Fortune Minerals CEO Robin Goad joined the Investing News Network to discuss the cobalt market and optimization plans for the NICO project.
Fortune Minerals (TSX:FT,OTCQB:FTMDF) CEO Robin Goad believes that the electric vehicle (EV) market is moving increasingly towards a nickel–manganese–cobalt (NMC) battery cathode chemistry. Even with greater adoption of lower cobalt NMC metal ratios, cobalt is expected to double in demand by 2025 and triple by 2030, according to the European Commission’s JRC Science For Policy Report.
According to Goad, NMC batteries will be the standard for the EV industry now that Tesla (NASDAQ:TSLA) has announced a shift from using NCA battery chemistries. The projected acceleration of global electrification is expected to outpace cobalt mine production from current mines and near-term development projects by 2022. This is anticipated to create a need for new ethically-sourced supplies of cobalt in the mid-term. Fortune Minerals, a North American development-stage mining company, intends to be part of the solution with the development of its NICO cobalt project in Canada’s Northwest Territories, which also has a 1.1 million ounce gold reserve.
Fortune Minerals recently provided an update on its NICO project noting that the contemplated 30 percent expansion to 6,000 tonnes of ore per day mill throughput rate is not warranted in the current cobalt price environment. The indicative economics for the larger project would deliver an inferior economic return for the development when compared to the company’s previously planned rate of 4,650 tonnes of ore per day. The 4,650 tonnes per day rate is likely optimal to minimize capital costs while delivering economies of scale to keep operating costs low. Fortune Minerals intends to look at establishing new partnerships as a way to validate the project as the company develops its property.
The NICO project and the satellite Sue-Dianne deposit are iron oxide-copper–gold (IOCG) style deposits. These types of deposits typically occur in clusters and are among some of the largest mineral deposits in the world. These include the Olympic Dam mine in Australia, Salobo and Sossego in Brazil, and the Candelaria deposits in Chile. In addition to its known deposits, Fortune Minerals has identified two significant geophysical anomalies on its NICO property that have not been tested to date. They include a particularly large, combined gravity, magnetic and magnetotelluric anomaly situated beneath the main NICO deposit.
A second combined gravity, magnetic and magnetotelluric anomaly occurs along the east strike extension of the NICO deposit at Peanut Lake. The potential of this second target was validated last winter when Fortune Minerals unearthed a number of mineralized boulders from pits dug to provide road aggregate in the overburden covering the anomaly. Representative grab samples returned copper values up to 1.6 percent. The company intends to test these anomalies as it continues to optimize the economics for the known NICO deposit.
Below is a transcript of our interview with Fortune Minerals CEO Robin Goad. It has been edited for clarity and brevity.
Investing News Network: Please provide our investor audience with an overview of the company’s NICO project in the Northwest Territories and the significance of an IOCG-style deposit.
Fortune Minerals CEO Robin Goad: NICO and its satellite Sue-Dianne deposit belong to the iron-oxide-copper-gold (IOCG) ore deposit class, which includes giant global analogs that are among some of the largest deposits in the world. The best-known example is the Olympic Dam mine in Australia, which contains mineral resources of more than 8.3 billion tonnes and mineral reserves of over a billion tonnes. Other significant deposits in this class include the Salobo and Sossego mines in Brazil and the Candelaria mines in Chile, all with reserves of about 1 billion tonnes.
IOCGs typically occur in districts with similar geology and age and in clusters of multiple deposits. NICO and Sue-Dianne are recognized as IOCGs and the Great Bear magmatic zone hosting the deposits is similar to the age and geology of other IOCG districts around the world. The NICO deposits contain Mineral Reserves of more than 33 million tonnes, with an additional Mineral Resource of 10 million tonnes contained in the nearby Sue-Dianne deposit. While relatively small in comparison to the deposits in other IOCG districts, both deposits remain open for potential expansion and our property-scale and regional geophysical database points to a tremendous opportunity to identify more mineralization in this area.
To put this into perspective, our NICO deposit sits at the center of a 15 square kilometer potassium anomaly, which is the largest and strongest hydrothermal potassium anomaly ever identified by the Geological Survey of Canada. The inverted ratio of thorium indicates that the potassium is from a secondary hydrothermal source, which could represent a substantial hydrothermal system capable of producing large mineral deposits. The potassium anomaly is partly coincident with a 20 square kilometer magnetic high anomaly, which points to the iron oxides that are also part of the hydrothermal alteration known to occur in IOCG-type deposits. The deposit itself is associated with smaller gravity and resistivity anomalies that reflect the greater bulk density and conductivity associated with metal concentrations in the deposit.
