Jervois Mining (ASX: JRV) – Cobalt Has Been “CRUSHED.” Now What?

The Jervois Mining Limited company logo
Jervois Mining Ltd.
  • ASX: JRV
  • Shares Outstanding: 642M
  • Share price A$0.19 (14.05.2020)
  • Market Cap: A$122M

Have a watch of our recent interview with Bryce Crocker, CEO of Jervois Mining (ASX: JRV).

Jervois Mining is an ASX-listed mining company with a focus on cobalt, but with significant exposure to nickel and copper. Jervois Mining has assets in Uganda, Australia, and the United States (the main focus).

Crocker was incredibly honest during our interview. He is clearly aware that COVID-19 has thrown a spanner in the works of the EV revolution, especially on a consumer level: will they even be able to buy cars after this crisis is over?

The EV market is already relatively small (2M) compared to conventional gasoline vehicles (100M), but Crocker thinks that the position of his cobalt assets, in America rather than the unstable DRC, could be highly advantageous. Will the U.S. government see cobalt as a strategic commodity? This has been touted before, but it remains to be seen. Will green energy and, therefore, cobalt, win the day?

We Discuss:

  1. Company Overview
  2. Grim Outlook for EV Revolution: Predictions Post-COVID-19
  3. Jervois Mining: Survival Tactics Involving the US
  4. Green Mining to Prevail: Hope for EVs
  5. BFS Completion Timeline
  6. Negotiating Deals at Present or Waiting for the Pandemic to Pass?
  7. US & Cobalt: Outcomes of Nationalisation
  8. Contributing Value to Jervois Mining: What Takes the Cake?
  9. Plans for Non-Core Assets: The Future
  10. On Listing in the US

Company Website: https://jervoismining.com.au/


If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

The Jervois Mining Limited company logo

Jervois Mining (ASX: JRV) – Thought that was always the plan (yeah) (Transcript)

The Jervois Mining Limited company logo
Jervois Mining Ltd.
  • ASX: JRV
  • Shares Outstanding: 642M
  • Share price A$0.19 (14.05.2020)
  • Market Cap: A$122M

Interview with Bryce Crocker, CEO of Jervois Mining (ASX: JRV).

Jervois Mining is an ASX-listed mining company with a focus on cobalt, but with significant exposure to nickel and copper. Jervois Mining has assets in Uganda, Australia, and the United States (the main focus).

The company is hoping to benefit from the much-discussed and much-distressed EV revolution by producing raw battery materials. COVID-19 appears to have put a real spanner in the works of the EV thematic, though Crocker suggests the US government is viewing cobalt as a strategic commodity, and Jervois Mining could benefit.

Crocker paints a “profoundly negative” picture of the impact of COVID-19 on EV global supply chains. COVID-19 hasn’t just compressed cobalt demand, “it has DECIMATED it”. China was down c.80% in Q1/20 and the West is down 40%-50% in Q2/20. Some companies are losing as much as “US$100M per day.” There is no positive scenario near-term. Crocker expects a massive “dislocation” of the supply chain across 2020, and says people aren’t expecting it.

How does Jervois Mining plan on taking advantage? Do its hopes lie in the hands of the US government? Government subsidies for EV manufacturers are starting to flow back in, but they have been crushed because their export markets are off; this is particularly true of China. It’s also very difficult to be bullish when it comes to aerospace right now. Who knows when the airline industry could recover? There is a lot of uncertainty right now.

Crocker claims cobalt is a unique commodity, with 75% of cobalt coming out of the unstable Democratic Republic of Congo. The supply chain looks incredibly fragile as it is, and COVID-19 has worsened problems. The major mines in the DRC are still operating. Some borders are still open, but the border with South Africa is closed, and the border with Zambia is an “unmitigated disaster,” with queues stretching as far as the eye can see. The cobalt mines are stockpiling aggressively, and a lot of the highly-technical major projects are being canceled because of key minds being repatriated. The outlook for cobalt is very binary as to what is going to happen in the DRC. Crocker expects to see COVID-19 peak in the region in the first few weeks of June. Cobalt investors will need to keep their eyes peeled. The impact could be “profound.” COVID-19 is going nowhere in the short term, and the DRC already has logistical issues: the cost of trucking copper and cobalt out of the country is US$300/t.

Crocker is actually very happy with Jervois Mining’s own position in a stable jurisdiction with a “half-built” cobalt project. He has always claimed the US is the most strategic market in the world for cobalt, and claims the country is fast catching up China. The US has no domestic cobalt mines, and Crocker thinks it is timely for Jervois to be at the forefront of this.

Cobalt has always been of geopolitical importance to the US, and now it is even more so. Crocker expects green mining to prevail as the US government tries to create jobs in 2020. Crocker remains coy on the government’s plans for possible nationalisation, but claims cobalt is “up there” because of its importance to aerospace and critical industries.

Crocker expects the BFS by the end of the year. It’s nearly finished, there are just a few things to sort on the offtake side (metallurgical test work). Travel restrictions have caused delays. Jervois Mining has c. US$7M cash to see the company to midway through 2021. Away from Jervois Mining’s core Idaho assets, Jervois has been clear it wants a partner to form a JV for the Nico Young nickel-cobalt project in Australia. The rest of the projects will have their day in the sun, but right now there is an emphasis on keeping a tight balance sheet. This seems sensible. A Tanzanian acquisition is also on the cards.

We Discuss:

  1. Company Overview
  2. Grim Outlook for EV Revolution: Predictions Post-COVID-19
  3. Jervois Mining: Survival Tactics Involving the US
  4. Green Mining to Prevail: Hope for EVs
  5. BFS Completion Timeline
  6. Negotiating Deals at Present or Waiting for the Pandemic to Pass?
  7. US & Cobalt: Outcomes of Nationalisation
  8. Contributing Value to Jervois Mining: What Takes the Cake?
  9. Plans for Non-Core Assets: The Future
  10. On Listing in the US

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Bryce, how are you doing, Sir?

Bryce Crocker: Matthew,I’m well. How are you?

Matthew Gordon:  Not too bad. Not too bad. Surviving. What’s that bike in back? I meant to ask you. What’s that bike in the background? You look like a serious road bike kind of a guy.

Bryce Crocker: That bike is a specialised brand; a bit of free advertising, but it is a lot more technically advanced and capable than its jockey.

Matthew Gordon: Blimey. That seat looks terrifying. That’s the thing I would say to you, not sure I could cope. Right, why don’t we kick off with a one-minute overview of Jervois mining then I will pick it up from there?

Bryce Crocker: Yes, thanks. We are ASX-listed and we are excited to be a creating battery raw materials company, a producing battery raw materials company. We are focused on security of supply chains, supporting the rest of the industry which has clearly become more topical in recent weeks and months with the unfortunate arrival of COVID and the impact on global supply chains.

So, we are a group of executives who came from larger mining companies, and I guess, what I wanted to cover today is that we don’t typically talk about the commodity; but I did want to talk about Cobalt because it is very interesting, and if you look across all of investor presentations, you will see nothing in Cobalt and nothing in any of our statements, but it is an area where collectively as a team, we do have a lot of background. We do look at what we have as a competitive advantage, and it is. It is fascinating what has happened.

