Cobalt is
hot. The cobalt market has attracted increasing scrutiny from investors and increased activity from mining companies based upon two, striking fundamentals of this market.
- The demand for cobalt, especially for the fabrication of hi-tech lithium-ion batteries, is exploding higher.
- Almost all global cobalt production comes in the form of by-product production from other mining.
An explosion in the demand for any good or commodity is always a topic which excites investors. However, the cobalt market is relatively unique in that nearly all supply comes via by-product production from other metals mining. This means that the supply of cobalt is “highly inelastic”.
This economic term simply reflects the reality that because cobalt metal is not being produced from cobalt mines (because there are none), there can be no direct market response to this increase in cobalt demand. Copper mining companies which produce cobalt as a by-product of their mining are not going to increase their
copper production just to sell a little more cobalt.
What this means is that no matter how far or how fast the price of cobalt rises, the market response to such price increases (in terms of increased mine supply) will be far more muted than with respect to almost any other metals market. It is this economic fundamental which has spurred the interest of a number of mining companies to look for ways in which they can bring more cobalt to a cobalt-starved market.
According to a Benchmark Mineral Intelligence report published
in September 2016, cobalt demand is forecast to double from 100,000 to 200,000 tonnes per year by 2020, largely on the back of the massive increase in demand from lithium-ion batteries. Attempting to meet this spike in demand in a highly inelastic market is a daunting proposition.
Several companies have located (relatively) cobalt-rich deposits of other metals, and are now seeking to move these projects toward production. However, experienced mining investors know that it can often take up to 10 years from initial discovery of a metal deposit until a mine can be constructed and advanced to commercial production.
For the management team of Canada-based CobalTech Mining Inc. (
TSX: V.CSK,
OTCQB: BNCIF,
Forum), this was simply too long a time horizon to suit CSK’s corporate strategy. The Company wanted to bring more cobalt to the market in the near term, and then went about formulating a business plan to make this a reality.
Their first objective was to locate an abundant source of the metal itself. Where do you go if you’re a Canadian mining company looking for cobalt? Well, you might decide to visit the town of
Cobalt, Ontario, located in the heart of
Canada’s Cobalt Camp.
Starting at the beginning of the 20
th century, prospectors and then mining companies flooded into this district, in what would become one of the premier “rushes” in Canadian mining history. Companies like Cobalt Badger Mining Limited, Cobalt Lake Mining Company Limited, Cobalt Lode Silver Mines, Cobalt Silver Queen Limited, Cochrane Cobalt Mining Limited, and Foster Cobalt Mining Company Limited set up mining operations in the area.
However, as the names of many of these companies suggest, these miners were not merely extracting cobalt from Canada’s Cobalt Camp. They were mining silver – lots and lots of high-grade silver.
The Cobalt, Ontario Cobalt Camp got its name from the fact that mineralized ores in the region contain unusually high concentrations of cobalt. However, these mining companies derived most of their mining revenues from
silver. It is this feature which makes the Cobalt Camp geologically unique, in global terms.
image: https://www.stockhouse.com/getattachment/c1060a22-f4df-43a6-98a0-d561347dade4/cobalt_silverrush_large.jpg
“Cobalt was the biggest silver mining camp in the world and was known by everyone in North America who ever picked up a newspaper.”
How big? In the first 60 years of its active life, the mines of the Cobalt camp shipped a total of nearly 1,185,000 tons of rich silver ore and concentrates. The total production in that time exceeded 420,500,000 ounces of silver. At today’s price of silver, the amount is staggering. To ship the ores and bullions extracted from the mines of the camp during those years would require a train of freight cars nearly one hundred miles long – stretching down the track all the way from Cobalt to North Bay, 140 km. [emphasis mine]
Typically, higher concentrations of cobalt are found in copper and nickel ore deposits, and occasionally gold deposits. The cobalt-bearing ores from Canada’s Cobalt Camp are unique in that they represent the world’s only large-scale, silver-cobalt ore geology.
Because of this unique geology, and because of the magnitude of mining activity, the Camp was officially designated as a national historic site – the Cobalt Mining District National Historic Site of Canada. A
website which lists and describes these historic sites notes that:
“… it reflects an important period of hard rock mining in Canada, between 1903 and the late 1920s, that established a more secure investment environment for mining speculation and created financial capital for large-scale Canadian mining development in the first half of the 20th century.” image: https://www.stockhouse.com/getattachment/f8ea14ff-c3e2-42e1-a8ef-09f3d24e52f0/cobalt_100mines.jpg
As CobalTech was evaluating assets for acquisition, management came to an important realization in terms of how and where the best opportunity existed for producing cobalt, in the near term, at minimal cap-ex costs. A website which titles itself
“Cobalt Mining Legacy” provides the details:
“In addition to this important historical legacy, the mining activities in Cobalt have also left an environmental legacy. Millions of tons of mine waste rock and mill tailings were dumped on the land and in local lakes.” These “millions of tons of mine waste rock and mill tailings” still contain robust quantities of silver and cobalt. Indeed, the concentrations of cobalt are comparable to the
ore which many mining companies are seeking to extract and process today – after they have spent years drilling out an ore deposit and spent many $millions on constructing a mine.
