Cobalt Blue (COB) - Cobalt Market Hotting Up for Investors

Cobalt Blue Holdings  is a cobalt development and energy storage company with a focus on bringing the Broken Hill Cobalt Project into production. The Broken Hill project is located in New South Wales, Australia. The company also seeks to identify and develop other green energy opportunities to expand its strategic cobalt portfolio, including battery technologies. 

Matt Gordon caught up with Joe Kaderavek, CEO, Cobalt Blue. Joe has previously held senior management roles with PwC (Price Waterhouse Coopers), Five Oceans Asset Management, Bankers Trust, and Deutsche Bank. He has extensive experience in managing operational reviews, and strategic options assessments across mining, processing, railway, and port facilities across Australia, North America, and Europe. Additionally, Joe has also worked with equities and investment research focused on mining, minerals processing, energy storage, and battery technologies. 

Company Overview

Cobalt Blue Holdings seeks to invest in energy storage technologies that complement the production of cobalt in commercializing battery and associated energy storage technologies. The company was founded in 2016 and is headquartered in Australia. It is listed on the Australian Stock Exchange (ASX: COB), and the OTC Markets (OTCQX: CBBHF). 

Cobalt Blue is developing the Broken Hill Cobalt Project, the world's largest primary cobalt project planned under development by 2025. The company seeks to produce high-grade cobalt sulphate and over time, become one of the top 5 projects (ex-Africa) in the world. The company is currently on track with its earlier guidance and has transitioned into a demonstration-scale plant with 24/7 operating capabilities. 

The company is looking to extract 3,000t ore to develop 3,000 kg of various products. The metrics set a benchmark as the numbers have never been attempted before by any cobalt greenfield project. The project will have a very large proof of concept. The demo plant will enable the company to ship pre-qualification samples and gain industry acceptance.

Cobalt Blue has initiated fieldwork along with drill operations. It is looking to carry out underground extraction at the Broken Hill Cobalt Project. It anticipates that the first ore will be extracted by February 2022 and the ore will be fed into the plant which is scheduled to commence operations by March 2022. The company already has a furnace, a major supply of additional equipment is expected to be delivered by the end of January. 

The company is looking to bring in all the required equipment, carry out construction, and commission the plant by March. The demonstration plant is aimed to run for 16-18 weeks on a 24/7 basis. This will enable the company to demonstrate the proof of concept as it moves towards a Bankable Feasibility Study (BFS). 

Cobalt Blue intends to capture broader samples to ensure accurate representation for different parts of the orebody. The company has observed 2-4 different kinds of commercial variants of an HMP or sulphate, the feedback on which is still underway. 

The company is looking to showcase the concept of the project at scale by running the plant for 20-30 days at a steady state. Proving the concept demonstrates that the company has a strong understanding of the drill core. It is looking to validate the idea that the deposit features cobalt-hosting-pyrite and that the presence of pyrite, FeS2 (Ferrous disulphide), and the required cobalt substitution is highly consistent across the orebody. 

The machinery is designed to run irrespective of the grade of the pyrite sample. Once the material passes the concentration state, the majority of the pyrite gets processed. Due to the consistency in the orebody, the company does not need to filter out the high and low-grade patches of material. 

Cobalt Blue is looking to deliver on 2 proof of concepts. The pilot plant has already proven that the company can develop the right product. The company has already dispatched the end-product to 30 different partners and has received feedback on the same. This feedback enables the company to fine-tune the end product based on the partner-specific requirements.

The company has been in a significantly stronger position than it was 6 months ago. It has forged technical relationships with various entities that it is looking to convert into commercial relationships. The company is currently analyzing various aspects of the end product to develop a sustainable operation that is low-cost, effective, and measurable. 

Cash Position

Cobalt Blue has a current cash flow of $12M that is a part of its July capital raise. The company expects to carry out heavy spending in the current and subsequent 2 months. It also has $10M of options that are pending conversion. Once the conversion is done, the company won't need to raise any additional capital up to the investment decision. In case there's a delay in the conversion, the company will approach the market for raising additional funds. This is expected to be a Q2-Q3 2022 decision. 

