Cobalt, a key component in batteries for electric vehicles, has seen its price more than triple over the last two years. A new report by Bloomberg New Energy Finance analysts highlights that cobalt shortages "are likely earlier than previously forecast and the issue poses a potential challenge to EV sales over the coming five to seven years."
The report also notes that the looming cobalt supply crunch "poses one of the biggest threats to forecasts for rising electric vehicle adoption."
"We anticipate a re-rating as eCobalt delivers its updated feasibility study and a financing package for development." - Eric Zaunscherb, Canaccord Genuity
Most cobalt is produced in the Democratic Republic of the Congo, where political instability, child labor and other issues provide challenges for end-users. As a result, manufacturers are searching for ethically sourced cobalt, and eCobalt Solutions Inc.'s (ECS:TSX; ECSIF:OTCQX; ECO:FSE) mine in Idaho may be in the right place at the right time.
The company's Idaho Cobalt Project is located in east-central Idaho. Cobalt is the primary product, which makes it rare among cobalt mines as most cobalt is mined as a byproduct with copper or nickel. The Idaho Cobalt Project deposit also includes some copper and gold. The project has received all its environmental permits and has its Plan of Operation from the Bureau of Land Management (BLM).
eCobalt released a Feasibility Study (FS) last September. The study is based on an underground mine with a target production of 800 short tons per day and a "weighted average annual production of 2.4M lbs of cobalt, 3.3M lbs of copper and 3,000 oz of gold over a 12.5 year mine life with an estimated pre-production period of 24 months utilizing a 0.25% cobalt cut-off grade." Using a 34% corporate tax rate and 7.5% discount rate, the economic model results in an "after-tax NPV of $135.8M and an IRR of 21.3% using an average base case price of $26.65/lb for contained cobalt in cobalt sulphate."
The company is now preparing an optimized feasibility study, based on the production of a clean cobalt concentrate, which is simpler to produce and will result in a lower CAPEX and OPEX. The optimized feasibility study is due to be released this quarter.
Pre-construction efforts at the project are moving ahead. In April, Paul Farquharson, president and CEO of eCobalt, noted, "As we prepare for underground mine development, capital raised from our recent financing is being deployed on pre-construction activities as planned. Delivery of the water treatment plant components has commenced, and we have awarded contracts to construct the plant starting in May."
eCobalt continues to add to its resource base. Late last year, eCobalt announced that drilling had expanded the resource at the Idaho Cobalt Project; intercepts were above the resource grade cut-off.
The company is in discussions with potential offtake partners.
"All eyes are focused on ECS as it remains the only advanced-stage, near term primary cobalt developer in the US." - David Talbot, Eight Capital
eCobalt recently closed a bought-deal financing, issuing 23 million units at $1.30 per unit for gross proceeds of $29.9 million. Each unit consisted on one common share and one-half of one common share purchase warrant; the warrant exercise price is $1.95 for an 18-month period. TD Securities led the offering, which BMO Capital Markets, Canaccord Genuity and Eight Capital participated in.
The company has about 160 million shares outstanding, and 185 fully diluted. As of March 31, it had working capital of $35.4 million and no debt.
Several industry analysts have eCobalt on their radar screens. Eric Zaunscherb, an analyst with Canaccord Genuity, wrote on April 23 that "the optimized feasibility study is on track for delivery in Q2/18 in preparation for full construction ramp up this summer."
He noted, "We anticipate a re-rating as eCobalt delivers its updated feasibility study and a financing package for development." Canaccord has a Speculative Buy rating on eCobalt and a CA$1.80 target price. The stock is now trading at around CA$1.33.
David Talbot, an analyst with Eight Capital, wrote on April 23, "We recommend eCobalt Solutions Inc. as a BUY with a $2.50/sh target price."
"All eyes are focused on ECS as it remains the only advanced-stage, near term primary cobalt developer in the US. Recent updates contemplate new end products, environmental improvements & improved economics as we await a Feasibility Study Update," Talbot stated.
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Disclosures from Canaccord Genuity, eCobalt Solutions Inc., Flash Update, Apr. 23, 2018
Analyst Certification: Each authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) the recommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent and objective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoring analyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the authoring analyst in the research.
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