Jervois Global - Weathering the Storm in Cobalt

• Jervois Global has faced considerable market volatility, particularly concerning Cobalt. Despite these setbacks, no key directors or executive management have left. The team remains committed to recovering the share price and steering the company back on track.
• The company boasts a portfolio of geopolitically significant assets in critical minerals. While they didn't anticipate some geopolitical events like Russia's invasion of Ukraine, they see an increasing role for governments in these industries.
• The company admits to certain mistakes, especially in the U.S. The challenges included Cobalt price fluctuations and difficulties executing capital projects. They acknowledge the need for improvement and express optimism for the future.
• While they've accessed capital in the past, Jervois Global's focus now is on finding partners to aid in their growth trajectory and to manage and de-risk their diverse international assets. The company emphasizes its continued commitment to Cobalt while being open to diversifying its portfolio.
• Cobalt's erratic market behaviour poses challenges for financial backing. However, there is an anticipation of sustained gains in the Cobalt market. Jervois Global aims to secure partners to ensure timely portfolio advancement, particularly with projects like San Miguel, and manage inherent financial risks.

About Jervois Global

Jervois Global (ASX:JRV) operates strategic cobalt assets across several global jurisdictions, positioning the company to benefit from rising demand for electric vehicles. However, recent macroeconomic headwinds have weighed heavily on commodity prices and weighed on Jervois’ share price. Despite the challenges, management remains confident in the fundamental value of the company’s portfolio. 

Led by CEO Bryce Crocker, Jervois has assembled cobalt refining and mining assets in Finland, Brazil and the United States. The company’s flagship project is the Idaho Cobalt Operations in the US, currently in temporary suspension, but which Jervois aims to restart after past delays. Management missteps have hurt credibility, with the company also facing balance sheet concerns amidst the difficult financing environment. Yet Crocker believes current challenges obscure Jervois’ long-term potential. In his view, the company’s assets remain strategically located to supply critical minerals needed to fuel the EV revolution. While acknowledging disappointment in the share price decline, Crocker is optimistic the company can recover value for shareholders.

Interview with Chief Executive Officer & Executive Director, Bryce Crocker

Macroeconomic Headwinds

In recent conversations, Crocker has cited “humbling times” for Jervois and many miners. Chinese economic weakness and broader recession fears have weighed heavily on commodity prices. Cobalt has faced particularly acute pressure amid choppy market dynamics. This has negatively impacted financing availability and terms when the company has sought to raise capital.

Compounding matters, Jervois holds significant cobalt price exposure. With prices depressed, the economics of projects like Idaho have suffered. The company has urgently needed to find ways to strengthen its balance sheet as losses mount.

Silver Linings

According to Crocker, the company has received strong inbound interest regarding its assets individually. This suggests investors still see underlying value despite market skepticism. The board and management team also remain fully intact, having weathered the storm together.

Moreover, while commodity price weakness has presented challenges, Crocker believes the long-term outlook is bright. Government interventions continue rising globally as countries move to shore up domestic mineral supplies. With cobalt critical to EV batteries, Jervois is well-positioned to potentially benefit.

The company also continues boasting strong relationships with major automakers hungry for cobalt supply. As Crocker noted, these customers care more about locking up strategic resources than near-term costs. Once markets stabilize, Jervois looks to capitalize on its position.

Path Forward 

To navigate current headwinds, Jervois has been exploring asset sales and partnerships. The goal is to de-risk projects and improve the balance sheet without significant dilution. The company remains committed to cobalt, but may seek to diversify its mineral portfolio somewhat.

Idaho remains a top priority, with Jervois working closely with the U.S. government on restarting the facility. Success here would demonstrate management’s improved execution while boosting cash flow. In Brazil, Jervois is taking a slower and more methodical project development approach applying lessons learned.

While macro conditions have stymied short-term progress, Crocker maintains a long view. He believes it will regain momentum once the company can announce tangible partnerships and transactions. After missteps in the past, consistent execution will be critical to restoring investor credibility. If Jervois can successfully get projects up and running, the future looks bright. With cobalt prices eventually forecast to recover, the company’s leverage could translate into huge shareholder value. But this depends on management prudently navigating the difficult conditions currently facing miners.

By strengthening its balance sheet, derisking operations, and delivering results, Jervois can potentially position itself as a long-term cobalt supplier. Crocker clearly understands the challenges, but remains confident in the assets and his experienced team. For investors with patience and appropriate risk tolerance, Jervois may offer an asymmetric upside if execution improves in the years ahead.

Crocker sees the three assets moving forward

Idaho Cobalt Operations (ICO), USA

The Idaho cobalt project in the US is Jervois' most advanced cobalt asset. The mine and processing facilities are fully constructed, but the project is currently idled due to low cobalt prices.

