Cobalt Blue Holdings (COB) - EV Manufacturers Now in Test Phase

Cobalt Blue Holdings Limited 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, which includes battery technologies.

Matt Gordon caught up with Joe Kaderavek, CEO, Cobalt Blue. Mr. Kaderavek 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, He has also worked with equities and investment research focused on mining, minerals processing, energy storage, and battery technologies. He has managed investments in the global resource and minerals processing industries, including the management of turnaround projects supporting corporate targets, mergers, and divestment activities.

Company Overview

Cobalt Blue Holdings seeks to invest in energy storage technologies that complement the production of cobalt in commercialising batteries 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 Holdings is developing the Broken Hill Cobalt Project to develop an integrated mine refinery, supplying chemical cobalt to the EV (Electric Vehicle) and battery space. The project is the only large-scale, ex-African greenfield primary cobalt project globally.

The Cobalt Market

While entering discussions with an investment or a commercial partner, the company is focused on bringing the project into being. It has put a 3-year forward view and has plans to bring the project into production by 2025. As per the company, the CME (Chicago Mercantile Exchange) curve for Cobalt is effectively flat. The current metal pricing for cobalt is $38. As the market is now cognizant of the demand upswing, the company anticipates that the effective price for cobalt would be $38 for the next 3-4 years.

The company is looking at production from a 1-3 year pick up, based on the demand uplift projects by cobalt partners. In the case of scientific analysis, the company anticipates that the material demand pickup would be between 1-5 years over a 3-year view in the cobalt market. The company is looking to produce non-African, ethical, high-ESG standard cobalt.

Over the next 1-2 years, it is expected that cobalt will observe steady pricing, which is cognizant of a lot of material coming in from the DRC (Democratic Republic of Congo) and Indonesia. The company anticipates that this hand-to-mouth trade-off will last for the next 1-2 years. However, this won’t be an issue as the pricing is highly favourable. Beyond the 2-year mark, there is going to be a genuine scarcity of cobalt, which would result in a willingness to cut new deals which were previously unavailable.

From the spot price and term curve perspective, the current cobalt pricing is considered excellent.

The company’s 2020 PFS (Preliminary Feasibility Study) had a $27 cobalt sulphate pricing. The current pricing for cobalt sulphate is $40. As a result of the price appreciation, the project has had a $2.5 uplift in the price which amounts to a 28% post-tax NPV (Net Present Value) lift. This gives the company massive leverage in the market. Discussions between the company and its partners are now based on volumes, specifications, and cobalt’s ESG (Environmental, Social, and Governance) credentials. Notably, pricing is typically the third or fourth parameter in such a discussion. Even in the domain of pricing, the company believes that the surety of price is more important than the pricing itself.

For instance, An OEM (Original Equipment Manufacturer) can tolerate a slightly higher off-take price as long as there is a surety around the volatility, as opposed to sourcing cheaper cobalt that might flex up and down. Given the current scale of the cobalt global market, the prices can flex up and down quite readily over the course of the next few years.

Notably, cobalt is now being engineered out of batteries. There is now a definite trend for a high-nickel battery, along with a demand for LFP (Lithium iron phosphate battery),  a non-nickel battery that contains cobalt. Interestingly, LFP accounts for about 50% of Chinese production, however, on a global scale, it only accounts for 15% of the overall EV demand. As per the company, there is a limited appetite in the US and the EU for LFP batteries.

Tesla had considered using LFP batteries in its EVs at a point in time. Based on Cobalt Blue’s forecast, the LFP battery will continue to occupy between 15%-20% of the market due to its limitations. There is an anticipation that as the cobalt is thrifted, the unit penetration of cobalt in an EV battery goes down times the actual unit growth rate, which leads to a healthy demand going forward.

In the past 8 weeks, Cobalt Blue Holdings has made up for 2 years of virtual meetings by visiting various countries. The company’s US trip was part of a trade delegation, where it learned that Australia and the US governments are collaborating to remove the bottleneck of critical minerals and create supply chains in the US. Under the current administration, the US is looking to underpin its own growth by sourcing critical minerals from countries that have preferred status. Cobalt Blue is a part of these discussions.