Matthew Gordon: I think we both want to talk about the same thing actually, because we talked to you previously about the company and where you are at, and we will get on to that but I wanted to talk to you specifically about what you think is happening, because of COVID-19, how you think it is going to affect buying behaviour, investment in the EV thematic, which obviously you play into with your Cobalt. What do you think the impact is going to be on all of that?

Bryce Crocker: Profoundly negative. Profoundly negative. Anyone who gets up and says otherwise doesn’t understand the physical dynamics of what is happening in the market and hasn’t really thought around what the implications are. I think Cobalt, it is interesting for a couple of reasons; I mean demand, it is not weakening – it is getting crushed. Completely decimated. I’ve never seen anything like it. You have got China orders, probably down 80% in Q1/20. All of the Western order makers: 40, 50% in Q2/20. Most of the big oil producers losing USD$100M per day, per day. And so you have had, from a supply chain perspective, you have had this massive disruption and we are just really at the start. And I think this is where this is interesting, if you look at what is going to play out over the next 3 to 6-months. We are really at the start of this process because COVID-19 from a supply perspective has really just started. We have got customers who aren’t buying or can’t buy because they are locked in their homes. Manufacturing facilities that are shut. So, if I am a steel mill, and I am getting ferronickel, ferrochrome, ferro cobalt – all of these deliveries, I don’t want that. That’s getting pushed back to the traders who are pushing back to the producers, and this shock is getting pushed through the system and is going to take time to flow through.

 But if you look at what is happening to end demand on Cobalt, I mean, electric vehicles, there’s no positive scenario in the near term as to what is happening for EVs, clearly. Orders are being crushed. But as you look forwards, I do think that the Chinese are trying to come back on. Their biggest challenge, from what I understand, is that really their export markets are off. They are trying to turn their economy back on, get those order flows to try to start again. They are obviously, again, it is the incentivisations, the government prioritisations for electric vehicles, that’s flooding back in.

But any way you look at it, electric vehicles, the numbers are fluid but it is going to be a significant, significant reduction. Even over last year, and we are talking growth rates that have gone. So that’s the bad news on EVs. But is that a structural, permanent shift? I can’t talk about that. I don’t believe so, but it is going to create a massive dislocation in the supply chain across 2020 that people weren’t expecting.

 So that’s on the electric vehicle side, which is obviously Cobalt Chemicals, Cobalt metals – aerospace: it’s pretty hard to be positive on aerospace right now. I would suggest that this is 30% to 40% down. Oil and gas – it is pretty difficult to be positive on oil and gas type exploration drilling, so cobalt gasses etc.

So, demand is bad, but I think, taking away from that, Cobalt is kind of unique because you have three quarters coming out of one country that is highly unstable so, we all hope that Africa, including the Congo, gets through COVID. We are sitting in a part of the world where we are relatively very fortunate. There are some other parts of the world that don’t have the health infrastructure. The majority have immunocompromised complications because of HIV which don’t have the efficiency of the governance, perhaps, that we are able to rely on in the West. We are all hoping that Africa holds together as a continent, particularly the DRC because there is no safety net in the DRC if something goes wrong. But clearly, with three quarters of the Cobalt coming out of the DRC, for context, it is twice the size of OPEC on the oil market, so, it kind of matters.

In terms of what we are seeing and hearing on the DRC, the major mines are still operating. Some of the smaller ones: KiPOI*, Isoko, Kisavari are shut. But the big mines, the Katanga’s, TENKE’s etc, they are continuing to operate. The border currently is back open, obviously you have two borders to get the product out of the DRC: you have got to get through Zambia then you have got to get across from Zambia to South Africa. South Africa is shut, so the port of Durban is shut. There is material coming out to the east, through Dar es Salaam, material is coming out from Mombasa, traders are using alternate exit routes.

For the trucking, I mean, if you have ever been to the DRC, the border with Zambia is an unmitigated disaster at the best of times: just queues stretching as far as the eye can see and a lot further. So that is obviously there now. You do have Sulphur and Lime and consumables coming across. The mines in the DRC are stockpiling aggressively on the expectation that there could be some disruptions. Expats are gone. In a simplistic and broad statement, but a lot of expats with their families in South Africa, they didn’t want to be sitting in the DRC, so a lot of the critical technical expertise, major projects are being cancelled.

So, I think it really depends. So, the outlook for Cobalt is very, very binary to the situation in the DRC. They are behind us. The advise that I have seen is that the COVID-19 peak is coming; you are looking at June, week 1 June, week 2 June, in terms of when it is likely to genuinely flow through. Clearly, the potential market impact is profound. Cobalt, Metal Bulletin SG grade is trading at about, I think, around USD$14/lbs, USD$15/lbs, so that is inconsistent with demand getting completely destroyed. If you look at what has happened in the oil market, obviously, that shows what happens when demand disappears, which illustrates with the Cobalt market, there is this uncertainty there about what is going to happen in the DRC.

The Chinese refineries have inventory for now, but that inventory is not going to last multiple months. There’s material obviously sitting in Durban, which is waiting to get out, as and when the ports open again. But COVID-19 is also not going to go away. One of the greatest challenges of the DRC is logistics. It is one of the most painful places to get consumables in and to get a product out anywhere in the world. It will probably cost you USD$300/pt to get it out on the back of a truck; whether it is Copper, Cobalt hydroxide.

Zambia has installed a 14-day quarantine period, so if you are a truck driver, you come in from South Africa, you get a 14-day quarantine period upon entry to Zambia, you go into the DRC, you come back, you get another 14-day quarantine period. Trucking delays are probably up only 2 to 3-days currently. There is no shortage of guys wanting to drive the trucks, for now.

If South Africa, Zambia and particularly the DRC, they are different, there is potential for social unrest in the event of these big mine closures, clearly, to use the artisanal supplies as an example, people aren’t mining, you don’t get women and children mining artisanal Cobalt because they choose to do that versus open a corner stall selling clothes, they are doing that because it gives them the option to put food on the table. Many people are working at the big mines; they are big employers. The social implications of these sites shutting is profound. I don’t profess to have a crystal ball. I don’t know which way it is going to go but the potential market dislocation is obviously enormous.

What is highlighted in our conversations with other ERMs and other end-users, clearly the DRC has been there and people have been uncomfortable with certain aspects of the DRC, whether that is governance, whether that is the artisanal mining, for a long time, but now they are looking at the security of supply chains and realising that this really is a profound risk to their business. Being reliant on a critical component for electric vehicles, or for steel production from a part of Africa which is obviously a long, long way from you having the confidence that you are going to get the product that you need on time.

Matthew Gordon: Okay. That’s a fairly devastating picture you are painting with regards to, obviously, demand, which, as you say, you are not quite sure when that kind of comes back on because it is a kind of slightly dislocated logistic supply chain at the moment. So, if the Chinese come on earlier than the rest of the world, we are sort of playing catch up there. I know that you were talking about Cobalt in the DRC because Cobalt is a big part of the DRC economy. Can I just ask, before we get onto you, what do you think it is going to mean for the other battery commodities: the Nickels of this world, the Lithium, the graphites, et cetera. Are they as disrupted as Cobalt?

