 million pounds (37,341 tonnes) of cobalt, 1.1 million ounces of gold, 102.1 million pounds (46,325 tonnes) of bismuth and 27.2 million pounds (12,296 tonnes) of copper to support a 21-year mine life at a production rate of 4,650 tonnes of ore per day . The reserve estimate is based on a robust database that includes 327 drill holes and surface trenches and was validated by underground test mining. The company believes significant exploration potential remains for extending the orebody through additional drilling and the identification of additional nearby deposits. The Company already owns the nearby 9 million tonne Sue-Dianne Copper-Silver-Gold deposit and there is attractive geology and geophysical anomalies to identify additional satellite deposits.

Fortune Minerals - North America’s Next Vertically Integrated Cobalt Chemicals Supplier

Highly de-risked project with positive bankable Feasibility Study and an updated Feasibility underway

Fortune Minerals has spent approximately $120 million advancing the NICO development and de-risking the project. Work has included exploration and delineation drilling, front-end engineering and design (FEED) and Feasibility Studies, underground test mining, and several pilot plant tests to verify the process methods, plant recoveries and produce samples of the products the Company will produce. Approximately $20 million was spent conducting underground test mining and this pre-production development work, including 2 kilometers of underground workings, is already in place to support underground operations during the first two years of the mine life. Most of the deposit will be exploited using open pit mining methods.

Metallurgical test work and subsequent pilot plants has verified the NICO process flow sheet, metal recoveries and produced samples of cobalt sulphate and other products that meet the specifications of the lithium-ion rechargeable battery industry.  One of the most important economic attributes of the NICO project is a high concentration ratio that allows the of ores to be reduced to less than 4% of their original mass into a bulk sulphide concentrate containing the recoverable metals.  Simply, after crushing, grinding and subjecting the ores to simple low-cost flotation at the mine site reduces 4,650 tonnes of ore per day to about 180 tonnes of concentrate.  Reducing the mined material in this way significantly reduces the cost of transporting the concentrate to the refinery site in Saskatchewan and also for downstream processing to value-add products.

FeasibilityStudy Highlights

Fortune Minerals is updating the 2014 Feasibility Study is a new study by Hatch Ltd., P&E Mining Consultants Inc. and Micon International Limited.  This updated study will assess project economics at current costs, updated commodity prices and currency exchange rates and a higher production rate to produce approximately 2,000 tonnes of cobalt units per year in sulphate.  The updated Feasibility Study and related engineering is being done to support Project Finance activities in progress by PricewaterhouseCoopers Corporate Finance Inc. The 2014 Feasibility Study is three years old and was prepared at much lower cobalt prices and higher Canadian to U.S. dollar exchange rates and is now out-of date.

 

Mine Type

Open Pit & minor Underground for 2 years

Strip Ratio

Waste to Ore 3.0 : 1

Processing Rate (tonnes/day)

4,650 tpdMill; 180 tpdRefinery

Mine Life

21years (potential for additional 3.2)

Economics

Base case

6-Yrtrailing cycle

Levered Pre-Tax NPV (7%)

C$ 254million

C$ 543 million

Levered Post-Tax NPV (7%)

C$ 224 million

C$ 505 million

LeveredPre-Tax IRR

15.6%

23.6%

LeveredPost-Tax IRR

15.1%

23.2%

Capital Costs

C$ 589million + Working Capital

LOM Average Base case Revenue/yr

C$ 196 million

LOM Average OperatingCost/yr

C$ 98 million

Cobalt Operating Cost (net of credits)

NegativeUS$ 5.03/lbatBase Case

*The 2014 Feasibility Study reflected in the Micon Technical Report uses Base Case Price assumptions are US$1,350/troy ounce (“oz”) for gold, US$16/pound (“lb”) for cobalt (US$19.04/lb in sulphate), US$10.50/lb for bismuth (US$12.64/lb bismuth in average production of ingot, needles and oxide), and US$2.38/lb for copper at an exchange rate of C$1=US$0.88;  Cycle price sensitivity analysis uses US$1200 to US$1900/oz gold, US$ 12-30/lb cobalt, US$ 7-19/lb bismuth & US$3-4.50/lb copper

Products validated through third-party testing

Third-party verification of total metal recoveries from the pilot plant tests are:

  • Gold Recovery Ranges from 56 to 85 percent, with an average ~73.7 percent
  • Cobalt Recovery ~84 percent
  • Bismuth Recovery ~72 percent
  • Copper Recovery ~41 percent

Early in 2016 Fortune Minerals announced that SGS Canada Inc. had produced a premium battery-grade high purity cobalt sulphate heptahydrate sample from material produced in its earlier pilot plant. The sample exceeded the chemical specifications received from several large manufacturers of lithium-ion batteries, and samples were provided to a potential offtake customer for testing. 

