Cobalt is at near record prices—and The Big Catalyst for cobalt stocks hasn’t even happened yet.
That leaves a lot of upside left for investors in this space. The Good News is…I expect this to happen soon.
Public company stocks in the other energy metal—lithium—had a great run in 2017, and investors made millions. I think there was three reasons for that:
- The lithium price moved up and stayed up (and is still up!)
- EV sales set a record pace all through the year, and all over the world
- The industry supply chain started buying into lithium producers—especially the high-quality juniors.
Number 3) really told the investment community that the promoters and management teams that the physical market was truly tight…and the fears of an even tighter market were real.
That had a huge impact on junior lithium stocks. And when—not if—that starts to happen in cobalt stocks, I expect the sector to give investors some fantastic wins.
In fact, it could be even better than lithium because there are so few cobalt stocks. When the institutional money flow starts, it will be a lot more concentrated than it was in lithium.
I see First Cobalt (FCC-TSXv) as one of the first juniors to attract big institutional money flow. The recent merger with US Cobalt gives the combined company a high-grade, low-capex deposit right in the United States (Idaho), and a fully permitted mill and refinery in Ontario.
What’s important for both the buy-side institutions and the supply chain is having a primary cobalt supplier. They are as rare as hen’s teeth; almost every deposit in the world is tightly tied up with copper or nickel.
The value in FCC’s Iron Creek deposit in Idaho is over 90% cobalt, so physical supply is not at the whim of another metal’s economics. EV manufacturers will want absolute security of supply to buy into a project or company.
“The American auto makers are waking up to the fact that there is no cobalt,” says Trent Mell, CEO of First Cobalt. “So they’re now starting to talk.”
Mell says he’s surprised it has taken the car companies this long to come around, but this process is happening now.
“We are seeing the car manufacturers who are going into this space to fill their electric vehicles that need cobalt. Tesla’s S3 car needs 10 kilograms of cobalt per car. You start multiplying that up, it’s crazy.”
Energy metals analyst Chris Berry says that the demand for cobalt in lithium ion batteries should increase by 2.5X from today’s levels based on global automaker EV aspirations. So the auto industry has a lot of incentive to secure supply.
The first deal with a car company will be a huge catalyst for all cobalt stocks, not just the first one to sign a deal. The auto manufacturers have huge incentive to tie up supply, for two reasons:
- Demand continues to hit new record each quarter-see this chart on EV sales in the US, which is usually the laggard in sales compared to Europe and Asia:
- Supply from the DRC—Democratic Republic of the Congo—remains challenged due to uncertainty around taxation laws and the ongoing child labour situation.
Given these conditions, it’s no wonder that the cobalt price is moving up to new 10-year highs:
Right now, the world is completely dependent on multi-national giant Glencore to increase their production in the DRC to meet rapidly growing demand.
But with the merger with US Cobalt complete, CEO Trent Mell says everything is now in place to speed up the first American cobalt production:
“We’ve got a great deposit in Idaho. We have a permanent facility, we have the money—over $26 million—we’ve got the right shareholders, and we’ve got the investment market. All I care about is how fast can we move.”
Having a permitted mill and cobalt refinery is key for First Cobalt and its investors (not to mention the $100 million replacement cost they got for literally pennies on the dollar).
It’s the only one in North America. With permits still in place Mell says the refinery can be quickly restarted—but even more important, expanded to produce more product and high-margin cash flow.
“We’re working on a restart and expansion. And the expansion, you can take it as big as you want frankly. It’s a permanent facility and the flow sheet works, and we want to get it from the current 24 tons per day to 40, which would be more than enough to process material out of Iron Creek to… 1000 to 1500 tons of cobalt sulfate a year.”
“That would be 1% of global supply out of that facility—just for starters. We could do more than that because the footprint of our property can be expanded three-fold under our permits.”
Permits are more valuable than high grade ore in getting a new mine into production. There is no shortage of oil, lithium or cobalt—but getting permission to extract, produce & sell it to whomever you want…that’s tough; at least in the western world.
And that’s what the world wants–western cobalt production; from governments right through to industry. That puts a premium on First Cobalt’s assets.
With $26 million cash, First Cobalt is quickly moving forward on two fronts. One is planning the restart and expansion of the producing assets—the mill and refinery.
The second is getting Iron Creek ready for production. It will be a quick build with low capital costs—only possible because of continuous, high-grade cobalt compacted inside a larger envelope of lower grade material.
Mell’s back-of-the-napkin math suggests a quick three-year payback on the mine at lower prices than today. A primary cobalt mine today could have gross margins of 60%-70%.
In short, the path to production is simple, with both the asset (ore) and the production facility in place. With automakers now knocking at the door looking to secure supply, construction capital will be the least of First Cobalt’s worries.
Cobalt stocks have been simmering for weeks now, but that catalyst that could get them boiling again is rapidly approaching. Being well-positioned in the few primary cobalt stocks in the world would be a smart move for investors.
Management has sponsored and reviewed this article.
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Keith Schaefer is not registered with the United States Securities and Exchange Commission (the “SEC”): as a “broker-dealer” under the Exchange Act, as an “investment adviser” under the Investment Advisers Act of 1940, or in any other capacity. He is also not registered with any state securities commission or authority as a broker-dealer or investment advisor or in any other capacity.