Bryce Crocker: No commodity has 3/4 of supply coming from one country. Clearly, Indonesia is incredibly important for the Nickel market, and clearly other countries are important for Lithium. I don’t pretend to know as much about the Lithium market, but from what I see, there was an expectation that Lithium was in over-supply before this began, so that kind of implies that Lithium is in for some challenges.

Lithium ion batteries, the components are subject to discrete market forces. Nickel is going to be a core component of the battery, moving forward. Everyone wants a car that is going to go a long way and gets there quickly. That’s obviously a big part in what is going in with the success of electric vehicles because everyone wants to get there quickly and get there fast and gets there safely, hence the significance of Cobalt. If Cobalt was easy to engineer out, we wouldn’t be having this discussion. There have been a lot of smarter people than I am, looking at this for a long time, but as of today, it hasn’t been possible to engineer out in a way that provides the same performance et cetera, as an 8.11 or one of the high-Nickel NCA chemistries, Panasonic, Tesla’s…

Matthew Gordon: Okay. Well, I guess the whole EV market is going to be dependent on the lowest common denominator coming through, and you are suggesting that is Cobalt, because of the dynamics in the DRC. So, let’s get back to you; what are you going to do about that? How is that going to affect your business? Because we have been reading about your and talking about your Idaho business. There has been lots of conversations about conversations that you have been having in the US with US funders. Is that your route out of this?

Bryce Crocker: Well, if you gave me a choice of, in this type of environment, what mining project would you like to have? I would take a Cobalt project in the United States with moderate capital, that is half-built. That is, as opposed to other alternatives that I could have on my plate, that is not bad. I think that I’ve always said that the United States is the most strategic market in the world for Cobalt, period. Because of the importance to aerospace, because of the importance to the steel industry and increasingly, because of the importance of electrification. The US automakers have been behind those in China but they are catching up fast, or they are planning to catch up quickly. I think that being in the United States, the United States has no domestic Cobalt mining, it is all imported, so, for us to be at the forefront of that is obviously, it’s timely and I think it does provide an opportunity.

If you look, Cobalt was always geopolitically important to the United States, now you are in a situation where anything you can do to create economic growth and jobs in the second half of 2020 and into 2021 in the US is going to be enormously important. I mean, we are all seeing the news out of the States. We are all seeing the levels of unemployment rising at quite terrifying rates.

We are already getting traction with what we want to do. Now, I think there is an opportunity to really have a profound impact and build a mine during a period when the US and Idaho is looking to create economic growth once we come out of this situation.

Matthew Gordon: It sounds logical, but it is also enhanced, I guess, by this wave of nationalism which is spreading across the US; US first. We have also read about the support that you are getting for this. You say that this is timely. This is absolutely timely for you. You have recently submitted some RPFs, is that right?

Bryce Crocker: So, this is in terms of our debt financing process. We are working the site pool with potential lenders. We will be finalising the bankable Feasibility Study for Idaho shortly to provide that to the banks on an NDA level, so they get an updated financial model. We did provide indicative term sheets in January. We have made a decision at that time not to make a final appointment. We want to progress the PFS and get to the position where we can really differentiate between the options that are available.

This is an asset which, there has obviously been USD$100M which has been spent so it is a part-way constructed mine in a great jurisdiction. Clearly, I mean, the capital markets, I spoke a little about what has happened in terms of industry on the supply chains. Capital markets, again, they have lots of volatility, but equally, lots of liquidity getting pumped into the system, I guess. USD$10Tn between fiscal injections in the US and monetary easing, certainly that is having an impact in terms of debt capital markets remaining open and banks willing to lend. And clearly you will have seen an impact in terms of what’s happened to the Dow in terms of the last 30 days or so,

So, I think as we move forward, we have moderated the timeframe because we didn’t think it was the right time to be pushing someone to go through credit right now, just given the uncertainty. I mean, we are optimistic on the future. I am in transparent in that I think demand right now is crushed but I don’t expect that to last indefinitely. I do expect there are also going to be pushes that come out of this, if you like, like COVID-19, that are difficult to judge now. I think everyone in the city is getting to like having clean air with oil use being down by 30M to 40M barrels per day. People are going to Venice and seeing jellyfish – it is things like that. But I think that it is difficult to judge what the environmental flow-through will be in our governments when they come back on and revitalise the industry, are they really going to want to revitalise industry and reallocate their capital towards ICEE production rather than taking the opportunity to use it as, essentially, a step change on the EV side.

Matthew Gordon: Right, just tell me a little about the types of institutions that were submitting bids? Because if you look at people like BlackRock, I mean, that’s the one that people are talking about, they are segueing away from coal, they are segueing away from oil, and they are moving into and investing into cleaner and greener opportunities. So, are you seeing more of that? Or is it just the usual players?

Bryce Crocker: No, I think that ESG is a big deal. I mean, I know there is a debate between you and the companies you speak with. What does COVID-19 mean for ESG? Is it on the backseat for a period? My personal view is that I don’t think it will. I think that ESG is here; it is an important part of investing. It is in the matrix of any decision-making. Also, the electrification of vehicles is something that is fundamentally important, and I think that it is going to be a criterion, if we had a coal mine up in this part Idaho, we would be having very different discussions. We would be having discussions with many of the lenders, the commercial banks aren’t in the business of funding coal mines, and equally on the equities side, a lot of investors are also, I think looking at ESG. If you want to invest in Cobalt, you have either got to go to the DRC, which is very difficult within an ESG type framework, or a lot of the other projects are large capital, long lead time, high technical risk in varied jurisdictions, not without exception, but as a general rule, some of the better projects are located in more challenging jurisdictions than the developed world.

So, again, this is where Idaho is nice; I mean, it is small. You know, I like small, I like low-risk. It’s a good way to start a business.

Company Website: https://jervoismining.com.au/


If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

The Jervois Mining Limited company logo

5 Things You Need to Know about Class 1 & 2 and Intermediate Nickel (Transcript)

Nickel ore

Interview with Industry Commentator Mark Selby, CEO of Canada Nickel Company.

We catch up again with Mark Selby to get his take on investing in the Nickel market view our previous interview here. Fans of investing in the Electric Vehicle Revolution thesis will find this interesting. Some battery metals are on the up and others are not, why is that?

We discuss the Class 1 and Class 2 Nickel debate as well as the intermediate Nickel, and the amount of Nickel units required in the market. Investors new to Nickel may find the discussion around how to identify good investment vs. a lesser investment fascinating.

Do you know the difference between Laterite Nickel and Sulphide Nickel and why some investors won’t touch Laterite Nickel? And what HPAL plants actually cost and why some companies pushing that agenda may be about to fall off a cliff? As an investor you need to know what that entails.

Interview highlights:

  • 2:06 – Class 1 & Class 2 Nickel: Differences and Investor Concerns
  • 8:56 – HPAL Plants: Why Can’t They Be Built for Less Than $1B?
  • 12:39 – Red Flags and Differences in Grades: What to Look for When Investing in Nickel
  • 17:39 – Nickel Sulphate: What Should You Know?

