1. Approaching the halfway point of 2019, what are your thoughts on the battery materials market? What materials are performing well? Which aren’t? Why?
Early, rapidly-growing markets tend to have extreme boom and bust cycles and, in 2018, we saw this characteristic market volatility with many of the battery metals, but certainly with cobalt. The 2018 cobalt supply response out of the DRC, which many believe was driven, in large part, by artisanal mining, continued to put downward pressure on cobalt prices during the first half of 2019. However, that price pressure is expected to ease during the second half of 2019, and through to 2020, as a much clearer long-term understanding of future cobalt demand and supply shortages emerges. This longer-term view is supported by recent announcements by the major automotive manufacturers of their plans to invest over US $300 billion in EV battery technology and production capacity over the next 5 to 10 years.
Also, when looking at demand growth for battery metals, it is helpful to remember that EV are at the very early stages of the innovation S-curve of technology adoption, driving demand growth for both EVs and the underlying battery metals that fuel them. Additionally, while the major automotive manufacturers have announced large scale investment commitments for the EV market, the fact is that just 2 years ago, in 2017, only 1 million new EVs were sold worldwide and, in 2018 global sales of new EVs reached just over 2 million units. Compare this with announced future production plans by the major automotive manufacturers where global EV production capacity is conservatively forecasted reach 35 million units per year by 2030, and global mined production capacity for battery metals such as cobalt and nickel, will need to grow exponentially to meet future planned EV production.
Clearly, we are in the very early stages of the S-curve of innovation for EVs with demand for battery metals forecasted to be strong over the next 2 to 3 decades.
2. What countries/regions do you feel are leading the way with regards to battery material production/mining that will be required to support significant increases in EV production globally?
In 2018, global mined cobalt production reached 120k tonnes. Approximately 99% of cobalt is mined as a byproduct of copper mining in the DRC or nickel mining elsewhere in the world. As such, cobalt supply is highly dependent upon new copper production or new nickel production. However, cobalt revenues only represent around 6.7% of nickel miners’ total revenue and approximately 1.3% of copper miners’ total revenue. Due to the relatively small percentage of total mine revenues derived from cobalt production, it is difficult to secure financing for projects based on cobalt prices alone.
Furthermore, cobalt differs from other commodities as approximately 70% of mined cobalt production comes from the DRC, a high-risk mining jurisdiction which lacks critical infrastructure and, is closely associated with significant human rights issues related to artisanal mining, which can represent up to 20% of mined cobalt production coming out of the DRC. We believe the primary issue facing cobalt supply is the concentration of cobalt reserves and production in the DRC, and the underlying human rights and environmental issues, as well as political uncertainty associated with the region. It is our view that new nickel-cobalt supply projects outside of the DRC, will be need to be approved, developed and built over the next 2-3 years to avoid a meaningful deficit.
Significant additional mine financing targeting nickel-cobalt projects outside of the DRC, will be needed over the next 5-10 years to meet projected cobalt and nickel demand and to mitigate the risk associated with the current concentration of cobalt production in the DRC. Existing production, mine expansion and new production of nickel-cobalt will all require considerable new sources of capital, while the forecasted global cobalt and nickel supply deficit is expected to keep upward pressure on prices.
We believe Cobalt 27 is ideally positioned to take advantage of the early stages of the battery metals upcycle where largescale, nickel sulphate producers are actively seeking to leverage cobalt byproducts to fund mine expansion and repay debt using alternative, non-dilutive sources of capital. Also, development stage nickel sulphate projects are rapidly establishing cobalt reserves and require significant capital including low cost, non-dilutive financing to move through construction, commissioning and into production.
3. How are the automotive industries in Europe, Japan and North America responding to China’s emerging dominance in the EV battery production space? What opportunities is this creating for battery materials producers?
Securing sufficient supplies of battery metals such as cobalt and nickel, are major concerns for all battery cathode and EV manufacturers, with many groups announcing joint ventures with upstream battery metals supply chain partners to help guarantee critical future supply.
