Cobalt Blue (COB) - $15M Raise + Warrants Means Funded to FID

Cobalt Blue Holdings Ltd (ASX: COB) is a pure-play cobalt exploration and project development company focusing on advancing the Broken Hill Cobalt Project in New South Wales as well as downstream value-adding.

The company’s commercial aim is to make battery-ready cobalt sulphate from a new pilot facility on a scale sufficient to provide test samples for global commercial partners.

This pilot plant in Broken Hill will allow COB to produce varying specifications of cobalt products, which are in strong demand for new generation batteries, particularly lithium-ion batteries now being widely used in clean energy systems.

We spoke recently with Joe Kaderavek, CEO of Cobalt Blue out of New South Wales, Australia. They are busy readying a demonstration plant to provide high-end cobalt products to the marketplace. He shared the details with us.

Overview of Cobalt Blue

Australian-based Cobalt Blue Holdings Limited was founded in 2016 and is engaged in the exploration and evaluation of early-stage cobalt resources in Australia. It holds 100% interest in the Broken Hill Cobalt project comprising five tenements covering an area of approximately 93 square kilometers located in New South Wales. 

The company is now fully funded to accelerate the building of a demonstration plant to supply battery-grade cobalt sulphate to end-users and potential strategic partners. This follows on the heels of a successful opening of their pilot plant in May 2021.

Cobalt Management Team

In addition to Kaderavek, the company management team consists of Danny Morgan, CFO and Joint Secretary, and Grahame Clegg, Joint Secretary. A three-person board assists management with their functions. 

The CEO is pleased with where his company stands now. They operate in a safe and stable jurisdiction, are participating in an important ESG and EV product line, and are a year away from final investment decision (FID) on building the demonstration plant. 

Fresh Infusion of Capital

Kaderavek told us that they have welcomed a number of highly regarded domestic and international institutional investors into the Cobalt Blue register lately. Because of this, about AUD $15M came into the company coffers. What they are trying to do, among other things, he said, is create those types of investors that would typically buy in Toronto or New York or London, and bring them on board with us as if the shares were listed in those domiciles. 

We asked if this internationalization was done in part to reduce the retail trade on the shares. He said no, they are not taking a view on retail. What they want, he said, is “conviction money” and that’s exactly what he believes they have accomplished.

These institutional investors, he continued, are a mix of specialists and generalist types. The specialist firms are dedicated to EV-battery, or green- or ESG-style firms. The generalist institutions are good as well, in part because of the depth of their research capability, he said.

The stock cleared at $0.30, which is about a 15% discount to volume weighted average price (VWAP), he said. They also offered half an option per share at a $0.45 strike price, which gives 50% uplift from the clearing price. They are happy, he said, because he believes that they have added high-quality long-term shareholders. 

How Will The Funds Be Deployed?

Foremost in the firm’s crosshairs is getting the demonstration plant up and running, said the CEO. That is where the capital will be deployed, he continued. With their recent market activities, they have in essence financially de-risked that project to get it through to final investment decision (FID).

There is a tremendous interest among fund managers for non-African cobalt, said Kaderavek. Cobalt Blue is encouraging fund managers, commercial partners, and all of those due-diligence style people to come have a look at the site, have a look at the plant, and importantly, look at the ore in the ground being converted under one roof all the way to a battery-ready product, he indicated. 

Cobalt Blue’s Role in the Cobalt Marketplace

Next, we brought the conversation to the cobalt market in general.  We told Kaderavek that it’s apparent that people are looking to secure their supply of cobalt. We asked him: Can you deliver on supply?

He replied that the already functioning pilot plant would be supplying to about thirty-four partners. Some of these are traders; others will use it for their product lines. When the demonstration plant is built, we expect to be able to supply 60 – 80 kg of product to various buyers. Our purchasers want purity and repeatability, and that is what Cobalt Blue will give them, he said. Then, they will become long-term buyers, he foresees.

The overall cobalt market is pretty busy these days, said the CEO; “disintermediated” is the exact word he used. At the time of this interview, cobalt was fetching $21 on Fastmarkets; long-term the trend is around $25 to $26. Prices may shake out in 12 to 24 months, he suggested as new EV-oriented customers begin to dominate all parts of the price spectrum. It’s only in the last couple of years that the battery market for cobalt has risen about 50% of the total cobalt supply. At that point, it will become a sellers market, he believes. Already, there are signs that contract durations are increasing, he told us.

Business Timing Plans

We then asked the CEO to talk about his business timing. The pilot plant is already in operation, he said. It contains the majority of the equipment needed for the demonstration plant, he continued. There is a lot going on, he said. Samples were being made and dispatched at the time of this interview, in mid 2021.

Next, he needs personnel to run the demonstration plant because it will be operating 24-7, he told us. Funds will be used for staffing, training, some additional equipment and operational activity. They are advancing those goals even now, he said. They are also finalizing their operations protocol based on things they’ve learned at the pilot plant.

They also identified and are spending money on long-lead items. So, there are some genuinely new pieces of equipment, for example, the furnace, which we don't have in the process yet. That will be retrofitted, that's been identified and ordered and that'll be about a 13-week lead-time on that.

As far as samples go, they are being collected and dispatched now, the CEO said. The target is to make around 25kg of Mixed Hydroxide Product (MHP) per week. They have reserved the very first product to their first commercial partner already, he indicated.

Cobalt Blue is looking to commission the demonstration scale plant by Christmas. Prior to Christmas, they'll have our first investor roadshows and then they want to run an effectively steady-state demonstration plant across Q1, possibly into early Q2 next year.

Expect to see a financial statement (FS) by late 2002 and a FID in the first quarter of that year, Kaderavek told us.

Is a Partner Needed?

Kaderavek indicated that it is entirely possible that they may sign up a business partner, especially if things really take off and perhaps the size of the plant needs scaling up by a factor of two or three. Different potential partners may have different ideas for refining the product line, and he is fine with that, he told us.

Without a partner, the company plans to deliver a feasibility that has 2 separate outcomes. One would be to produce only MHP, the other MHP plus Ni.

Other outcomes are possible if a partner were to come in. This is because Kaderavek envisions that any partner would be involved with the business and get into the financing as well. It’s entirely possible that a partner would come in sooner than later, he suggested. They have a number of potential partnering mechanisms in place, he said.

Would EV Companies take A Direct Stake?

We told the CEO that we are aware of some automotive companies taking direct stakes in order to secure their supply chains. We asked Kaderavek if he sees more of that coming.

He replied that there is an evolving ecosystem in the EV space. Automotive firms staying entirely clear of internal combustion engines are sprouting up.  These firms will clearly have to show the market that they have their source supply chains intact. And, he said, he thinks we'll see that, in some cases, EV makers taking direct stakes. They will be prepared to flex their capital structure far upstream if that is what it takes, he opined.

This could bring about the potential for some really long-term financing from EV companies that want to lock down their supply. Ten- to 15-year contracts are not out of the question, he said.

Closing Thoughts

Kaderavek closed out our discussion with some comments about the global EV market. Ford, GM, BMW, and VW will roll out their ecosystem plans, and that’s when they will make specific commitments as the opportunities dictate.  It’s going to be very bullish, he said. Cobalt Blue has already begun qualifying to provide critical materials into that supply chain. 

To find out more, go to the Cobalt Blue Holdings Website