Click here to watch the interview.


Matthew Gordon: I just wanted to say thank you very much for the piece you did last year, end of last year. We’ve had amazing feedback on that because it has helped clarify and expand people’s understanding of the Nickel markets and thanks for that, and you are probably seeing lots of different pieces of that now going out to the market too. I appreciate that. One thing we didn’t cover though was this Class 1, Class 2 debate. We said we would talk about it a little bit further. You kindly said yes to speak today. Why don’t we kick off – what is Class 1 and Class 2?

Mark Selby: Yes, so Class 1 and Class 2 refers to the type of Nickel product that gets produced. So, a Class 1 Nickel tends to be LME deliverable and meet a purity standard of 99.8%, or better. It gets used, you need it in applications like alloys, alloy steels, plating products, and then increasingly, that purity of Nickel will be required for Nickel sulphate into cars. Again, the key is the product, it doesn’t necessarily have anything to do with where it comes from, and I think that is one of the places where people get trapped up.

Class 2 is basically a Nickel-containing product that is less than 99%. That can still be used by a consumer and it doesn’t have a terminal market so the issue with that is, with an LME-deliverable product, if you can’t sell it to a customer, you can always drop it off at the LME and get the ‘LME  price’ that day for your product. Class 2 has to go to a consumer and so those products tend to have much more volatile premiums because there is not that terminal market like you have.

Matthew Gordon: So what do you mean by consumer? Because again, terminology in the industry is different.

Mark Selby: Sure, generally, Class 2 gets used in stainless steel and alloy steel applications where those processes have a robust refining step in the process so they can take materials that are less pure, or they are quite happy to have the iron that comes along with Ferronickel because they need iron to make stainless steel or make an alloy steel, anyways.

Matthew Gordon: Got it. So now we understand what they are, there’s a lot of conversation online and I think you alluded to the fact that perhaps people shouldn’t be expending as much energy worrying about whether it is Class 1 or Class 2, why do you think people are concerned first of all?

“The frustrating part for me is that there has just been so much air time on this Class 1 versus Class 2, and there are some really bad, to me, pieces of thinking that happen and get people distracted. What I think is the real issue is we need to make sure we have enough Nickel units, period, to meet the growth for stainless steel and to meet the growth for electric vehicles, going forward”

Mark Selby: Yes, I think where it has come down to is; yes, we will need lots of new Nickel to make Nickel-Sulphate batteries. And the Nickel that needs to go into those Nickel Sulphate, or the Nickel sulphate that comes with it, needs to have a very high Nickel purity to it.  That is true, but where people get tied up is that they then project that all the way back to that, okay, these types of deposits are only good for this type of application. At the end of the day, there’s basically three types of Nickel sources: there’s limonite ore, there’s saprolite ore, and then there is Nickel Sulphide ore. Limonite is what goes into the HPAL stream typically, Saprolite is used to make ferronickel and NPI, and then most sulphite ores, they make a Nickel concentrate and that then gets smelted and refined. The key piece of it is that each of those steps makes an intermediate product which can be smelted or refined into a whole range – it happens today and will happen even more so in the future because we are going to need a lot more Nickel Sulphate, so the Chinese are going to build way more capacity than the market needs, just like they do for every other product, and so there will be all this capacity to take an HPAL Intermediate, to take a Pyro-ferronickel Intermediate mat, or take Sulphide concentrate and turn it into 99.9% metal. Turn it into high-purity Nickel Sulphate. Turn it into Ferronickel if they need to, you know, again, you need to completely decouple the ore source discussion from the end product discussion.

Matthew Gordon: Right. Okay, so when I’m reading about people having discussions, debates, sometimes heated, online, about well; ‘I won’t invest in Laterites, I’ll only invest in Sulphites’, what you’re saying is that it doesn’t matter.

Mark Selby: Yes. It does not matter. There are today, more natural homes, and today, Nickel Sulphide processing has actually been a bit of an oligopoly between the very small number of Nickel smelters that exist, but the Chinese will build lots of capacity. Again, I’ve talked about, again, real world examples; in the Cobalt space, in 2003, China was 3% of finished Cobalt production. In 3 years, they were 30% of production, and in 5 years, they were 50% of production and that was basically taking bags of Intermediates and dirt, sometimes dug by children in the Congo, and turning it into a usable Cobalt product. It was a various range of Cobalt salts. And again, people get all excited about this Nickel salt premium, well, in a Cobalt market, because there is so much capacity to make salts in China, salts tend to trade at a discount to the metal, not a premium.

Matthew Gordon: That’s fantastic. That’s helped me understand it, certainly. There have been in the past, discussions about premiums on one versus the other, but you are saying, the way the market is setting itself up means that that is going to take that issue away as a concern.

Mark Selby: Yes, yes. And part of the reason that got some traction was because about 18 months ago, 2 years ago, yes, Nickel Sulphate prices at that time were trading at a about a USD$2,000 tonne premium to metal in China because, again, you had this surge in demand that started and the supply just hadn’t had chance to get going, you know?  Today, Nickel Sulphate premiums are recently, I haven’t looked this week, but Nickel Sulphate premiums in China were 0.  And that’s where I encourage investors again, don’t get caught up; if something is trading at a short-term very high premium or a short-term big discount, don’t extrapolate 3 months or 6 months and say that’s the long-term sustainable value for that premium discount.

Matthew Gordon: Well, hence, talking to people like you; you have been through a couple of cycles and understand the machinations of the sector, I appreciate that. Can we talk about HPAL? We’ve had so many people come back about your comment around HPAL, okay? Because some companies set themselves up and say we are HPAL ready – to use that term. You made a comment to us that the cheapest, well, the only and therefore the cheapest builder of an HPAL plant – it has cost them over USD$1Bn. So anyone who is telling you that it has cost them less to build than that, they need to have a pretty good reason as to how they justify that going forward, right? So that has obviously been what some companies, a handful of companies are saying about the market. It’s quite a big statement from you, and people have asked; where’s your certainty coming from? Why are you so confident that going forward, people aren’t going to be able to deliver a HPAL project cheaper than, say, USD$1Bn? 

Mark Selby: Sure. Okay. So where this comes to is, if you think about it, this is about USD$40,000 per tonne of installed capacity. So that is…the only company that has successfully done two HPAL plants is Sumitomo Metal Mining, and their costs to build those plants were between USD$30,000 and USD$40,000 per tonne of capacity, just to make an intermediate product that they shipped to their existing factory in Japan. So they are not going all the way to a pure Nickel Sulphate or a pure metal or a pure briquette, which is just additional costs that have to be built into it.

So this is the best case performer – number 1.  Number 2 -they are building these in the Philippines which is about, you know, lots of companies build modules in the Philippines because the construction work there is the highest productivity, lowest cost place in the world to build those things. So again, relative to Australia, relative to Europe, relative to Canada, the Philippines is a very low-cost place to build these types of operations. Unless the operation has higher grade than the operations that Sumitomo Metal Mining have built which is, you know, in the 1.3 to 1.4% range. And the reasons they built those ones were because the grade was pretty good. Two – unless it’s in a place that’s cheaper to build stuff than the Philippines, then, or that they have way more infrastructure, that may be one thing that may exist in those places relative to Sumitomo Metal Mining built their operations. But, that’s what you need to ask yourself to say, okay, do I believe this company’s capital cost number or not?