Crocker believes cobalt prices need to recover to the mid $20s/lb range for the project to be economically viable based on the original feasibility study. At current depressed prices around $10/lb, the project does not make financial sense to restart. To get the project back up and running, Jervois is engaging with the US government about potential support. This could come in the form of direct investment into the project, favourable loans from agencies like EXIM bank, or the government potentially underwriting a minimum cobalt price to reduce downside risk.

Bringing in a strategic partner is another option under consideration. The goal would be to find a partner with a strong alignment of interests. For example, one of Jervois' bondholders Mill Street converted debt into equity in the project. This gives them upside exposure if cobalt prices recover rather than just earning fixed interest.

While still focused on cobalt, Jervois would be open to bringing in a partner who could provide capital for a full restart while taking a significant stake in the project. Reducing the company's financial exposure while still maintaining upside exposure is seen as a potential win-win.

San Miguel Paulista (SMP), Brazil

San Miguel is a nickel-cobalt refinery in Brazil that Jervois acquired through an earlier acquisition. While the project has attractive economics, Jervois no longer sees a path to funding the estimated $85 million restart cost alone given its constrained balance sheet.

However, Crocker still sees San Miguel as a highly strategic asset for the company's future. Current nickel prices would provide strong margins for the project based on its existing feasibility study. The supply and demand outlook is also positive with disruption from Russia's war in Ukraine.

To move the project forward, Jervois aims to bring in a partner who can provide capital to fund construction. The company would be willing to give up a substantial stake in the project in exchange for the restart funding. Beyond just capital, Jervois also wants to partner with someone who can add operational expertise. The goal is to reduce execution risk and leverage synergies from its Finnish refining operations.

While the timeline may move back from the original 2026 targets, Crocker sees San Miguel as a key part of building a diversified operating business. Even if Jervois ends up with a smaller stake post-partnership, the project diversifies the company beyond cobalt into nickel and provides a second operating asset.

Jervois Finland

In contrast to the development assets above, Jervois already has an operating cobalt refinery and product manufacturing business in Finland. The asset was acquired in recent years from Freeport Cobalt.

The focus in Finland over the next 6-12 months is on demonstrating stable quarter-over-quarter performance. Jervois wants to build credibility by generating consistent positive cash flow from the asset. Beyond the existing business, Jervois is also looking for ways to expand production. It is in talks with the Finnish government about potential investment and support. The company is also speaking with European auto companies about signing long-term off-take agreements to underpin bigger expansions.

While the asset faced some operational challenges and balance sheet constraints initially after the acquisition, the goal now is to turn the corner and establish the Finland business as a solid cash-flowing core asset within the Jervois portfolio.

Key Lessons Learnt?

Based on the conversation, here are some key lessons Jervois says it has learnt over the past 18 months and how they plan to run the company going forward:

• They moved too aggressively pushing multiple capital-intensive projects simultaneously before having the balance sheet to support it. This led to excessive financial risk when cobalt prices dropped.
• They underestimated potential operational challenges with executing large construction projects in places like the U.S. This was seen in cost overruns and delays at their Idaho cobalt project.
• They relied too heavily on positive cobalt price projections rather than stress-testing downside scenarios. The severe cobalt price decline caught them off guard.
• They could have been more opportunistic in raising capital and strengthening the balance sheet when their share price was higher.

Growing the Company Moving Forward

• Taking a more conservative approach to financial risk and leverage on the balance sheet. Avoiding over-reliance on debt funding.
• Focusing on getting flagship assets into production before looking at further expansions or M&A. Avoiding getting overextended.
• Building strategic partnerships and bringing in capital from outside partners to de-risk large projects. Avoid going it alone.
• Diversifying beyond cobalt into minerals like nickel to reduce exposure to a single commodity.
• Maintaining relationships with auto companies, agencies, and governments. Leveraging external stakeholder support.
• Generating consistent quarter-to-quarter positive cash flow from existing operating assets. Building credibility.
• Being opportunistic about raising equity when the share price recovers to strengthen the balance sheet. Avoiding excessive dilution.

The key shift appears to be from an aggressive growth focus to a more conservative approach centred on managing risk, operating within the company's means and bringing in strategic partners to bolster the balance sheet and give access to the market. Execution and rebuilding credibility take priority over expansion in the near term.

Conclusion

Jervois Global faces challenges in the near term, but the long-term outlook remains bullish driven by EV demand trends. While macroeconomic headwinds have hurt the share price, management has a plan to weather the storm. If the company can demonstrate steady progress operationally and financially in the coming quarters, investor confidence may gradually return. For shareholders with the appropriate time horizon and risk appetite, Jervois represents a compelling leveraged play on eventual cobalt price recovery. However prudent management of risks and disciplined execution will be critical to realizing the potential. By taking decisive strategic actions, Crocker and his seasoned team aim to position Jervois as a premier cobalt supplier as the EV revolution accelerates. If successful, substantial shareholder value could be unlocked.