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April, 2019 6:35 PM



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ASX Cobalt Miners for Your Radar

ASX Cobalt Miners for Your Radar

By Bob Kohut 21.08.2017


A time-honored investing strategy involves “reverse engineering” a red-hot product to determine the components going into its manufacture.  The theory is investing in a manufacturer of one of the components opens the door to greater returns than a comparable investment in the manufacturer of the product, whose stock price is likely to be high.

Investors salivating at the prospects of Electric Vehicles (EV’s) displacing the more than century old basic Internal Combustion Engine (ICE) are aware the key to that future is battery technology.

The latest advances in battery technology have led to the dominance of the Lithium-Ion battery, sending investors around the world in search of lithium miners.  Those with the time and temperament for research know there are three components to a Li-Ion battery using different metals/minerals.  The following diagram is from an October 2016 article appearing on the website visualcapitalist.com entitled The Critical Ingredients Needed to Fuel the Battery Boom illustrates the components.


Graphite is the dominant material in the anode, making graphite miners potentially rewarding investments.  The cathode is where the hope for the future rests as it is here where experimentation with different materials and combinations of materials can make the greatest impact on performance.  The next diagram, from the same site, highlights the type of batteries currently in use in the world’s dominant smartphone, the iPhone, and two competitors in the EV marathon.


US based Tesla Motors has become the global poster-child for EV’s.  The company’s original models used a Lithium – Nickel/Cobalt/Aluminum cathode –Li-NCA.  As of this writing the company plans to use this configuration in their planned storage batteries for backup power for the electric grid, where daily charging is not an issue.  For the new Model 3 and beyond the company is shifting to the Li-NMC (Lithium-Nickel/Manganese/Cobalt) formulation.  The cathode in Apple iPhone batteries currently consists of 100% Cobalt Oxide – LCO, or Lithium-Cobalt Oxide.  Note that three of the four highlighted battery configurations make use of Cobalt.

Experts tell us about 94% of the world’s cobalt supply comes as a by-product of copper and nickel mining operations. Most mining operations involve extracting desirable minerals/metals from rock formations.  Prior to the appearance of EV’s as a viable means of transportation, cobalt was not in high demand, resulting in copper and nickel miners rejecting the costs of extraction.

The following diagram from a report for Canada-based Tenke Mining Corp prepared by Perth-based engineering firm GRD Minproc Limited represents copper mining, but the processes for nickel mining are similar, if not identical.


The mining decline a few years past led giants like Glencore to suspend cobalt production at is Katanga mine in the Democratic Republic of the Congo (DRC) with other producers following suit in their own copper and nickel mines.

The expectation of an exploding market for cobalt in EV batteries has led to an explosion in the price of cobalt, artificially inflated in part by speculators and hedge funds buying up supply and warehousing it for future sale. Here is a five-year price chart for cobalt from InfoMine.


Skeptics, including US-based investment bank Goldman Sachs warn that the return of Glencore’s Katanga mine could drive down the price of cobalt.  Proponents of cobalt point to China’s EV market where cobalt is not in common use.  The country’s goal of 5 million EV’s by 2020 is pushing manufacturers to shift to the increased power capacity available with Li-NMC batteries. 

Bloomberg New Energy Finance is forecasting substantial growth in demand for cobalt.


There are a growing number of ASX junior miners looking to take advantage of the market potential of cobalt. Although these are highly speculative plays at best, investors would do well to watch the emergence of best of breed.  Stability is a major reason to consider this mining sector.  Right now, approximately 65% of the world’s supply of cobalt comes from a country considered high risk – the DRC. Global investors are keen to find more stable sources of supply.  

The following table includes ten miners listed alphabetically either flagshipping cobalt projects or holding potential cobalt resources from flagship copper or nickel mining operations.


Whether any of these companies can reward investors is an open question.  What is certain is the potential. The following illustration from resource investment research firm Rockstone Research highlights the world’s cobalt reserves by country.  


In February of this year Heron Resources Limited (HRR) spun off its non-copper assets into Ardea Resources Limited (ARL), including the Kalgoorlie Nickel Project.  This once active mining operation with Heron partnering with Brazil’s Vale reportedly ranks as having the largest cobalt reserves on the planet.

The company commenced drilling in March and plans to complete a pre-feasibility study by January of 2018. Early drilling results confirmed high-grade cobalt and nickel mineralisation at the project.

In addition to the Kalgoorlie Nickel Project (KNP) the company has the Lewis Ponds zinc/gold/silver project, but it is the cobalt extraction potential from the KNP that commands the company’s focus and investors’ attention.