Matthew Gordon: Okay. That’s fair enough. What you have said to me and what I have heard there is that; don’t worry about Class 1 or Class 2, there’s an intermediate solution which is going to be coming into the market, it’s coming thick and fast. You are saying, worry about Nickel Units: there’s not going to be enough Nickel to cope with the demand for Nickel. So that’s a selling message. I want to help retail investors understand what are their red flags: so there’s a lot of…come on – mining is mining – people go around: there’s promoters and brokers and intermediaries, and they all go and loudly trumpet their story around the marketplace and it’s not always true and it doesn’t always come to be. So, what are the red flags around Nickel? What do companies need to have, or need not to have in place, because not all Nickel stories will work out. They are not all going to be economic. So, what do you look out for as an investor?

Mark Selby: So yes, as an investor, I think you know, one of the key things is scale and grade; you need, ideally, if you have got both those are fantastic.

Matthew Gordon: So what does scale mean? What do you mean by scale?

Mark Selby: That you can produce a sizeable amount of Nickel for a reasonable period of time, say, 20,000 to 30,000 tonnes minimum for at least 10 to 20 years. You know, that very quickly gets rid of a bunch of potential opportunities. You need to have, because again, there is the rare project that is at an extremely low capital cost, but at the end of the day, there is a chunkier enough amount of capital that is required to get into these operations. Now, if the grade is high enough, you can get away with smaller operations; so that’s the thing you need to look at. If you have both, so things like Nova-Bollinger, that was why it got acquired for USD$1.5Bn.

Matthew Gordon: Right.

Mark Selby: That’s why Voisey’s Bay was acquired for USD$5Bn. Because it was a big deposit that had a very high grade.

Matthew Gordon: So let’s talk about grade; you talked in the previous discussion about what is grade. What is low grade, what’s okay and what is high?

Mark Selby: Yes, so again, you would have to split that between underground and open pit. For underground, you know, 2 to 3% plus would be high grade and anything less than that would be low grade. For open-pit, high grade would be anywhere from 0.7 to 1%. Again, it depends on the strip ratio, anything lower than that would be lower grade.

Matthew Gordon: But lower grade can work if there’s enough scale to it?

“That’s what you need to ask yourself to say, okay, do I believe this company’s capital cost number or not?”

Mark Selby: Enough scale to make it work; which is what Dumont and then what we have at Crawford, that’s the key there, that there are just very large deposits in places with lots of infrastructure.

Matthew Gordon: So what else makes you nervous? You’ve got scale, you’ve got grade, what else is there?

Mark Selby: Yes, so the nature of the deposits – one. The other in terms of part 2 – the location of the project, so you know, again, political risk and infrastructure, right? Again, it is much easier and faster to build the mine if all the infrastructure you need to build it is actually already in place. So,   there are a lot of locations that are very remote that you have to spend money and time building the infrastructure before you can start building the mine. So that’s where you look at big Copper projects in the Andes, they cost USD$3Bn to USD$4Bn because you have to spend USD$1 to 2Bn to out in all the infrastructure and then you spend another USD$1 to 2BN just to build the plant, in places where there is infrastructure in place. So the benefit in a place like Dumont, or what we have at Crawford is that all the infrastructure is in place so you can just build the plant and the mill.

Matthew Gordon: Right. Without promoting your own company too much, just more generally, what do you think investors, when they are looking at the Nickel market, when they are hearing this EV story, what else should they be looking to avoid or what should they look for?

Mark Selby: Again, I think the market today is still tough for exploration and development stories. You really do – like where you are getting the premium valuations, if you look at some of the companies in Copper and Gold, in Columbia and Ecuador, is that they have this scale that will attract, that the Majors are willing to bid for, right? So they are really breaking out as a value category so again, as I think that investors are looking for opportunities as you want to look at, is it of a scale that is going to attract the bug guys that are going to write the big cheques that are going to make you, as an investor, a lot of money, right? That, I think, is key as you are looking for opportunities. If someone has been around for 30 to 40 years, unless there’s a really new take on it, again, the Majors probably looked at 10 years and then 20 years ago, 30 years ago, and they didn’t but it then.  So unless there is a really compelling reason as to why they should buy it now, they are really, probably not going to get there.

So that would be number one and then number 2, again, I think there is low capital, low, very quick kind of restarts, kind of Brownfield things, that you know, again, there was a track record of prior action, you don’t have to worry about, will the mine work? It’s worked a bunch of times before. And again, with the right team that has the experience to actually deliver it and has delivered it in the past, because they can generally get to free cashflow and use that to build the business as well. Those, to me, those are the two real paths to have a look at.

Matthew Gordon:  That’s really interesting. We have spoken to a few Gold companies, a few Silver companies, even a few Uranium companies who are employing that model. So you have got to have been there and done that before, as is the case in all of these individuals, but they are looking to get into production early.

Mark Selby: One of the things that again, in terms of this Class 1 and Class 2 and really around Nickel Sulphate, I think what investors need to be careful about is, you know, there is a lot of this talk about, ‘Oh, we’re just going to make Nickel Sulphate.’ I think there are a couple of important characteristics of Nickel Sulphate that people really need to be conscious of: so, Nickel Sulphate, you take a product, even that’s only 22% Nickel, so a lot of producers are taking a pure product and then making Sulphate which is a 22% product, or even most Nickel intermediates have a Nickel content that’s higher than 22%. So, you are downgrading the Nickel content and what you are shipping is a bunch of Sulphate molecules and some water. So, do you really want to do that 4,000 miles away from your nearest customer, right? Because all you are doing is you are adding a whole pile of costs to transport that material to the battery consumer.

Matthew Gordon: Okay. So you are saying –

Mark Selby: It’s better to ship the Intermediate closer to the market, and then process it close to where it is going.

Matthew Gordon: Got it. So it is Sulphates that are not necessarily as cost efficient, people may say. You need that all-in cost, as it were?

Mark Selby: Yes. Exactly. And so, and the other part of it too is that when you make Nickel Sulphate, one of the biggest cost components is to take the Sulphate molecules that are in solution and dry out the solution so that you crystallise it. So that requires a lot of energy, and again, in a lot of locations, energy is not cheap. Particularly because the first step, when you send it to the person that is going to upgrade it and turn it into a usable battery product, the dissolve it again. So, in terms of the overall value chain, it is a pretty stupid process to crystallise it, ship it and then re-dissolve it again. I mean, that’s what Nickel Iron integrated Stainless Steel was all about; they used to make Ferronickel, they would cool it, ship it, and the first thing the stainless-steel plant would do it melt it again, right? So the Chinese said, oh, that’s stupid. And I think you are going to see the same thing happen in the EV space; a lot of the downstream players are going to find a way and I know because we had discussions with them when I was at  RNC, they are going to look for ways to build onto their front-end plant so they can take a Nickel Intermediary directly into their plant, dissolve it once and make a final product that goes to the battery maker, car consumer who or however far down integrated they are.