Well-positioned to become a reliable North American source of critical metals.

The NICO project includes the Saskatchewan Metals Processing Plant located on 482 acres of lands already owned by Fortune Minerals near the community of Langham, 26 kilometers northwest of Saskatoon. The province of Saskatchewan offers lower cost electricity and attractive tax legislation related to the processing of raw materials sourced from outside the province. Lower power costs from relocating the processing plant to Saskatchewan will save the company approximately $7 million per year in direct operating costs, plus significant capital to build the plant.

At the refinery NICO bulk concentrates will be subjected to fine grinding and secondary flotation to produce separate cobalt and bismuth concentrates.  About 60% of the gold reports to the bismuth concentrate and 40% to the cobalt concentrate.  The bismuth concentrate will be leached in acid to recover bismuth as a cathode using electro-recovery methods.  The cathodes are then smelted in an induction furnace to remove impurities and recover high quality bismuth metal in ingots, needles or calcined to oxide.  The bismuth leach residue will be blended with cobalt concentrate for processing by acid pressure leach in an autoclave and precipitation of a high quality cobalt sulphate heptahydrate after copper and manganese removal.  Copper is recovered by cementation onto iron.  Gold is recovered by leaching the combined leach residue in cyanide and precipitation by Merrill-Crowe methods.

The plant site is close to important existing infrastructure – about 4 kilometers from the Yellowhead Highway, and the Company’s lands straddle the CN main rail line between Saskatoon and Edmonton, Alberta. Other critical infrastructure in the area includes proximity to natural gas, lime and other reagent sources for processing, and a skilled labor pool of engineers and refinery workers.

Premium higher value products

Pursuant to the 2014 Feasibility Study, the Saskatchewan refinery will process material from the NICO mine and mill to produce cobalt chemicals for the lithium-ion battery industry and other high value products. Life of mine average annual production was projected to be:

  • 1,615 tonnes of cobalt in Cobalt Sulphate Heptahydrate (grading >20.9 percent cobalt).
  • 41,360 ounces of gold contained in doré
  • 1,750 tonnes of bismuth contained in ingots and needles (>99.995 percent bismuth) and bismuth oxide (89.7 percent bismuth).
  • 265 tonnes of copper metal (~90 percent copper).

Beyond the 20-year mine life span of the NICO deposit, Fortune believes future revenue-generating operations at the refinery could also include custom processing of material sourced from other mines as well as battery and metals recycling.

Permits granted and completion of rezoning process underway

The processing plant has already received its environmental assessment approval. Fortune Minerals now needs to complete the rezoning of the land where the proposed plant will be located from agricultural to industrial use. The expected capital cost of the build including equipment, construction, and services installation is more than $200 million.

NICO Project Construction

Fortune is working to secure off-take agreements and project financing to start construction of the mine and refinery. Construction is anticipated to take approximately 2 to 3 years to complete.

Management

Fortune Minerals has a management team with proven records of exploring, developing constructing and operating mines around the world and in the Northwest Territories.

Robin E. Goad, M.Sc., P.Geo.—President and CEO

Robin Goad is a professional geologist with more than 30 years of experience in the mining and exploration industries in Canada and internationally, and has a particular expertise of working in Canada’s far north. Mr. Goad led the team responsible for discovery of the NICO deposit and managed the work programs transitioning the project to the development phase. Prior to founding Fortune in 1988, Goad worked for large companies including Noranda and Teck, and as a consultant to the resource industry. He is a director of the NWT & Nunavut Chamber of Mines and has served as President and director of other TSX listed mineral exploration and development companies.

David Massola, B.Sc. (Acc.), Vice President Finance and CFO

Dave Massola is an executive with three decades of international mining experience in a broad range of financial and business aspects, including strategic planning, mergers and acquisitions, capital raising, taxation, treasury and risk management. This includes 20 years with BHP-Billiton at the Escondida Copper Mine in Chile, the Island Copper Mine in British Columbia and the Ekati Diamond Mine in the NWT. As Vice President and CFO of De Beers Canada, he contributed to the development of two diamond mines in northern Canada. Subsequently as Senior Vice President of Finance and CFO of GlobeStar Mining, he was a key employee in the financing, construction and operations of GlobeStar’s Cerro de Maimón Mine in the Dominican Republic and negotiated its subsequent sale. He was also the President and CEO of Continental Nickel Ltd., while it was developing a mine in Tanzania, and led negotiations for its subsequent takeover.