CobalTech Mining had a simpler idea. Forget about building extremely costly and time-consuming mines, and focus instead on processing this “waste rock” and tailings which contain cobalt (and silver) in commercially viable grades. The Company’s first acquisition was the Duncan Kerr Project.
Duncan Kerr is an old silver-cobalt mine which still hosts considerable mining infrastructure, including a fully-permitted, 360-tpd mill, hydro lines, roadways, and a rail spur. The Project had been previously owned by Trio Resources. Trio had been pursuing a similar goal: refurbishing the Duncan Kerr mill so that it could commence the processing of waste rock, muck, and tailings on site which contained significant concentrations of silver and cobalt.
Unfortunately, due to the extreme downturn in the mining sector, Trio ran out of funding in 2015, just as it was on the verge of bringing the mill back into production. The Project suited CSK’s business plan perfectly, and in
November 2016, the Company closed on the acquisition of the Duncan Kerr Project.
Under the terms of the deal, CobalTech has agreed to issue Trio 8,500,000 common shares (at a deemed price of $0.15 per share). In addition, the Company agrees to pay Trio an aggregate of $2 million, with the structured payments to be made within 24 months from the closing date.
Along with the near-operational mill, CSK has acquired all of the mineralized materials contained on the Duncan Kerr site. Included in these assets are approximately 6,500 tonnes of ore which remains from previous mining operations. This high-grade ore contains 761 g/t silver and 0.95% cobalt. Also included are roughly 15,000 tonnes of “trench material”, as well as 1.25 million tonnes of muck and tailings.
Based on historic data, the trench material is graded at roughly 700 g/t silver and 2% cobalt. Management estimates that the muck and tailings contain at least 140 g/t silver and as much as 0.50% cobalt. Based on that breakdown, the Company has produced estimates on the revenue potential from the mineralized materials on site.
image: https://www.stockhouse.com/getattachment/0d384a98-c4f9-45d9-9ff2-2d236835f20f/cobalt_salesrecoveries_large.jpg
To solidify the resource picture, CobalTech is planning to begin working immediately toward a resource estimate in early 2017, while aiming to complete a Preliminary Economic Assessment (PEA) of the Project later in 2017. To fund these activities, the Company has recently closed a $2.9 million private placement.
At the mill’s currently rated capacity, there is 10 years’ worth of mineralized materials to process, just on site at Duncan Kerr. While the mill only provides primary processing of this ore and waste rock, the Company already has a deal in place to ship out concentrate from the mill “as is”, with secondary processing handled at another facility before being shipped to a refiner. To increase CSK’s margins from producing this concentrate, management is already actively engaged in attempting to acquire a secondary processing facility, to complement the Duncan Kerr mill.
Once CobalTech Mining has resumed production at its mill and procured an additional facility for its mineral processing to increase margins, the Company’s operational strategy is straightforward. CSK will seek out and evaluate other mine sites in the Cobalt Camp, and acquire additional feed for its mill.
To further scale-up its operations, the Duncan Kerr mill is capable of being upgraded to a 500-tpd facility, which would increase output by nearly an additional 40%. Alternately, CobalTech could look to buy or even build additional milling facilities, to speed up its recycling of the millions of tonnes of waste rock and tailings which have accumulated in this mining district as it brings cobalt to the market.
While investors will naturally be interested in CSK’s potential for cobalt production, they would be ill-advised to ignore the silver. Silver is the world’s most-versatile metal, and is used in a wide range of industrial and hi-tech applications, as well as being in high demand for jewelry and investment. While the cobalt market has recently gone into supply deficit, evidence has emerged that the silver market has been in a
supply deficit for
thirty consecutive years.
The cobalt “story” has been building in importance for months. The silver story has been building in importance for decades. CobalTech Mining: come for the cobalt; stay for the silver.
https://www.stockhouse.com/news/newswire/2017/01/19/near-term-cobalt-production-from-canada-s-%E2%80%9Ccobalt-camp%E2%80%9D