On the commercial end, the company entered discussions with Korea and the EU. The company understands that ethical cobalt will command a premium and lead to a benchmark price. Everything else would be offered at a discount, especially if the origin of the cobalt cannot be proved. Interestingly, even Russian metal is now being priced at a discount on short-term influences. In the long-term, the company anticipates that in order for cobalt to be used in a consumer device, it will need the ESG and origin credentials in order to get a seat at the table. This would command a premium price while everything else would be offered at a discounted rate.

Over the past 1-2 years, there have been uncertainties in determining cobalt’s positioning in the batteries industry. Committing to cobalt cathodes leads to a necessity to source now for potential off-takes in 2025-2026. As a result, non-traditional sales arrangements are now coming into play.

Ethically-sourced Cobalt

There are 2 sets of standards that Cobalt Blue Holdings plans to achieve. The first one is the technical specifications. A company won’t have the opportunity to place its cobalt in the consumer industries unless it is an independently accredited sustainable operation. Third-party accreditation is also available, such as the IRMA (Initiative for Responsible Mining Assurance) Initiative.

From a producer’s perspective, the accreditation process might take between 6-12 months. The process has a considerable cost attached to it because a series of independent consultants are involved. The producer is also required to report various other parameters such as water usage, carbon dioxide emissions, and more. The producer also needs to report the different categories of emissions that are attached to production and transportation. In addition, producers are also expected to provide ways in which it is mitigating these emissions. These are the minimum requirements in order to have a certified ethically-sourced cobalt operation. The producer needs to achieve these metrics and maintain them over time.

According to Cobalt Blue Holdings, there’s a very strong appetite for the origin, and sustainability factors surrounding cobalt production, including freight and carbon dioxide emissions. These would be the minimum requirements for companies that are looking to become cobalt suppliers for various consumer industries.

Cobalt Blue Holdings is in a very serendipitous position as it already has strong credentials, to begin with. If the company had started from a poor baseline, it would have struggled to achieve its targets. The carbon dioxide that comes from the grid is categorised under Scope II emissions. The company is looking to source a large percentage of the project’s power requirements from renewable sources, which would enable it to eliminate the bulk of these emissions. Scope I emissions consist of direct on-site footprints. Here, the company has a development process that avoids a lot of reagents and chemical consumption.

The company wanted to devise a simpler process that was more energy-intensive, sourced from renewable sources while being less chemically intensive. The combination of these factors has placed the company in a very strong position. There will come a point where companies that do not meet the standards, won’t be able to operate in the future consumer industry.

Cobalt Blue Holdings is looking to become the go-to Australian ethical cobalt brand of the future. Over time, it is looking to add new cobalt projects to its portfolio.

Recognition and Recent Developments

In Q1, 2022, Cobalt Blue Holdings was awarded a ‘major project status’ by the Commonwealth government. This means that the company’s project is economically significant to the Commonwealth. The company’s project now falls under the Commonwealth critical minerals strategy.

The company was also awarded a CMAI (Critical Minerals Accelerator Initiative) grant. The grant enabled the company to top up the engineering and technical studies in order to de-risk the transition into production, while at the same time, accelerating the operation by committing to the studies. This development, in part, has allowed the company to invest in other technical risk areas to ensure that the Feasibility Study, the Definitive Study, and the production can be as robust as possible. It has also accelerated some of the studies that would have been undertaken after the delivery of a Feasibility Study. Usually, connecting to the grid is done by a mining company following the delivery of the study results. Cobalt Blue Holdings is conducting these studies now so that it can transition to EPC (Engineering, Procurement, and Construction) as soon as possible in order to enter production by 2025. Following the receipt of this status, the company is now in a strong position from an international investors’ perspective. The company’s operation now has federal recognition.

According to the company, one of the adages in the mining game is that 90% of the mining projects fail due to poor stakeholder engagement. A large number of projects come off the rails because all the relevant stakeholders aren’t engaged. A core portion of the stakeholders are usually local, or state, which is the case with the Broken Hill area. The company has a very strong reputation within the district and has had numerous open days and communication days.

