Cobalt Blue (COB) - Half a Tesla Gigafactory: Start of Something Big

Cobalt Blue Holdings is a cobalt development and energy storage company with a focus on bringing to commercial production the Broken Hill Cobalt Project 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 (PriceWaterhouseCoopers), Five Oceans Asset Management, Bankers Trust, and Deutsche Bank. He has extensive experience in managing operational reviews, and strategic option 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 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). 

The Broken Hill Cobalt Project

Cobalt Blue has 100% ownership of the Broken Hill Cobalt Project. The company released an updated PFS (Pre-Feasibility Study) in July 2020. This project is a large long-life non-African source of battery-ready cobalt. This project is fully-ESG (Environmental, Social, and Governance) compliant. The company has a flexible manufacturing strategy that enables it to produce both an intermediate product and a highly-tailored customer-ready product.

Cobalt Blue is currently at a half-Gigafactory scale. It has 3 waste streams along with over 20-year mine life. The company is focused on bringing the Broken Hill Project into production. It has a strong geological and exploration team. It is currently in the process of acquiring additional exploration licenses.

During the acquisition of the Broken Hill Project in 2016, the company had 60km² of land which has grown to 220km² as it continues to locate cobalt seams. The company seeks to turn this operation from a small footprint to a broad district-based refinery that will supply cobalt for more than 25 years. It also plans to ramp up the existing 17,500t sulphate production capacity. 

The Cobalt Market

The market pricing of cobalt has observed a surge in the past 6 months. The spot pricing in the Asian market is $26-$27/lb, while the European spot price is at $25/lb, while the cobalt sulphate price is $29/lb. 

It is important to note that cobalt sulphate has a lasting impact on the intermediate project, the MHP (Mixed Hydroxide Precipitate) has directly impacted the payables as a large portion of cobalt is now being used in batteries. The historic payables for MHP averaged at 70%, this has grown to 85%-90% in recent times. 

In the futures market, the curve on the CME (Chicago Mercantile Exchange) liquidity is increasing to around 100t-150t/month with a 2-year target. 

An increasing number of battery manufacturers are looking to lock production numbers for the next 3-5 years. To achieve this, the companies need to secure a stable cobalt supply from the market to avoid potential shortages as the demand continues to grow. 

As per the guidance issued by various think tanks, it is expected that only 15%-25% of EVs (Electric Vehicles) will be powered by non-cobalt cathodes by 2030. A major contributing factor to this trend is that cobalt offers unparalleled cathode quality. 

This trend is evident in the European market as companies have begun allocating 15-20% of their entire portfolios towards LFP (Lithium iron phosphate) cathode. It is expected that the lower economic cobalt users will experience a supply shortage as the market pricing continues to tighten. 

When it comes to cobalt, a plethora of new customers are entering the futures market including EV and ESS (Energy Storage Systems) manufacturers. This is the first time in the market's history where a growing demand for offtake agreements and multiple-use structures is being observed. 

The 3 variables for EV and ESS makers are quality, quantity, and pricing. This shift in the market dynamics over the past 18 months has facilitated Cobalt Blue's greenfield project to enter production. 

Cobalt Specifications for Battery Manufacturing

There are multiple factors that determine the use case of cobalt in battery manufacturing. An average specification ranges between 20.8%-21% cobalt content in the cobalt sulphate crystal. This supply should be free of all electron-conducting metals such as copper and iron. Additionally, the processing equipment should be metallic stainless so that the acid-forming potential is minimized. 

Cash Position and Project Estimates

Cobalt Blue has worked on its pilot program to gain a deeper understanding of sellable material as a way to maximize the sales point at a minimal cost. The company is moving from a pilot plant stage to a demo plant. It plans to convert this plant into a continuous large-scale operation with a strong focus on efficiency and efficacy. The company already has 1,000 operating hours at the pilot plant level. 

In the past 3 months, the company has been involved in multiple discussions with various counter-parties seeking a relationship to provide supply in exchange for additional capital. 

Cobalt Blue recently raised AUD$15M in capital. The company also has AUD$11M in options due conversion in August 2022, which will bring the total cash flow to AUD$26M. 

Cobalt Blue has a current market cap of AUD$100M. The project CapEx (Capital Expenditure) is within the AUD$550M-$560M range. It is considering various options on the table which would further direct its FID (Final Investment Decision).

M&A Considerations

Cobalt Blue is open to the possibility of an M&A (Merger and Acquisition). The company's board has commissioned an executive team that is actively seeking out JV (Joint Venture) partnerships for a scrip-less capital raise. The partner should share competencies with the company in terms of lending abilities. 

Cobalt Blue is looking for a low coupon, long-dated debt with a 10-15 year tenure. Once a partner or off-taker is in place, the company will approach the National Bank of Australia for a reciprocal banking arrangement to obtain an EFA debt. 

Earlier in 2021, Cobalt Blue announced a corporate advisory mandate with Gutfeld Freeman, London. This ongoing process will allow the company to enter production within the course of the next 12 months and by July 2022, the company will have a partner willing to underwrite its project. 