While Chinese battery and EV firms may be ahead of the competition when it comes to securing long-term supply of battery metals, their European and North American counterparts are quickly moving to catch up. At a conference held in Washington, D.C, in early May 2019, Tesla said the company anticipates global shortages of nickel, copper, and other battery metals in the future due to underinvestment in the mining sector and, that the company will continue to focus on more nickel-rich battery chemistries. Increasingly, we are seeing the shift in battery chemistries toward higher nickel content, which would allow EVs to travel further on a single charge, which is expected to further boost demand for nickel.
In April 2019, German automaker Volkswagen announced that the company had taken a significant step in guaranteeing the future of its aggressive EV production targets by locking in a long-term upstream lithium supply deal with China’s Ganfeng Lithium. According to Volkswagen, this agreement will provide the foundation for the company to introduce 70 EV models over the coming decade. Interestingly, Tesla and BMW are the only other original equipment manufacturers outside of China to have directly secured upstream lithium supply contracts to date.
4. Where is Canada in the production of battery metals and where do you see it in the coming years?
Canada plays a very important role in global electrification as it offers several critical components required to fuel future EV production. Notably, Canada is a vast country with a rich mineral endowment including some of the largest undeveloped and underdeveloped nickel sulphide and cobalt reserves and resources in the world. Canada has the potential to significantly contribute to global mined supply of battery metals and has a long and successful history of mineral development and a well-earned reputation as a leader in mining and mine development.
Canada is also a leading global centre for mining finance. Canada was ranked as the safest place to invest resource capital and secured over US$1.1 billion in mineral resource investment in 2017, more than any other country. Combined, the TSX and TSX Venture exchanges list approximately 50% of the world’s public mining and mineral exploration companies, more than any other exchange in the world. And, more than $189 billion of mining equity was traded on these exchanges in 2016, representing the largest share of global mining equity financing. As a battery metals streaming and royalty company focused on cobalt and nickel, we view Canada as an ideal location to invest in exploration projects and mines producing battery metals such as nickel and cobalt.
5. Besides Cobalt, what materials are Cobalt 27 most interested in and why?
Cobalt 27 is focused on identifying, evaluating and investing in the best nickel-cobalt projects and operations outside of the DRC. In particular, Canada’s large and relatively underdeveloped nickel sulphide deposits where Cobalt 27 holds a 32.6% cobalt stream on the US$1.7 billion underground expansion of the world-class Voisey’s Bay Mine located in Newfoundland and Labrador. Cobalt 27’s acquisition of US$300 Million Voisey’s Bay cobalt stream will result in Cobalt 27 receiving 32.6% of cobalt production from the mine beginning in 2021, to deliver approximately 1.9 million pounds of cobalt per year to Cobalt 27, to be settled in physical delivery for the life of the mine.
Additionally, the company holds a 1.75% NSR royalty on the Dumont Nickel-Cobalt project one of the largest undeveloped nickel-cobalt reserves, located in the mining friendly jurisdiction of Quebec, which is expected to reach commercial production around 2020; and, a 2% NSR royalty on all future metal production from the Turnagain Nickel-Cobalt Project, located in northcentral British Columbia, which is among the largest undeveloped nickel-cobalt sulphide deposits globally.
Also, in May 2019, Cobalt 27 closed its acquisition of Highlands Pacific (ASX: HIG), to create a leading high-growth, diversified battery-metals streaming company. Highlands’ key asset is its 8.56% joint venture interest in the Ramu mine, a large, long-life, low-cost nickel-cobalt operation located near Madang on the north coast of Papua New Guinea. Ramu was financed, constructed and commissioned in 2012, by majority-owner and operator Metallurgical Corporation of China Limited, for US$2.1 billion which, at the time, was China’s largest overseas mining investment.
In 2018, the Ramu mine achieved record annual production of 35,355 tonnes of nickel and 3,275 tonnes of cobalt. . Cobalt 27’s acquisition of Highlands implies an increase in attributable production to Cobalt 27 to over 600,000 pounds of cobalt and over 2,900 tonnes of nickel per annum. Upon repayment of Highlands’ attributable partner loans and increased interest in Ramu to 11.3%, implied attributable production to Cobalt 27 increases to over 800,000 pounds of cobalt and over 3,800 tonnes of nickel per annum.