Cobalt Blue Holdings is currently looking at some of the untraceable issues with respect to its footprint and hiring strategy. It is passionate about hiring a residential workforce that consists of skilled locals. The company is currently working on soft issues such as housing and social infrastructure. Even though a Feasibility Study is yet to be published, the company is already pre-thinking some of the traditional derailing issues that can affect mining operations. The company takes its operating licence seriously and is looking to continue kicking down goals. In the local Broken Hill area, the company has over 400 shareholders on its register, which is ten times more than the next postal code anywhere in Australia.

The Demonstration Plant

Cobalt Blue Holdings has invested $10M in the demonstration plant and has hired a workforce of 35 locals. The company is focused on training and investment for the local community. At the demo plant, the company is looking to achieve better efficiencies in water consumption, cobalt recovery, and other metrics. These efficiencies will have a direct impact on the project’s economics.

The company’s previous pilot plant was incredibly useful in identifying 2-3 elements in the assays that the partners wanted to be changed. Based on the feedback, the company plans to tailor its end product as per the exact partner specifications. The company is prepared in case of a future change in specification. It is planning to sell the product or equity in the plant. The results of this strategy have been encouraging so far.

Within the next 4 weeks, the company seeks to produce 24/7 from the demonstration plant. By the third week of June, the company is looking to announce updates on the mining and initial concentration operations. It has plans to dispatch 100kg MHP (Mixed Hydroxide Precipitate) samples, along with 10kg cobalt sulphate samples to the partners. This will enable it to conduct sample pre-qualification, which would help it in becoming a certified supplier in the chain. Regarding pre-qualification, the company is looking to have between 10-15 partners in the current stage.

At the same time, the company has blocked a 6-week period in August for due diligence. During this process, the company will focus on running the plant and allow exclusive 24-48 hours of access for selected companies to come in. It has set up a conference room at the Broken Hill project for the due diligence process. Here, the company is expecting double-digit interest levels from automakers, battery makers, and trading houses, which have been a part of the ongoing discussions.

Q3 2022 is going to be an exciting quarter as the company will demonstrate the scalability and consistency of the process. In Q4, the company is looking to turn non-binding outcomes into binding ones.

2 years back, the company’s strategy was based on traditional risk diversification. However, since then, the company has brought several credit-worthy partners on board. Notably, the company has LG as a shareholder, along with LXi, and other credit-worthy partners that have AA and AAA corporate credits. In its current state, the company believes that one or two partners are more than sufficient for risk diversification and credit-worthiness off-take in order for a bank to lend. The company is leaning towards two or three potential partners from the counter-party.

Cobalt Blue Holdings has worked extensively on the Broken Hills project. The majority of the corporate and technical team did not have a turnover for 6 years. The company identified red flags which were largely out of its control, and devised strategies for the same. It is currently in a very strong position. 

The company is also focusing on the cobalt waste stream. It is carrying out active test work at abandoned mines and is in discussion with various parties. It is working on commercialising the cobalt present in mining waste. Currently, Australia has limited black mass and a lot of mining waste. Due to commercial sensitivity, the company did not provide additional details at this time.

The industry is aligned with the recycling limits and standards. For instance, the EU Parliament has proposed a 12% minimum recycling limit for cobalt in EV batteries by 2030. The company will take at least 3 months to be able to disclose the ongoing operations publicly. It is important to note that the quantum of units available is potentially as high as the quantum of units that are already out of the Broken Hill project.

As part of the project, the company is looking to convert MHP into cobalt sulphate. It has plans to go one step further by investing in a sulphate refinery in a port scenario, particularly in areas where other cobalt units are present, such as Queensland or Western Australia. The company anticipates that it can scavenge up new cobalt units and significantly increase its existing 3,500t cobalt supply. The company has plans to develop Australia’s first cobalt sulphate refinery. Although there is potential to integrate into a downstream precursor area, the company is primarily focused on bringing more cobalt to the market from the Broken Hill project.

To find out more, go to the Cobalt Blue website