Cobalt Blue is looking for a partner that would provide upfront funds that will facilitate its construction pursuits. The company is also looking towards ancillary debt along with a government agency debt. 

The company's Broken Hill project is valued at $400M and the company is seeking a combination of funding partners with similar risk profiles as a way to lower the capital cost while transitioning from development to production. The key factor for shareholders is to devise a strategy that maximizes the NPV (Net Present Value) per share. 

Cobalt Blue is looking for short-term M&A for new resources. It is considering waste streams and broader waste streams in Queensland with an emphasis on sulphide-ore bodies. 

The company seeks to develop an ethical cobalt refinery brand and is currently in talks with partners across Australia for sites with naturally located battery materials. This will allow for quicker processing of supply. In the next 6-12 months, the company is looking to apply its IP works to a wider range of minerals. This will enable the company to expand its portfolio beyond the domestic market.

Planned Capital Raise

Cobalt Blue is focusing on both the financial and technical risk underwriting aspects for its project. 

The technical underwriting will be availed through its large-scale demonstration plant. This plant is a 24x7 continuous flow operation where 3,000t-4,000t ore will be used as feed material to obtain 3,000kg-4,000kg product. The resulting product will then be dispatched for test work, leading to pre-qualification with partners. This pre-qualification process is planned for mid-2022. 

The financial underwriting is planned through a potential JV where Cobalt Blue will supply material on a long-dated basis, providing upfront liquidity through very high-value contracts. 

The company is looking for value-added acquisition opportunities. It is in discussion with various entities to acquire and develop new projects. The decision to raise additional capital would be determined through a board meeting in mid-2022. 

Growth Component and Margins

Cobalt Blue's metal pricing equivalent of a battery product is $12 against a spot price of $26-$27 indicating strong margins. Cobalt sulphate is currently trading at $29/lb with a futures market pricing of $24, and a calendar pricing nearing $30/lb. Upon adding a premium on cobalt sulphate, the company can fetch a $31-$32 value. For every $2.50, there's a 28% upside to Cobalt Blue's post-tax NPV. Over the long term, a pricing jump from $27 to $33 in cobalt sulphate will add up to 60% to the NPV in transitioning value. 

For the company's upcoming carbon waste stream, the all-in sustaining costs can further drop to sub-$10 for an at-surface, pre-crushed product in a waste stream operation. 

The Scale of Operations

Cobalt Blue commissioned an internal business case that was recently announced to the market. The company will focus on 3 waste streams in Queensland, Australia. These include mining waste, industrial waste, and spent batteries (future recycled batteries). 

The company is in discussion with a cobalt waste keeper where it will function as an IP provider while simultaneously processing cobalt from the solid stream waste rock and process it into a solution without the use of acid. This solution can then be precipitated into MHP or cobalt sulphate. 

Cobalt Blue plans to use its expertise in FS (Feasibility Study) management where the test results from a new location can be turned into a BFS (Banking Feasibility Study). The company's AUD$10M demonstration plant can be utilized to accelerate the test work. 

The company is currently in talks with 30 partners who are in the process of examining its product samples. It intends to offer this new cobalt unit, obtained from waste stream partners in a turnkey operation. Cobalt Blue has had the feedback from these 30 entities on its first sample and is working towards fine-tuning the material specs to meet the partner's exact requirement. 

These 30 counter-parties include world-class battery manufacturers and customers. The company is looking for 1-2 parties for 100% de-risking of its project in the near term. This will enable it to gain downside protection from the bank and avoid over-dilution of the company structure. 

An Ethical Cobalt Producer

The company is actively seeking cobalt units and is working towards establishing an ethical cobalt brand in Australia. 

As a part of the ethical cobalt initiative, the company will co-process the cobalt on the Broken Hill units and turn them from MHP to Cobalt Sulphate. This enables the company to reach the economy of scale when it comes to refining. This supply will carry the same ESG credentials as the Broken Hill project and will provide additional credits for recycled cobalt. The finished material will then be shipped to partners. 

The MOU with Honeywell

Cobalt Blue signed an MOU (Memorandum of Understanding) with Honeywell, a world-class American company belonging to the data and process control business in June 2021. This deal is a way for Cobalt Blue to capture intricate data on its capital costs, operating costs, and the metallurgical process. This will enable the company to instill an added sense of confidence in its end partners. 

This MOU will help the company establish an information system that can be used to train operators for future commercial plants. This will greatly reduce operational errors and downtimes leading to an uninterrupted ramping up of operations. 

Upcoming EU Legislation

The EU Parliament is set to vote on a new legislation in October regarding the minimum recycled metal limit within EV batteries. This legislation will mandate a minimum 12% recycled cobalt to be used in batteries by 2030. This move is a way to reduce the cobalt that ends up in landfills. It is projected that within 2-3 years, metal units originating from recycled resources will garner a premium pricing. 

Cobalt Blue will continue development throughout 2021 with its upcoming waste streams program and an update on the demo plant as it prepares to scale up samples for partners.

To find out more, go to the Cobalt Blue Website