Glen Koropchuk , B.Sc., M.Sc., Calgary, Alberta , Technical Director and COO

Glen is a mining engineer with ~30 years of global, multiple commodity, operations, project development and corporate social investment experience predominantly with Anglo American… & De Beers. Prior to his retirement from De Beers Canada in 2016, Mr. Koropchuk was COO and responsible for delivering safe, operational excellence from the Snap Lake and Victor diamond mines in Canada’s north. Notably, he also led the permitting, Aboriginal engagement, and project management for the Gahcho Kue diamond mine in the Northwest Territories that was finished on budget, on time, and was recognized as the world’s largest new diamond mine at its opening ceremony in 2016.

David A. Knight , B.A., LL.B., Oakville, Ontario. , Corporate Secretary

David is a partner with Norton Rose Fulbright Canada LLP, part of the Norton Rose Group, a leading international legal practice with extensive expertise in the resource sector. David specializes in securities law, including public and private financings, mergers and acquisitions, stock exchange listings and regulatory compliance and acts for investment dealers and issuers. David is a member of the Law Society of Upper Canada.

Richard Schryer, Ph.D., Vice President of Regulatory and Environmental Affairs

Rick Schryer is an aquatic scientist with more than 25 years of experience in mine permitting, environmental assessments, environmental studies and monitoring. Prior to Fortune, he worked with Golder Associates and was involved with the permitting and environmental assessments for the Diavik and Snap Lake diamond mines in the Northwest Territores as well as projects in southern Canada

Dustin Reinders , B.Sc., P.Eng. —Projects Engineer

Dustin Reinders is a mining engineer with more than 7 years of experience in the mining industry and earthworks construction performing engineering and management roles. He has previously worked for Northgate Minerals at the Kemess South mine and with North American Construction Group at various mine sites in Fort McMurray. Reindeers is a graduate of the University of Alberta with a Bachelor of Science degree in 2010 in Mining Engineering.

David Ramsay , B.A., Yellowknife, Northwest Territories , Director

David Ramsay has extensive elected public office experience in the Northwest Territories, which has included prominent cabinet positions in the Legislative Assembly. Prior to Novem…ber 2015, he was Minister of Industry, Tourism and Investment that includes the preeminent mining portfolio. Mr. Ramsay has also served as Minister of Justice, Attorney General, Minister of Transportation and the Minister Responsible for the Public Utilities Board for the Government of the Northwest Territories. In addition to serving in Cabinet, David was Vice President of the Pacific Northwest Economic Region (PNWER) from 2011 to 2014, ‎and President between 2014 and 2015. The PNWER is a statutory public / private partnership of Alaska, Idaho, Oregon, Montana, Washington, British Columbia, Alberta, Saskatchewan, Yukon and the Northwest Territories whose mandate is to increase the economic well-being and quality of life for all citizens of the region. As a long-term resident of the Northwest Territories, David has been involved with numerous businesses. He was first elected to public office in 1997 and served five years as a Yellowknife City Councillor before his election to the Legislative Assembly.

Shou Wu (Grant) Chen , M.B.A., M.Sc., —Director

Grant Chen was formerly Deputy Chairman and CEO of China Mining Resources Group Limited, a Hong Kong based company that mines and processes molybdenum, copper, zinc and other metal products in China and invests in Canadian mining companies. Chen previously worked as a geologist in the precious metals sector in China and then as an analyst and merchant banker, and subsequently, Senior Vice President in the Mining and Metals Division for Standard Bank.

Edward Yurkowski, Director

Ed Yurkowski served as CEO of Procon which, in addition to the resource company, is a full mining provider through Procon Mining & Tunnelling Ltd until he retired from that position in 2014. He currently serves as a director and consultant for Procon. Yurkowski has been involved in the mining and civil contracting industries since 1966, including ownership and management of two large mining construction contracting companies. He received his Bachelor of Science in Civil Engineering in 1971 from the University of Saskatchewan and currently serves as a director of a number of other TSX and TSX Venture Exchange listed companies, including Imperial Metals Corp., Golden Band Resources Inc., BC Moly Ltd. and Copper Lake Resources Ltd.

Carl L. Clouter , Gander, Newfoundland—Director

Carl Clouter is a commercial pilot and former owner of a charter airline in the Northwest Territories. He has been active in mineral exploration in conjunction with more than 35 years of flying in Canada. He previously served as a Sentencing Justice of the Peace and on the board for the mineral development assistance program for the Government of the Northwest Territories.

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