Construction work at Idaho
The company hopes to produce 1,525 tons of super-alloy grade high purity cobalt metal annually over a minimum ten year mine life.
That will amount to a whopping 3.3 per cent of the entire global cobalt supply and should be able to meet just under 15 per cent of the current demand from North America.
In 2012 mine construction progressed rapidly. The earthworks were completed over the summer and in the fall the company crossed off all of the critical items needed to transition into the underground development stage.
The project is now in hibernation for the winter, but it’s basically ready to go, as Rick Honsinger, Formation’s VP Corporate Communications, explains. “Fundamentally the project is prepared for underground development, the things that are left are relatively minor”, he says.
With the mine site prepared for underground development, only one major hurdle stands between Formation and final construction - financing. “Because we don’t want to end up with a half built mine and no money in the bank, we’re being very cautious with our money at the moment as we continue to seek additional funding”, says Rick.
“But as soon as we get a cheque we’re in great shape. When we get the money in the door the rest will fall into line pretty quickly.” The remaining phase of construction at the Idaho Cobalt Project will consist of underground excavation to the ore face, and the building of the required facilities such as the mill, concentrator and water treatment plant. Initial production is expected to begin between nine and 14 months from the commencement of Stage III construction.
There’s no concrete news yet about when a financing can be expected, there does at least now seem to be some cautious optimism regarding the markets. “2012 was very rough on cobalt but in the last couple of weeks in December and into the first couple of weeks this year we’ve seen the trend start to reverse”, says Rick. “We’re hoping the tide is turning for cobalt prices which would bode well for us.”
In fact, Rick points out that the simple supply and demand fundamentals in 2012 have set the stage for a structural price recovery this year. “It was almost inevitable because the prices were so depressed that the refiners of the material weren’t making any money. They’re holding back and as soon as they start holding back the supply starts drying up resulting in a price rise.”
Simultaneously the demand for cobalt has been increasing, according to Darton Commodities’ 2012-2013 cobalt market review. According to the report, there was a five per cent drop in global cobalt production in 2012, while cobalt consumption grew an estimated 6.8 per cent to 73,900 million tonnes.
What’s more, because the material Formation intends to produce, high purity cobalt (HPC), is required for critical applications in the superalloy industry, the material trades at a premium to all other cobalt grades on the market.
The demand outlook for superalloys to serve the aviation industry remains strong, and increasing demand from the next generation lithium ion battery industry also looks promising.
“The use of cobalt in reusable batteries is increasing”, points out Rick. While lithium and graphite seem to be getting most of the press regarding next generation rechargeable batteries, “a typical lithium ion battery is about five per cent lithium by weight and it can be up to 50 per cent cobalt”.
But uncertainty remains, and as there’s no knowing yet when construction will proceed at Idaho, the company has been getting on with other things. “What we are concentrating on are the things that we have an influence on and, in particular, I’m talking about the new businesses that we’re developing at the refinery”, says Rick.
Back in May of 2012, Formation announced it had begun accepting third party concentrate at its Sunshine Refinery business. The refinery’s autoclaves were originally designed to treat refractory ore for precious metals, and Formation’s initial plan was to retrofit them for cobalt production from the Idaho ore.
However, engineering studies subsequently demonstrated a clear economic case for keeping the existing set-up in place to process third party material. The plan now is to add a separate circuit when cobalt production begins, and this is being designed from the ground up to maximize efficiency in cobalt treatment.
Sunshine is now processing gold-silver concentrates and copper-silver concentrates. “It’s a new business and it’s ramping up”, says Rick. “This project has the potential within three to nine months to actually start generating revenues that will be reflected in the financial statements.”
The company’s most recent financials show a C$300,000 investment in research and development at Sunshine which funded engineering and metallurgical studies to ensure that the concentrate business will provide an attractive profit margin.
“That would have been money showed as profit but in this case it’s the first time we’ve actually put that category in our financial statements”, explains Rick. “It’s basically money that has gone directly into the concentrate refining business.” If all goes according to plan, the investment could begin to pay off in short order.
Meanwhile, Sunshine has been running a doré tolling business. Doré, primarily from Mexican silver producers, is submitted to the refinery and refined into high purity bullion. With the concentrate business ramping up and the doré business running smoothly, the refinery’s performance appeared strong in the 2012 financials.
“It’s made C$1.5 to C$3 million in a year but this particular year we’ve been putting money into the refinery so breaking even is a very positive thing. It’s good for our bottom line because it means the burn rate is not affected by that business”, says Rick. In effect, the operational cash flow generated at Sunshine effectively subsidises the cobalt project since much of the infrastructure and team are being paid for as part of the refinery.
Expanding the refinery businesses will not only provide internal cash flow to advance development at the cobalt project but also de-risks the company overall in the eyes of potential financiers. “The lenders like to see independent revenue streams from independent businesses. It helps mitigate the risk for them”, explains Rick.
https://minesite.com/news/formation-turns-the-sunshine-refinery-into-a-cash-cow-as-talks-on-financing-the-idaho-cobalt-project-continue