The only time it really makes sense to make Sulphate is if you are already getting it in to solutions. So in an HPAL project, if you have leeched it, you haven’t built your plant yet to make it a high-grade product, in that case, maybe, if you are close enough to somebody, that might make sense to make Sulphate rather than a pure product. The other piece that all of these companies are going to deal with is that the purity restrictions on Nickel Sulphate are going to get stricter and stricter because all the car companies want to use more Nickel, because that’s what gives it the energy density. That’s what gives it the range.

Matthew Gordon: Right.

Mark Selby: The problem is that the Nickel is also the thing that makes the battery, in combination with a couple of other things, catch fire.

Matthew Gordon: Combustible, yes.

Mark Selby: So they are pretty concerned about catching fire. And so they have a bunch of systems that doesn’t happen. If you have random iron atoms or cobalt atoms, or other elements that are in the product, that complicates things. So, as we go from 33% Nickel to 50%, 60%, 80%, 90%, 95% Nickel, they want stuff that is as pure as possible into the process. So do you as a mining company want to continue to invest to meet the increasing quality standards that are going to exist going forward, and I think the answer to that is no. So there is Terrafame in Finland, they leach Sulphide ore and make a profit, and they were shipping an intermediate, for them to make a Nickel Sulphate plan to supply battery manufacturers in Europe – excellent idea, right? They have already got a very complicated chemical planet, making a chemical product out of the complicated chemical plant, that is okay because you need that expertise. For that scenario that made sense, but there are literally tens of other things I have heard of that just make zero sense to me. And again, to underscore with real world, not just Mark Selby’s opinion on stuff. Glencore runs Murrin pressure leach plant, you know, it’s an option for them and Glencore hasn’t talked to them about making Nickel Sulphate directly. They are quite happy to ship 99.8% briquettes to the end consumer who pays the premium for the briquette and then they don’t have to worry about the rest of the downstream process.

Matthew Gordon: I’m going to pick you up at a later date to talk about when you see things or companies that will worry you. I won’t get you to name names but I want to understand more about those. But, Mark, thank you very much for going through that with us. We have been reading with interest, people’s responses to your last piece. Thanks for that and thank you for today. Stay in touch. We should catch up soon about Canada Nickel because that is…when is that actually going to hit the market?

Mark Selby: Yes, we are in the final stages of the regulatory approvals.

Matthew Gordon: That’s always fun.

Mark Selby: We should be – oh yeah – we should be, we’re looking at hopefully the end of next week.

Matthew Gordon: Okay. Soon?

Mark Selby: We’ll be in a position to do that. We are in the final stretches there so next week or the week after, and again, we still need the very final from the regulators, but we are making good progress on that front. So hopefully, sooner than later.

Matthew Gordon: Well, we will look out for it; I’m sure there will be a press release on it and people will be able to start trading Canada Nickel in the next couple of weeks by the sounds of it.

Mark Selby: Yes. It will be a very exciting point in time.

Matthew Gordon: Well, come and give us an update. Sounds like a great project. I’d love to hear more. And thanks very much for your insight. Beautiful.

Mark Selby: Thank you, Matthew, glad to talk about Nickel.


If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Nickel ore

Scared About Investing? Read this.

More Of The Upside, Less Of The Down.

People have been putting their hard-earned cash into junior mining companies for decades. What exactly do these companies do with your money? They throw it into a hole and hope something good comes out. But let me be clear, investors can make a lot of money investing in mining companies if you know what to look for and are clear about your investment strategy.

An aerial photo of one of the world's largest mining holes, the Mir Mine in Eastern Siberia.
The Mir Mine in Eastern Siberia; is some of your money inside?

This article is for those investors who may be less knowledgeable about mining and nervous of miscalculating the risks. I would also like to introduce you to a very interesting business model within the current electric vehicle (EV) thematic which removes a lot of these risks for investors. 

First, let’s talk about mining risk. There is an ever-present risk factor that is inseparable from junior mining investment, and it is every investor’s most loathed buzzword: uncertainty. ‘Indicated resource’ and then ‘inferred resource’ estimates from preliminary drilling can become the flimsy foundation for investment decisions. Forming the top of this wavering base is the decision-making capacity of a company’s management team; they may have a promising asset, but without mitigating risk effectively, and employing an astute business plan or the appropriate strategy to deliver that plan, the asset can become uneconomical. Not only is the potential value of investment opportunities nebulous, but this value might not even be extractable. 

The truth of the matter is all junior mining operations have an element of luck. We are dealing with resources that are hidden underground, with a list of risk factors that would make Evel Knievel wince. There are an innumerable number of things that can go wrong on a daily basis, and this is just on a company level: expand that logic to the wider financial market and the extent of risk becomes clear. The day to day role of junior mining management teams is to mitigate these risks in the best interests of their shareholders, but the reality is there is only so much influence they can have over an industry more akin to gambling than one might realise.

Junior mining companies have to sell us an idea that doesn’t necessarily require substantial evidence. Boards of directors and management teams are usually master salespeople who can coerce their way to funding they often don’t deserve. Unfortunately, this is the cold, hard reality of investing in junior mining companies; just as gamblers will head to the casino and get the fruit machines bleeping, people are always going to roll the dice and take a punt on a company they think can give them an exciting bang for their buck. Junior mining investment isn’t quite a casino of pure luck, but luck is of undeniable significance.

However, what if there was a better way? What if there was a way to gain exposure to much of the exciting upside of mining investment, but that steer away from geological risk and mining difficulties? The answer is in extracting value from materials and products that are already at surface. This provides a reliable, unequivocal inventory, and helps work towards the green energy sentiment sweeping the western world with all the ferocity of the awful Australian bushfires.

A screenshot of three dollar signs in a line.
More Money, Less Worry.

There is no doubt that mining is essential to provide the items we use in everyday life and no number of protesters outside mining conferences harassing mining executives is going to change that. The irony of these protesters filming themselves on phones made from mined materials, having travelled there on transportation made from mined materials, is not lost on me.

So, let’s get real. Mining is here to stay. If you want to talk about ethical mining, fine. Hold management accountable to those standards, fine. But if you go down this track, you need to go all the way. End to end.

I have previously spoken about true end-to-end green investing. We live in a time of disposable products. Many of these products contained mined materials which go to landfill and dumps. We then mine more materials out of the ground to make more products. It’s not just the ethical and environmental issues, commercially this doesn’t make sense. We are leaving billions of dollars of materials in dumps.

Mining ethically is one thing, but recovering value from end-of-life products is the, as yet, unanswered requirement for a fully functional and genuine green energy investment eco-system. A primary driver of the green energy narrative is the electric vehicle (EV) revolution. There has always been a contradiction when it comes to EV, because the very thing it seeks to positively effect, climate change, is only positively impacted at the front end of the process – less carbon emissions from the vehicles. If one is to analyse the process of battery and electric vehicle manufacture it is far from zero carbon neutral. In addition, the environmental challenges around battery disposal and destructive pyrometallurgic recycling techniques, mean the entire EV macro investment story becomes fatally flawed.

