Geovic Mining (TSX: T.GMC, Stock Forum; 60 cents)
www.geovic.net
> 103.7 million shares out / $40 million net cash (39 cents/share)
> Estimated to control one of the world's largest undeveloped cobalt properties (Cameroon)
https://en.wikipedia.org/wiki/Cobalt
https://en.wikipedia.org/wiki/Manganese
We are speculating on Geovic for the following reasons:
1) It is very well funded with the large Cobalt property only valued at (approx.) $20 million.
2) Trading low on the chart with strong support high 50-cents range.
3) Negative media raising eyebrows over China's processing of Cobalt from the Congo
4) U.S. considering an increase in strategic reserves of Cobalt (and other rare metals)
5) European Union wants cobalt included on a list of 14 strategic metals and minerals
6) Economics of their cobalt, nickel & manganese project are very strong
Of particular importance... in a June 14th news release, Geovic stated "metals marketing activity and project financing discussions continue with multiple parties."
Since the market and economic collapse, Geovic's Cobalt-Nickel-Manganese project has fallen into obscurity. A very small handful of investors follow this company and few pay attention to cobalt. Because of this we are going against the grain (as usual) and venturing where few dare in hopes of picking up on a promising story early.
If Geovic manages to land a large financing or supply contract, this stock will have tremendous upside potential.
First consider these recent media excerpts:
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“New technologies have not liberated industrial economies from dependence on base metals and rare minerals. Fibre optics have replaced copper, but demand for cobalt is booming.
Cobalt is at the centre of the new Great Game: Zambia and the Democratic Republic of Congo have more than a third of the world's reserves. Asian countries control around 44 per cent of the world's trade in cobalt; Europe has about 30 per cent; and the US another 26 per cent.
After a dip in late 2008 and early 2009, China's demand for iron, copper and manganese is forecast to grow by 10 per cent a year for the next decade, while its demand for oil and gas is to rise by 20 per cent.”
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“June 14th - The European Commission has identified 14 mineral raw materials, including several metals and metal groups, which have high supply risks and could face shortages resulting from limited production sources and high demand.
An expert group assembled by the Brussels-based commission studied 41 minerals and metals groups to compile the "critical" supply list. Minerals on the critical list are antimony, beryllium, cobalt, fluorspar, gallium, germanium, graphite, indium, magnesium, niobium, platinum group metals (PGMs), rare earths, tantalum and tungsten.
The high supply risk was described as mainly due to the fact that a high share of the worldwide production mainly comes from a handful of countries, including China for antimony, fluorspar, gallium, germanium, graphite, indium, magnesium, rare earths and tungsten; Russia for PGMs; the Democratic Republic of Congo for cobalt and tantalum; and Brazil for niobium and tantalum.”
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The copper belt in the Democratic Republic of the Congo (DRC) and Zambia yields a huge percentage of the cobalt mined worldwide. The atrocities being committed in the DRC are well known and extensive yet China continues to process huge quantities of cobalt from this region with little regard to its origin. This may never change but the media will continue to ask questions and raise eyebrows (as they have done recently).
Geovic owns 60% of a huge cobalt-nickel-manganese deposit in Cameroon.
https://www.geovic.net/cobalt_mining.php
Compared to other African countries, Cameroon enjoys relatively high political and social stability. This has permitted the development of agriculture, roads, railways, and large petroleum and timber industries. Nevertheless, large numbers of Cameroonians live in poverty as subsistence farmers. Power lies firmly in the hands of the president and corruption can still be widespread.
Unemployment was estimated at 30% in 2001, and about a third of the population was living below the international poverty threshold of US$1.25 a day in 2009. While this is a shocking number, it also means the operating costs in Cameroon can be dramatically low - and mining very profitable.
Geovic's Nkamouna project has proven and probable ore reserves of 54.7 million tonnes at average grades of 0.25% cobalt, 0.69% nickel, and 1.33% manganese. This reserve yields 11.7 million tonnes of concentrates grading 0.74% cobalt, 0.99% nickel, and 3.78% manganese suitable as a feedstock for the Company's unique processing facility. Additionally, they have 323 million tonnes of inferred resources at Nkamouna and Mada with grades of 0.21% cobalt, 0.61% nickel, and 1.25% manganese.
A September 2008 Optimization Study to a 43-101 Technical Report estimated that the Nkamouna Project will deliver after-tax cash flow (discounted at 8%) of US$1,024 million (or $614 million net to Geovic's 60% interest), an IRR of 44%, and a payback of 1.9 years based on 100% equity financing and three-year average metal prices of $26.57/lb cobalt and $12.39/lb nickel, respectively. Average operating costs during the first 19 years of production are estimated at $2.04 per pound of saleable cobalt, net of nickel and manganese by product credits.
The strength of the estimated project economics are attributed to the unique physical properties of their laterite deposits, and should be enhanced further by the addition of a circuit to process by product manganese.
Freeport mine for comparison
Freeport-McMoRan's (58%) copper and cobalt mine in Congo has reached production capacity and will exceed targets for 2010. This mine cost $2 billion to construct and is the Congo's largest private investment.
The project is estimated to have reserves of 119 million tonnes with average ore grades of 2.6% copper and 0.4% cobalt. In 2009 it produced 70,000 tonnes of copper and 2,600 tonnes of cobalt. They employ 2,300 staff and 1,400 sub-contractors.
The Geovic project has estimated capital costs < $400 million and unlike the above, cobalt is their primary metal with nickel and manganese as by products. Grades of cobalt are lower than Freeport but the additional revenue from nickel and manganese could be significant. Freeport has 119 million tonnes while Geovic has 54 million proven with the possibility of another 323 million tonnes.
Summary
Overall, economics on the Geovic property are very strong - yet the market assigns a value of only $20 million to this property.
In December 2009, the company engaged Standard Chartered Bank of London, as its advisor in connection with the further development and financing of the Nkamouna project. Geovic's future success is dependent upon their ability to secure supply contracts and finance the project (with a large enough contract this part is easy).
In December 2009, they also engaged a third consulting firm to prepare a Feasibility Study Update ("FSU"), which is expected to be completed in the third quarter of 2010.
The stock has good liquidity in the 60-cent range and makes for very attractive risk at this level (if you have patience). We will likely be forced to bottom fish this one because it may be very difficult to catch if they ever land a large financing (or an overseas buyer). In the interim, their costs are well controlled and they are sitting on $40 million.
Disclosure: Danny Deadlock owns 20,000 shares of Geovic Mining (TSX: T.GMC).
Current and past reports are archived on our Stockhouse message board at: https://stockhouse.com/Groups/GroupInfo.aspx?g=50540
Danny Deadlock has specialized in micro cap and small cap companies for over 25 years and is a registered member of the Stockhouse community since 1997. You can find his website at www.MicroCap.com - a service which has specialized in TSX and TSX.V penny stocks since 1998. You can also email Danny at microcap@telus.net.