A recent company presentation claims all lithium batteries will eventually use cobalt in their cathodes, with Toyota’s lithium cobalt pyrophosphate cathodes a potential game changer in battery technology, with production to commence in 2022.  Ardea claims it has its own game-changing technology for the extraction process – an acid leach achieving a 98.7% metal extraction rate.  

The dramatic share price rise is somewhat surprising given the company does not expect to commence a bankable feasibility study until the second quarter of 2018.  However, the size of the reserves and the 100% project ownership may be uppermost in the minds of investors.

Archer Exploration (AXE) could narrow its focus closer to a pure-play battery stock, with mining assets in graphite, manganese, and cobalt.  In addition, the company has a collaborative arrangement with the Australian Research Council (ARC) on the development of graphene, a graphite based material likely to find its way into the EV battery technology race.  However, the company also has magnesite projects as well as copper and gold. In early August Archer found both gold and copper in its Blue Hills Copper project.  The company’s cobalt/magnesite assets are in very early stages, with plans for further exploration yet to be developed.  Archer has entered into a joint venture agreement with Cobalt Bull Pty Ltd (CB) to fund further exploration.

Anson Resources (ASN) may be the smallest stock in the table, but the company is a pure play mining company focusing on minerals/metals needed for energy and technology of the future.  The company has lithium brine, graphite, and cobalt assets, with the current focus primarily on the lithium operation located in the US in the state of Utah.  Anson embarked on an aggressive development program in March of this year, as the assets in Utah – the Paradox Brine Project – are located within an 11-hour drive of the Tesla Giga Factory, already in production but far from fully operational.  Preliminary drilling and rock chip sampling at the company’s graphite project yielded positive results.  Anson’s Hooley Wells Nickel-Cobalt Laterite Project is not getting much attention from the company as of this date.  Archer and Anson may be lagging Ardea in share price due to Ardea’s commitment to its cobalt operations over the zinc/gold/silver assets.

Barra Resources (BAR) is primarily a gold miner but the company does have 50% ownership of the Mt Thirsty Cobalt-Nickel Manganese project with Conico Limited (CNJ), with Conico assuming the role of project manager.

A study by Perth based metallurgical and engineering consultants Simulus claims the relative ease of processing nickel deposits from the project could make Mt Thirsty the fourth largest cobalt producer in the world.  The sites formation also allows for extraction without blasting.  A scoping study is underway but the consultant report already pointed to a major advantage of this project – the resource structure lends itself to easier processing.

CleanTeQ Holdings (CLQ) has developed a proprietary technology that can be used to improve the leaching of ores and is actively pursuing suitable projects for this technology.  The company is already developing the Syerston Project which the company claims has “one of the highest grade and largest nickel and cobalt deposit outside of Africa”, along with scandium deposits used in lightweight aluminum alloys.  

CleanTeQ acquired the project from Ivanhoe Mines in 2014 and now has a processing plant using its technology for deposits from Syerston but is actively seeking other sources of nickel and carbon offtake as part of the feasibility study, underway with expected completion in the fourth quarter of 2017.

Cobalt Blue (COB) and its Thackaringa Cobalt Project was spun off from Broken Hill Prospecting (BPL).  While some market experts point to Cobalt Blue as a true pure play, investors are less enthusiastic about this company in comparison to CleanTeQ and Ardea. 
 
However, the Thackaringa is yet another yet to be developed resource with the reported potential to climb into prominence as one of the top five cobalt producers in the world.  As is the case with the others on the list, needed infrastructure is available.  Investors might be focusing on the details of the terms of the spin-off agreement with Broken Hill.  Cobalt Blue will not secure 100% control of the project until 2020.  As of right now the company has a Farmin Agreement with Broken Hill at 51%, meaning Cobalt will run the project with Broken Hill earning 49% of whatever revenues may be produced until 2020.  

Corazon Mining (CZN) is in a trading halt pending an announcement regarding a capital raise to fund exploration in its two cobalt projects – Mount Gilmore here in Australia and the nickel/copper/cobalt project at Lynn Lake in Canada.

The company is an 80% owner of the Mount Gilmore Cobalt-Copper-Gold Project.  Initial testing suggests high grade cobalt deposits and the company expects to begin drilling in September of 2017.

Lynn Lake was a major nickel producer in Canada from 1953 until 1976.  Corazon acquired Lynn Lake in 2010. 

Havilah Resources (HAV) is a gold, copper, and iron ore miner with a single copper/cobalt asset at Mutooroo in South Australia, with a low priority in the company’s development plans, ranking third in strategic planning as the company is committed to maintaining a multiple metal mining strategy.

There are other miners on the ASX with cobalt operations in the DRC – Nzuri Copper (NZC) and Tiger Resources (TGS).  Finally, venerable ASX blue chip BHP Billiton (BHP) could be tempted to add cobalt extraction to their substantial stable of copper and nickel mines.



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