First Cobalt (FCC) - Equity Financed. Working on Debt Package.

First Cobalt is a North American cobalt company and owner of the only permitted primary cobalt refinery in North America. The Company is exploring a restart of the First Cobalt Refinery in Ontario, Canada, which could produce over 25,000t of cobalt sulfate per year from third party feed. First Cobalt’s main cobalt exploration project is the Iron Creek Cobalt Project in Idaho, USA, which has an Indicated Resource of 2.2Mt.

We caught up with Trent Mell, President & CEO of First Cobalt. The company has been busy since we last spoke in December when we talked about the business plan, strategy, people, assets, how they planned to move things forward in 2021.

Company Overview

Cobalt is essential to batteries and will be for the foreseeable future. Most of the Cobalt for the battery market comes out of the Congo and 80% of that is refined in China. First Cobalt is trying to replicate that supply chain in North America as the only Cobalt refinery on the continent. They have some interesting mineral assets, particularly in Idaho and now need to get the refinery up and running.

Money Matters: C$10M + Bought Deal + Negotiating Debt Raise

The current capex for the company is at USD$60M for the refinery expansion commissioning, a lot of that being equipment engineering. The plant is largely built and permitted and the infrastructure is all there. The government came in as a sponsor and supporter with a CAD$5M interest-free loan from the Canadian government and a CAD$5M grant from the Ontario government. They have just under CAD$10M on the bought deal and have the Kuya deal bringing in CAD$4M - $5M in the short-term. 

First Cobalt does not want to over-dilute their shareholders. With the government announcement, the stock rate doubled which was a less dilutive equity raise. The focus now is on the debt piece, which is USD$45M as the debt component.

First Cobalt has had several lenders standing by, private equity and traditional banks, keen to lend them the money and they are now moving forward with those discussions. Meanwhile, they have about 6-months of pre-construction activity which started in early January and there are some long-lead order items required for the plant so it is necessary to conclude those discussions within a 60-75 day time frame in order to get started.

Structuring of Debt Deals: Terms, Conditions, & Variables

A traditional debt with a bank would be a preferable deal for First Cobalt. When we last spoke to First Cobalt, the company was at C$0.13, but within a 2-week period their price had trebled so people are paying attention and listening to their story. This will enable them to negotiate better terms with a traditional lender, so less dilution for the company.

In the last 3-weeks, the metal price is up 16%, and in the last 6-weeks the Sulphate price is up 28%. So the price is almost C$23lb Cobalt in Sulphate in China today. There is currently a bullishness around green investments, EVs, and a desire for exposure to Cobalt by investors. The vision for First Cobalt is to produce the world's most sustainable Cobalt and that comes from ethical sourcing and an environmental footprint. They are positioning themselves as a cleaner, greener investment in the sense that they talked about 51% less CO2 than a typical Chinese producer which is an impressive fact when looking for institutional investors.  

The ESG component of mining is an important consideration for investment funds. Mining needs to change to rethink the way it operates from an ESG point of view and how it talks to the marketplace thereafter. 

First Cobalt is considering the debt options available to them and they realise they need to be careful not to structure deals based on the end price of Cobalt but to consider the margins as it is a cash flow driven exercise. The ideal arrangement is a 5-year debt with an opportunity to take the debt out earlier, ideally avoiding the Royalties and Streams and other add on features. The equity piece should be a fairly straightforward process for the company.

End Goal & M&A Possibilities

On the mineral asset side, the Iron Creek deposit in Idaho has been on hold for the last couple of years and there are plans to get drilling and spending on that deposit. First Cobalt has some geophysics results for Iron Creek that they need to share with the market. There are no plans for M&A currently as the company plans to work with and grow their current assets.

Feed Stock Agreement & Ethical Considerations

First Cobalt has feed-stock agreements with the Tenke operation, former Freeport, now China Molybdenum and the KCC operation containing Glencore. These operations are the biggest, highest quality commercial operations in the DRC. They are well run, ethically sourced, with top quality product. First Cobalt will rely on the big commercial operations so that they can comfortably audit and ship direct from mine to the refinery with no traders or blending involved.

Terms of the Deal with Kuya Silver

First Cobalt has agreed to sell a portion of its silver and cobalt mineral exploration assets in the Canadian Cobalt Camp and form a joint venture to advance the remaining mineral assets. This will allow the two companies to resume mineral exploration activities in the silver district while providing First Cobalt capital for the refinery. Three years ago they were looking for Cobalt in a big disseminated open-pit with Cobalt and base metal deposits and the results showed very high-grade structural deposits and underground vein-style systems which will be beneficial to Kuya Silver.  

First Cobalt has 3 great assets, the joint venture asset, the Idaho asset, and the refinery. The JV with Kuya will provide them with the cash payment and shares of Kuya Silver which they need to proceed with the refinery.  

The deal will be finalised in February with C$1M cash and C$3M in shares payable to First Cobalt which gives Kuya Silver the first land package. There is an option and JV available for a bigger land position triggered by a C$1M payment. First Cobalt plans to stay in the JV partnership and see what happens with Kuya rather than sell their shares in the company straightaway. 

Moments for 2021 & The Sequence of Deliverables 

There are three deliverables for the company right now. The treasury continues to grow and they’re in discussions with Ausenco, with an EPCM contract, which is probably the next announcement. After that it'll be the financing, which they should complete by April. At the same time they are doing long-lead procurement work and detailed engineering, lots of optimisation. They will get started on ground construction in early summer when they start erecting the first building. The next 18 to 20-months will be mainly the ramp-up and commissioning and the first feed is scheduled to arrive on-site in October 2022.  

It was good to catch up with First Cobalt as a lot has happened in the space of 6-weeks. We will be closely following their story as the Cobalt market could be very interesting this year.

To find out more, got to the First Cobalt website.