We have two particularly attractive geophysical targets that have not been tested to date, and these are in addition to the expansion potential of our known deposits. Both of these targets are associated with combined gravity magnetotelluric and magnetic geophysical response that are indicative of the presence of high bulk density, conductivity and magnetic mineral sources.
The larger of these two anomalies is about 10 times bigger than the anomaly associated with the known NICO deposit and is situated just below and north of the known deposit. Recent geological re-interpretation in this area indicates that the down-dip extension of the NICO deposit may be faulted and down-thrown to the north and the anomaly may represent the faulted extension of the deposit.
A second combined gravity, magnetotelluric and magnetic anomaly was identified about two kilometers east along the projection of strike of the known NICO deposit. Last spring while digging pits for road aggregate, Fortune unearthed mineralized boulders in the overburden covering this anomaly, which returned copper grades up to 1.6 percent. This, together with iron oxide mineralization identified in outcrops on the shore of nearby Peanut Lake, indicate that the source of this anomaly may be concentrated sulphide minerals that need to be followed up with additional geophysics and drilling.
INN: How is the construction of the Northwest Territories’ Tlicho all-season road a significant milestone?
RG: The Tlicho Road is an all-weather road that is currently being constructed by the Federal, Territorial and Tlicho Governments. Without the road, the NICO project cannot proceed. We need to be able to ship our metal concentrates produced from the mine to a processing facility that we intend to construct in southern Canada for downstream processing into value-added products.
To put this into a broader perspective, Canada’s northern territories suffer from an acute infrastructure deficit. There’s a general lack of roads and other infrastructure needed to develop these vast areas of our country that also contain significant mineral endowments. We have an area that not only has significant mineral potential but is also close to the infrastructure needed for development, including the hydro dams that currently supply electricity to Yellowknife. Having this road join the territorial highway system is a key enabler for the NICO project, allowing Fortune to truck out its metal concentrates to its planned refinery in Southern Canada.
Construction of the 97 kilometer road is proceeding well. As of October 22, 30 kilometers of brushing, 23 kilometers of roadbed stripping and 19 kilometers of the road have been constructed. When completed, the Tlicho road will provide a permanent all-season road connection between Whati and the Territorial highway system. The road not only allows the NICO project to proceed but also opens the southern part of the Bear province and western part of the Slave geological province to exploration and industrial development. The road project recently received a gold award from the Canadian Council for Public-Private Partnerships as it is one of the first projects in North America to have an indigenous government take a cash-funded equity stake in a project.
INN: What prompted Fortune Minerals to scale back its mine plans for the NICO project?
RG: Two years ago, we were in the process of updating our feasibility study and were in discussions with several large battery and automotive companies. They were concerned about the impending cobalt supply deficit as cobalt is needed to make the cathodes used in most lithium-ion batteries. We responded to the need for new cobalt by assessing an expansion of the project by 30 percent, with an increase in the planned mill throughput to 6,000 tonnes of ore per day.
However, the devil is in the details when you do these kinds of intensive engineering analyses. As we got closer to completing the study, it became clear that the increase in capital costs for the expanded project would not deliver a commensurate increase in cash flow. Even though we have indicative reserves that would have supported the expanded throughput rate, there was not sufficient higher grade material to pay for the additional debt load after first paying the cost of mining and processing of our material at the higher mining and milling rates.
As the aforementioned issue was becoming clear, we completed several high-level financial model sensitivities using factored operating and capital costs from the 6,000 tonne per day scenario. We assessed the economics of smaller operations using different indicative reserves, pit sizes and production rates at their respective factored capital and operating costs. The exercise determined that the previous 4,650 tonnes of ore per day mill rate was likely optimal. It delivered superior indicative economics to the 6,000 tonne per day scenario, but also lowered the initial upfront capital cost requirement.
Our sensitivity analysis also made it clear that we needed to conduct both underground and open-pit mining concurrently during the early years of production in order to accelerate access to higher-margin gold-rich ores. The higher cash flows earlier in the mine life would allow us to service the debt load more quickly and repay the initial capital. We needed to have this supplemental underground ore early in the mine life to deliver a more attractive rate of return.
INN: Do you see any trends in the EV market that may influence the cobalt market?
