With its foot now securely planted on three historic high-grade cobalt projects in North America, New World Cobalt is positioning itself to supply battery manufacturers with their key ingredient – while doing it as far away from the DRC as possible. Plus, Capricorn poised to be Australia’s next 100,000ozpa gold producer.
Elon Musk reckons ‘boring bonehead’ questions on Tesla’s massive cash burn rate are not cool.
He was equally sensitive on Tesla’s recent first-quarter investor call on the subject of cobalt, a key ingredient in lithium-ion batteries, which is today’s interest.
The cobalt price has increased almost four-fold in the past two years as the world frets about being reliant on the less-than-stable Democratic Republic of the Congo for as much as two-thirds of its needs to power the electric vehicle and renewable energy storage revolution.
Apart from the price rise – reflecting an overall supply deficit at present - there are concerns that DRC supplies are less than ethical, with allegations of child slave labour being involved being nightmarish stuff for big-brand end users of cobalt from that country.
So supply/cost pressures and ethical issues are at play in any discussion on cobalt.
But Musk did not bother with any of that at the briefing. He simply brushed it all aside with the comment that Tesla thinks it can get “the cobalt to almost nothing” in its particular preference for nickel-cobalt-aluminium batteries. He was exaggerating.
While there is no doubt that the trend to lower cobalt content in batteries is real, the metal’s key role of providing stability (no fires) is not going away any time soon. And as Canaccord Genuity pointed out, the trend of lower cobalt has been built in to what remain “very positive’’ demand models.
Most have demand from the battery sector doubling to about 100,000 tonnes of the high-price stuff by 2022.
So a little less cobalt spread across massive battery growth does not damage cobalt’s outlook. That cobalt has held at $US88,500 a tonne in the wake of Musk’s comment says as much. Still, his comments did cause some indigestion for the cobalt players.
It was Canaccord again which argued that the fallout from Musk’s fake news on cobalt equities represented an opportunity for investors.
Today’s interest is in a newbie to the ASX-listed cobalt sector, New World Cobalt (NWC, the renamed and refocussed Longford Resources). It is trading at 8c for a $39m market cap.
As its name suggests, NWC’s focus is North America, which is about as far away from the DRC as you can get. It is has put its foot on three historic high-grade cobalt projects – Colson in Idaho, Goodsprings in Nevada, and Hazelton in British Columbia.
All come with historic production from the project areas, with ore grading a spectacular 29% cobalt known to have been shipped way back when from Goodsprings. It will be one to watch as NWC sets about starting a drilling campaign, remembering this market gets excited about 0.1% cobalt hits.
Colson sits on the northern end of the historic Idaho cobalt belt – yes there is one – which hosts the biggest known high-grade cobalt resources in North America. NWC is in good company on the belt. Current activity there includes that by TSX-listed eCobalt Solutions and TSX-listed US Cobalt.
The $C222m eCobalt is developing its Ram deposit (4.7mt at 0.53% cobalt) for first production next year while the $C68m US Cobalt (its main project is the Iron Creek deposit which has a historic resource of 1.16mt art 0.59% cobalt) is the subject of a friendly takeover by the $C150m First Cobalt.
There has been virtually no work at Colson since the 1980s. Validation of historic high-grade results by re-sampling the old workings is underway ahead of a drilling program in coming months.
The September quarter this year and next shape up as key ones for Pilbara gold developer Capricorn Metals (CMM).
It is this September quarter in which Capricorn plans to start initial site works and construction of its 100,000oz-a-year Karlawinda gold operation, 65km south-east of Newman.
The September quarter next year is slotted for first production.
Somewhat neatly, first production is due to arrive some 10 years after previous owner Independence Group uncovered the virgin Bibra deposit by following up reconnaissance work by WMC in previous years.
Bibra has gone on to be a 1.3m oz resource with a reserve of 713,000oz. A feasibility study has said is good for an initial 6.5 year mine life.
All-in sustaining costs have been put at a robust $A1,025/oz despite a seemingly thin reserve grade of 1.06g/tonne (things are helped by the mineralisation starting at surface, including laterite mineralisation grading 1.4g/t).
Bring it all together and it is a bit of a wonder that in a $A1,750 an oz gold market, Capricorn’s share price is knocking around 7.6c for a market cap of $57m.
Screen it against its peers in the market (Echo, Gascoyne, Dacian and Gold Road) on pretty much any metric there is, and Capricorn’s market cap comes up light.
That can be expected to change in the near-term when the missing piece of the puzzle is in place – financing. To stick to the production start target, Capricorn needs to have that bedded down really soon. Aussie dollar gold prices will help, as will a reserve upgrade that most company watchers expect is in the works.
But the real game changer in securing finance has been the signing up of GR Engineering (GNG) to design and build the project for a turn-key price of $93m - or 23% less than the $121m estimated in last year’s feasibility study.
GR is the go-to engineer in the gold space at the moment as it recently completed Mt Morgans for Dacian and is now finishing off Gascoyne’s Dalgaranga.
Tim McCormack at Canaccord Genuity has digested all that and arrived at a 22c price target for Capricorn. Because the values at the big end of the gold space are looking a bit bloated, his valuation is kind of interesting given Capricorn’s near-term production potential.
McCormack assumes a reserve upgrade to about 850,000oz to give an initial mine life of 8 years at an all-in sustaining cost of $A1,050/oz, which is slightly more than the feasibility study. He also assumes $130m in debt/equity financing on a 50:50 basis.
McCormack doesn’t say so but others can – with all that spare cash sloshing around in the established gold producers, it remains to be seen if Capricorn makes the transition to producer status as an independent company.