I recently wrote an article regarding an exciting solution to the cost and environmental ramifications of current pyrometallurgical norms. I explained how I discovered an Australian company, Neometals, who have a proprietary hydro-metallurgical battery recycling process which recovers +90% of materials (nickel, lithium, copper, cobalt, iron, aluminium, manganese). However, I didn’t fully explore the genius of their business plan, or how it relates to us investors.

Neometals is a company with value recovery at its core, and its plan will have the approval of the ‘green army’. Neometals signed a memorandum of understanding (MOU) with German-based private metal industry firm SMS Group to work jointly on the funding, research and evaluation of its lithium-ion battery recycling technology in October, 2019. If successful results are registered at the joint venture pilot plant, the companies will likely develop several fully operational battery recycling facilities.

Neometals’ market cap of AUS$103.44M bizarrely only equivalent to the company’s current cash reserves. They are equipped to make this happen technically and financially, and SGS brings all the contacts and cash to roll this out across Europe.

By partnering with a giant company like SMS Group, Neometals will secure contracts with vehicle manufacturers to provide large, stable quantities of feed-stock (scrap and end of life batteries) for their battery recycling plants. By establishing this robust supply, Neometals solidifies its dominance over traditional junior mining companies; there is nowhere near this level of certainty when mining underground resources.

In addition, Neometals will look to secure contracts to supply its >90% recovery of battery materials back into battery manufacturers. In my opinion, €5Bn SMS Group can confidently facilitate these arrangements, and can bankroll all aspects of the joint venture with confidence.

It is quite clear: by investing in Neometals, investors gain access to an undervalued, unique, proprietary solution that has the funding security investors wish for. The feedstock supply and market demand provide certainty, and the economics of the project provide junior mining upside but without the risks. The economics of the project also fit into the EV narrative in a way that junior miners have not yet been able to deliver on. By re-using surface-based material, Neometals reduces the costs, safety risks and environmental impacts associated with mining. The EV cycle now has an appropriate end, and it is an end that could make you a bucket full of cash.

The Neometals’ management team has pieced together an eco-system of people and partners. I am under no illusion; this team has a clear, solid plan for growth, with undeniable evidence of great success in the past. The company originally made their money with a lithium mining project, Mt Marion, in Australia, and timed their exit perfectly. They pocketed c.AU$140M, but more importantly returned c. AU$45M to shareholders. This is a team that clearly know what they are doing.

A picture of a 'risk-o-meter;' the risk is in the red zone: 'high.'
Why take a big risk when you can play it safer and still make big money?

In conclusion, let’s start getting smarter with our investments. While conventional mining is always going to have the potential to make us money, why not consider alternatives that can mitigate risk and still provide excitement?

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Neometals (ASX: NMT) – Transforming Battery Recycling Recovery Rates for the Electric Vehicle Revolution

Neometals portfolio of projects are progressing on schedule, so we thought this would be a good time to catch up with them. Chris Reed, CEO, talks to CRUX Investor. Click here to watch the interview in full. Neometals has converted from miners to project developers following the Electric Vehicle thematic. It’s clear that they are rather good at taking complex problems that are challenging, and work out how to commercialise it efficiently. Reed is a sharp and driven individual, who has built an eco-system of smart people around him to deliver financially sustainable solutions.

Neometals made its money with a Lithium mining project, Mt Marion in Australia, and timed their exit beautifully. They pocketed c.AUD$130M, and has returned c. AUD$45M to shareholders in the shape of dividends. And they have retained an option on the Lithium spodumene component which will be a revenue stream for them at the point the market comes back. A smart piece of negotiations. And that typifies their approach to business.

Reed views Neometals as a “project development business.” Neometals has a variety of assets with differing commodities, but the battery thematic is the key driver. There are 3 core projects with Neometals’ focus: the Barrambie Titanium Vanadium Iron Project in Western Australia, a Lithium Refinery Project and of course it most advanced project, the battery recycling business. Reed updates us on their battery recycling portion of the business. They are at an advanced stage of proving up their MOU terms with the billion dollar German industrialists, SMS Group. Reed talks us through the deliverables for this year and how they will become a significant global player in an accelerated time frame.

Neometals is valued at cash in the bank. Some investors are struggling to understand why. Perhaps Neometals need to start telling their story and investors need to pay attention. Barring a global meltdown, the battery recycling industry looks set to grow at a phenomenal rate. Having identified the growing demand to recycle Lithium batteries as a focal point, the company is working towards commercialisation of its proprietary process for recovering Cobalt, Nickel, Lithium and other valuable materials from spent Lithium batteries. Neometals’ pilot process has generated a high purity (+99%) Cobalt sulphate product at a high recovery rate (+98%).

Neometals’ management has created an eco-system of experts in their field with the ability to solve complex problems currently related to Lithium, Titanium and Vanadium. Neometals hydro-metallurgical recycling method is unique. And with strategic partnerships, supply lines and MOU’s already in the bag, the eco-system seems to be close to delivering on its ability to move the pilot in to commercial reality at scale in Europe.

What did you make of Chris Reed? Is Neometals the answer to our waste-related problems? Are they a better bet than a conventional junior mining company? Comment below and we may just ask your questions in the near future.

Company page: www.neometals.com.au

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Battery Metals: A Shocking Introduction (pt1/7: Cobalt)

An open charging port on a dark grey electric car.

I, like many investors, possess a stalwart belief in the EV revolution and expect charging Teslas to occupy every street corner in the near future. As a consequence, it seems prudent to consider investing in the battery metal market.

Bloomberg’s 2019 Electric Vehicle Outlook report demonstrates the rapid growth of the market, with two million electric vehicles being sold globally in 2018, up from a few thousand in 2010. Their projections further confirm this could be a good time to seek out a winner, with predicted sales rising to 10 million in 2025, 28 million in 2030 and 56 million by 2040. (1)

Furthermore, the International Energy Agency have released their Global EV Outlook for 2019. The results demonstrate a 63% increase in global electric passenger car stock in 2018, and a 44% increase in the installation of electric LDV chargers. Projections under the EV30@30 scenario place EV sales at 44 million per year by 2030. (2) These are just two examples from a swathe of encouraging studies showing the rapid growth of the EV market.

However, the preeminent question for any potential investor still remains to be answered: how on earth can I make money out of this? The answer lies in the heart of the vehicles themselves: battery metals. Here’s how to get started.

Lithium-Ion Batteries – The Misconception

A widely perpetuated falsity about EV batteries is their apparent simplicity. When individuals hear the phrase ‘lithium-ion batteries,’ their minds often retreat back to a rudimentary high-school physics lesson, where paper planes circled the room like a warzone, and batteries were presented as simpler than tying shoelaces.

In truth, batteries feature a variety of metals. These metals are important to the EV economy. More importantly, these metals can make you money.

Today, we’re starting with talking about one of the most controversial battery metals, cobalt.

Cobalt

A photo of a pile of small blue shards of cobalt.