Seeking a Partner

The company is currently looking for funding and project partners for its cobalt asset. It began the search for a partner 3 months ago through its partnership with Cutfield Freeman. So far, the company has had conversations with under 30 counterparties, with second and third points of contact. This has enabled the counterparties to gain a significantly better understanding of the company's project. 

The company even conducted 3 3-hour long workshops with individual partners which were attended by the partner's procurement, technical, and finance personnel. The company seeks to find a partner within the next 6 months or by Q3 2022. It hopes to finalize a partner before the FID (Final Investment Decision), which is planned by February 2022. 

The Cobalt Market

Cobalt Blue has observed a massive difference in how the commercial markets are behaving compared to the investment markets. The importance of cobalt in cathodes, particularly in EV (Electric Vehicle) batteries cannot be overstated.

The company is seeing a rapid pace of commercial conversations with potential partners that directly reflects the ongoing interest in the cobalt market. 

The company has had partners that are ready for off-take agreements. In the past, the company was being approached for 1-2 year off-take agreements as the market felt that the cobalt supply was in abundance. 

However, the current conversations reflect that companies are looking for longer-term deals. The average duration for an off-take agreement in today's time is 5-7 years. There's additional pressure on the EV industry to reach its production targets by 2025-2026 in order to meet the 2030 deadlines. 

The 2030 deadlines for major car manufacturers to eliminate internal combustion engines are strategic in nature. The changes in emission standards by the EU and US government has put additional pressure on the manufacturers. If the EV makers do not comply with the changing standards, they run the risk of being penalized by their respective governments. The industry has realized the existential threat and changing landscape of the automotive domain and the off-take agreements being offered to Cobalt Blue reflect the market sentiment. 

Cobalt Pricing

The current market pricing for cobalt is at $33/lb, while the sulphate price is close to $34/lb. The sulphate pricing was in the $14-$15 range 12 months ago and now it has reached a 30-year average of $25/lb. The company anticipates that the price will continue to trend within this range. 

Cobalt Blue is an AISC (All-in Sustaining Cost) of $12/lb for the sulphates and its metal-equivalent product. The company's ASIC for MHP (Mixed Hydroxide Precipitate) is about $9/lb. The spot price for MHP is $33, giving the company a fantastic margin. 

Ethical Cobalt Sourcing

Given the importance of cobalt in the EV industry, there have been significant price jumps for the product. However, there have been ongoing concerns about unethical cobalt sourcing, particularly in the DRC (Democratic Republic of Congo). 

To remedy the ethical challenges for sourcing cobalt, a large number of automotive manufacturers, particularly in the EU are setting up strategic procurement offices that directly report to the CEO or the COO of the company. These offices are set up to provide strategic optionality for raw material procurement. 

The recent visit of the Korean President to Australia also demonstrates the strategic importance of cobalt. The Korean industry is heavily lobbying its government to create and/or remove hurdles for the development of critical mineral supply chains between Australia and Korea. Cobalt Blue anticipates that governments will create economic incentives for participants through subsidies or other forms of benefits. 

As per Cobalt Blue Holdings, the Korean battery industry appears to minimize its African investment for cobalt sourcing. The country is looking towards other jurisdictions to fulfill its cobalt supply. Cobalt Blue predicts that Korea is looking towards Australia and Canada to meet its growing demand. This is both from a rule-of-law perspective and the prospects of the mineral bodies that are present within these countries. 

It is important to note that Korean battery makers are responsible for supplying 60-65% of all lithium-ion batteries, including EVs which are now under Korean IP (Intellectual Property). The country appears to use its policies and commercial funding to create a new industry in Australia and possibly Canada. Cobalt Blue compares these industry changes to the strategic restrictions on iron ore imposed by Australia back in the 40s and 50s. 

As critical minerals continue to grow in demand on a global scale, there are indications that government policies might offer long-dated incentives and possible removal of any red tape to enable fast-track production for manufacturers. 

The company anticipates that the Australian and Canadian markets will explode in terms of opportunities for critical minerals, including cobalt. This is a major reason why Cobalt Blue has worked on an uninterrupted, very large-scale demonstration plant. Its scale of operations is based on the upcoming rise in demand for cobalt in the global market. 

An MOU with Queensland Government

The Queensland Government is looking to commercialize metals that are locked within its tailings dams while simultaneously creating an environmentally-conscious and sustainable operation. 

