RE:RE:RE:COBALT:Feasibility shows strong economics for First Cobalt-Agreed, BF. Typically refiners pay the miner ~65% of the contract price in low price environments and ~70% in higher price environments. They are then left with 30-35% - opex,tax, etc. I spoke with Trent a few months back to ask about the negotiation with GC. I wanted to get a sense for what kind of deal FCC would be willing to accept. He assured me they will only be working with GC if they can negotiate a "fair" deal. Because of the strong economics from the FS (1.8yr capex payback), other financing avenues are certainly open to them (which Mell spoke briefly about today on the conference call). They do not need GC to be their white knight. The do not need to accept a deal which would see them receive significantly less than the "going rate" (see above). That said, if GC is to lay out the entire capex ($56M), there will obviously be a premium paid to them as compensation. I don't anticipate this to be any more than 12% compounded annually. I will run some rough numbers below. But before I do, I will aslo try to address the cobalt price concern. I agree, we are in a low price environment and the $25 may seem lofty. However a) the cobalt spot price is NOT the long term bulk contract price (Mell said as much today on the call). The current price is closer to $17. And b) they are forcasting higher prices because many of the "experts" seem to agree that the price should be higher 12-24m from now.
All $USD unless otherwise stated:
Full production (done in stages) = 5000T/y
5000T= 11M lbs * $25 = $275M
$275M* 30% (high end for low price environment)= $82.5M
$82.5M - $29.9M (opex @ $2.72/lb) - 27% tax = $38.4M/year profit
This would be the "typical" take-home for a refiner. However, since GC will be compensated for their particpation financing the Capex (possibly fully funding it), this number will be lower. Obviously, there are many variables. We don't know to what extent GC will be funding the Capex. However we do know form the FS results that this project seems to be extremely viable with a very short payback period. This means debt financing would certainly be an option (at reasonable rates). If I were to take a stab at what I believe would be fair compensation for GC fully funding the refinery, I would say a 4 year payback @12%, compoundeed annually, bringing the total payback to $88.12M ($22.03M/yr over 4 years). This would be $32.12M in interest (to GC), leaving FCC with $16.37M/year of free cashflow to pump into IC.
I do agree that there are still many unkowns, but I guess I am far more confident than some. That said, if any sort of deal is announced that would see FCC pay GC significantly more than what I have outlined above, then I will be dissapointed. However even if the numbers are worse, we have PLENTY of room to still be very profitable as $38.4M/year profit would almost certainly demand a $300M market cap ($420M CAD), 6.5X today's MC (or $1.07CAD/sh)
Make no mistake, GC benefits signifcantly as well. Not only from the return on lending, but from being able to diversify away from China and control the supply themselves (if tolling aggreement). That's it from me for awhile. Take care folks. Exciting times ahead.
GLTA