RG: The EV market is dependent on batteries, which typically contain cathodes containing cobalt. Cobalt delivers an essential balance between safety, performance, charge time and energy density. It’s becoming clear that NMC cathode chemistries are superior for long-term EV use than other cathode chemistries. Tesla is reportedly switching from nickel-cobalt-aluminum (NCA) lithium-ion batteries to NMC cathode chemistries, which contain more cobalt, for its Model 3 cars being built in China.
While cobalt is an essential cathode ingredient, there has been a transition to cathodes with lower cobalt ratios. NMC, for example, has evolved from a 1:1:1 ratio to 6:2:2 or 5:3:2 today, and there is a goal to achieve 8:1:1 ratios in the near future. However, cobalt is still needed to stabilize the structure of the battery for greater safety and it also allows the battery to be charged multiple times without memory loss or impacting its charge life performance.
Major manufacturers believe that the NMC battery chemistry will remain the standard for the foreseeable future. Next-generation lithium-ion batteries may see changes to the anode – such as greater use of silicon metal. In the future, lithium-ion batteries will likely evolve to solid-state, which eliminates the liquid electrolyte and will improve battery performance and safety. However, even with a transition to solid-state, most manufacturers will still use the NMC cathode chemistry.
The transformation from internal combustion engines to EVs is happening primarily because of government legislation and more restrictive emissions standards. However, EVs are now approaching cost parity with cars powered by internal combustion engines, they are cleaner and their superiority from delivering greater torque and having fewer moving parts will eventually accelerate the transformation to electric mobility.
With respect to cobalt supply, if we take all of the known cobalt mines currently in production and also include the near-term identified development projects, then — using a relatively conservative adoption rate to electrification — even with the transition to 8:1:1 cathode chemistry, the demand for cobalt would surpass production by 2022. We are confident that the cobalt market is going to be an attractive place to invest as the market comes into balance and then transitions into a critical deficit over the next couple of years.
INN: What’s next for Fortune Minerals, and how does this fit into the company’s long-term goals?
RG: We’ve gone through a lengthy period where we found that the capital required to expand the project is not the best development approach for our project. We’ve gone back to the 4,650 tonne per day production rate and plan to supplement open-pit mining with higher-grade, gold-rich ores mined by underground methods during the first few years of the mine life.
We’re also looking at several other opportunities to improve the project as we seek project financing. First, if we go back to the resource model and constrain that further, it will eliminate smearing of grades and likely produce a small grade increase that is needed in the early years of the mine life. We have a deposit that is adequate in terms of size, but we need to concentrate on higher-grade mineralization to service debt load, and constraining the resource will likely achieve some of that.
We need to minimize up-front capital costs for the entire development. One way this can be achieved is keeping the production rate as low as possible while also achieving the requisite economies of scale to keep production costs low.
We can reduce some of the initial capital by aligning the mine construction schedule with the availability of the Tlicho all-season road. This should save capital by reducing transportation and seasonal storage costs as well as supply chain risks compared to the previous plan, which relied on winter ice road access for construction.
We are incorporating several process improvements we identified for the 6,000 tonne per day project, but will need to scale these down for the 4,650 tonne per day mill throughput rate.
We are also looking at several sites for the downstream processing plant, and there are opportunities to reduce capital costs in two ways. One is by utilizing a brownfield refinery site with synergistic facilities that is scheduled to close in 2022. Further work is being done to pursue this opportunity. In addition, we are in discussions with some other companies that can process their concentrates in a similar plant to ours, opening up the opportunity to achieve some economies of scale while sharing the costs for some mutually required facilities.
While we optimize the NICO development plans, Fortune is also looking at conducting some exploration on a few targets. This includes drilling areas where there are opportunities to expand the gold-rich areas of the deposit that remain open for potential expansion. In addition, there are the two untested geophysical anomalies beneath the NICO deposit and at Peanut Lake. These combined gravity, magnetic and magnetotelluric anomalies are compelling targets and could deliver some near-term excitement as we optimize the development of the known NICO deposit.
We also continue to seek project financing, and our strategy is centered on entering into strategic partnerships, but we are re-looking at the types of partnerships that make sense for this development. For example, there are over a million ounces of gold in the NICO deposit that are contained in a high-grade central core and the gold price has been performing well over the past several months. We are now talking to several gold companies in addition to the battery, car and private equity companies that we were previously working with. Bringing a successful operator into the partnership with proven northern experience would lend credibility to any future partnerships that might involve a company outside of mining. Many of the gold companies are now looking at exploration opportunities because of the gold price appreciation. Some of these companies may also be interested in the battery materials space to participate in the transition to electric mobility.
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