In March 2021, Cobalt Blue announced a cobalt and waste streams program that targets cobalt, copper, and gold in pyrite pyrrhotite, the core mineral at the Broken Hills Project. The plant is ready for test work and the company has signed an MOU (Memorandum of Understanding) with the Queensland Government. 

This MOU enables the company to receive test samples under the government's banner. The first test sample is expected by the company shortly. The company's existing facilities will be used to test out other projects as well. This opportunity provides Cobalt Blue a 2-3 times larger opportunity than the contained metal within its own asset. 

Cobalt Blue also benefits from the significant cost savings that are a result of the at-surface material extraction. The company understands that there is a stark difference between proving a small-scale positive test work as compared to a commercial outcome. To achieve this, the company is seeking a counterparty such as a private company that has tenure over the land. In case of an abandoned mine, the government would serve as a counterparty. 

However, to work on the abandoned projects, the EPA (Environmental Protection Agency) in Queensland will be involved along with the government. Cobalt Blue is looking to determine whether the outlook on metals extraction between the EPA and the government aligns. This is because each year, the river systems are flooded with leach metals. The company believes that a key part of the rehab process should include the removal of the leaching metal. This is also a key component of the company's business model. 

The company expects to attain a premium for the work done. However, the operation would involve heavy lifting on the commercial side through the deployment of equipment and infrastructure development. It creates challenges similar to an FS (Feasibility Study), however, it does not include mining. 

The geology within this region is simple and features the upstream culmination of basic materials. Although the company's IP (Intellectual Property) can effectively help in project execution, the commercial presence is also an important factor to consider. 

Based on the public data, the region features between 200,000t-300,000t cobalt at the surface. However, the company anticipates that the actual reserves in the private data are at least twice in size. 

To conduct these operations, Cobalt Blue has allocated both team members and capital. However, the company is looking to balance resource allocation between its Broken Hills project and the MOU with the Queensland government. Once the company's pilot plant starts shutting down by Q3 2022, it will allocate the plant and equipment towards the second project. In the near term, the company is looking to carry out small-scale work that does not interrupt the flow of its plant operations. 

Once the test work is completed, the commercial end of negotiations will begin to determine the next plan of action. The company anticipates that the next step might include the processing of a few tons of material. The company is simultaneously looking to analyze the 12 modifying factors that a mining project has. It anticipates that around 7-8 of these factors will have a high degree of impact on the project. 

Current and Future Targets

Cobalt Blue's near-term and large-scale focus is on its plant operations. The company intends to carry out a combination of field activities that are due to be announced by January-February 2022. It seeks to bolt the plant together and initiate operations by late Q1. The plant is scheduled to run in a steady state by Q2. The company is running its other environment and state significant development studies in parallel to attain timely approval. 

Additionally, the company is looking to carry out extensive data capture work to ensure that there's a baseline for the ultimate mining approval. It is also actively seeking a partner. The company had asked for EOI (Expression of Interest) by partners latest by Christmas 2021. It expects to have a partner signed by mid-2022. 

Cobalt Blue anticipates that as it gets closer to a BFS, the number of interested parties in terms of private and public equity funds will grow. The company is looking to conclude a Feasibility Study (FS) by 2022-end, which will be publicly released by early 2023 after passing through the Board. The company is looking to ensure that financing is in place by the time it enters an FID in Q1 2023. The company also has plans for a Definitive Study around this time. 

It is looking to apply for a Development Consent or Approval with the Australian government before getting its supply contractor documents finalized. The expected timeline for the approval is 6 months. It is also working in parallel on basic earth removal and construction that is projected to continue till mid-2023. The expected build time for the project is 18 months. The project will start commissioning at the front end by mid-2025 and the back end is expected to conclude by 2025 end. This timeline places the company in a highly favorable position in terms of the industry demand cycle. 

Cobalt Blue's pre-production CapEx (Capital Expenditure) is about AUS$550M for 17,000t cobalt sulphate. These metrics place the company's product at a one-third cost of any comparable project in the world, making it a highly attractive investment. 

The AISC for cobalt sulphate is at $12/lb. The spot price for off-take is expected at $33/lb with an upper/lower deviation of 10-15% cap at the floor price for a shorter-term off-take agreement. On a longer-term off-take, adjustments will be required.

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