Cobalt appears in the majority of commercial lithium-ion batteries. It is also the most expensive component. In spite of its prevalence, it is worth nothing researchers have developed rechargeable batteries that don’t require cobalt. Moreover, Tesla’s battery supplier, Panasonic, have announced they are developing batteries that don’t need cobalt; Elon Musk tweeted last year: ‘We use less than 3% cobalt in our batteries & will use none in next gen.’ (3) Tesla have reduced the amount of cobalt in its NCA (nickel, cobalt, aluminium) formula massively in recent years.

…yeah, we think we can we can get the cobalt to almost nothing.

Elon Musk in a letter to shareholders

There are a variety of reasons behind the desire to reduce cobalt use in batteries. The majority of cobalt is sourced from Africa, pre-eminently the Democratic Republic of Congo. There are numerous ethical concerns regarding the procurement of cobalt, such as child labour, and artisanal workers employing dangerous methods of extraction. Therefore, companies are being pressurised by human rights activists to reduce their consumption of cobalt, and even discard it altogether. In recent years, companies like Apple and Samsung have been pressured into joining the Responsible Cobalt Initiative.

Furthermore, from an investor’s standpoint, the cobalt market has notable issues. While it is rarer than other battery components, such as lithium or graphite, cobalt is not especially scarce and is typically produced as a by-product of nickel or copper mining. Therefore, if nickel or copper are suffering from low prices, cobalt will too. Investors should be aware that cobalt is not necessarily a fully independent market and is instead reliant on the success of larger nickel and copper markets.

However, attempts to remove cobalt have caused a variety of issues for manufacturers. Cobalt is currently integral to the life cycle of cells within batteries. A reduction in cobalt results in significantly reduced longevity for batteries.

There are also safety concerns that have yet to be addressed. One need only look at the international overheating controversy surrounding the Samsung Galaxy Note 7 to see some of the issues pertaining to cobalt reduction. A reduction in cobalt requires an increased amount of nickel, which can cause cells to overheat and eventually combust. While this is unlikely, it remains an at-present unavoidable risk.

In addition, any formulation with low cobalt levels requires specific dry, costly environments for production. Last year, irrespective of its work to reduce cobalt, Panasonic tripled its consumption for Tesla batteries. It is clear that despite reduction being a long-term aim for many, cobalt is still a crucial element of batteries and will not be going anywhere soon, a position that has been supported by Nobel Prize winner John B. Goodenough.  

There are numerous companies who still feel cobalt is an exciting opportunity for investors to chase paper. Crux Investor has recently interviewed Canada Cobalt Works, (https://youtu.be/V2puGQDRwAk) and Jervois Mining (https://youtu.be/U6GUKdLH_5I). Both offered intriguing arguments as to why it is still an exciting commodity for investors to put their hard-earned cash into.

We investors need to make our minds up about the EV revolution. If we think, like many of the experts and industry players, that it is inevitable, we need to pick some winners. Remember, don’t invest in anything you don’t understand; have a clear view about what your investment thesis is. I want to find out more as there will be clear winners and losers.

As of today, cobalt sits at $38.58/kg , a 34.55% since the beginning of 2019 (4). The all-time high is $105/kg in March of 2018 and the record low is $23.98/kg in February 2016 (5). Huge swings are possible which is all part of the excitement of investing.

Be sure to check out the next article in the series, which will discuss the technological conundrum: vanadium.

  1. https://about.bnef.com/electric-vehicle-outlook/#toc-viewreport
  2. https://www.iea.org/publications/reports/globalevoutlook2019/
  3. https://twitter.com/elonmusk/status/1006968985760366592?lang=en
  4. https://tradingeconomics.com/commodity/cobalt
  5. https://tradingeconomics.com/commodity/cobalt

Company page: http://www.cruxinvestor.com

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

An open charging port on a dark grey electric car.

European Lithium (ASX: EUR) – A Giga Factory JV with a Junior Lithium Developer? (Transcript)

Interview with Tony Sage, Non-Executive Chairman of European Lithium (ASX: EUR, FRA: PF8, VSE: ELI)

Can European Lithium plug in to the European EV and battery revolution? They talk about how they think they can attract EU debt funding and a strategic equity partner. Will that partner be prepared to pay more for buying local / greener? Tony talks to us about the realities of how junior miners attempt to get funding and why he believes European Lithium is in a unique position in Central Europe. We are interested in understanding the terms and conditions to their recent €10M convertible note funding facility. If you are a shareholder, do you like terms?

We get his take on the Lithium pricing cycle and timing for recovery. Their Feasibility numbers need the price of Lithium to rise significantly to be economic. Do you agree with him?

We are also fascinated by the fact that European Lithium sits on the ASX (ASX:EUR), Frankfurt Exchange (PF8), Vienna Stock Exchange (ELI) and NEX UK (EUR). Find out which exchanges work for them and why.

Interview Highlights:

  • Overview of the Company
  • The Background Story of European Lithium
  • New Shareholders: Who Are They Targeting?
  • Lithium Market and Geopolitics
  • Standing Out: Can They Get Financing in Today’s Market?
  • Cash Position
  • What Are The Board Preparing For? What Are The Main Concerns Going Forward?

Click here to watch the interview.


Matthew Gordon: Why don’t you kick off with a 1 minute history of the business.

Tony Sage: mine was developed by the Austrian government back in the 1980s. They were looking for uranium but they found Lithium. Unlike any Western company, they actually went out and built the mine straight away without doing all of the work that is required before you start building a mine. What they did is they followed the Lithium from the ceiling of the opening and just followed it all the way down. It’s a beautiful structure inside the mine. But unfortunately, when we took over in 2012, there wasn’t data to prove how they found it. So what we’ve done in the 6 years that we’ve owned it, is mine it So we mined 1,500t. And we also drilled. So that proved, as all Western companies need, is a JORC compliant resource. So we know we’ve got 11Mt of ore there. That that will last 22 years as a mine life. And we completed in that time frame a PFS. So a Pre-Feasibility Study has been completed. It was completed by one of the leading engineering groups in the world, DRA. So that’s basically the premise of our story.

Matthew Gordon: How this has come about? You’re involved with Cape Lambert. Cape Lambert is a shareholder in this project.

Tony Sage: It’s a very interesting background. It started off with a cocktail party. One of my colleagues met The Count of that district in Austria, near Wolfsburg. And they got talking and he’s introduced himself. He was in mining. And The Count said, ‘I’ve got a mine on my property’. That’s where it started. So in 2012, we had a look at it, and invested in his property. We paid him a lot of money for access. And then over time, he enjoyed what we were doing, and he became a shareholder of the company. I didn’t have the funds myself personally. So I used my investment vehicle, Cape Lambert Resources, and we invested some money in. And since then, we’ve got other investors in. In 2012, Lithium wasn’t flavour of the month but in 2016, it became flavour of the month. We kept it private for 4 years. And then we listed it on the Australian Stock Exchange back in 2016-17. At the time Lithium was exploding around the world. But in Australia, there were 41 separate ASX listed Lithium companies at the time. And a lot of those were in Australia, some of those were in Africa, and obviously some in South America. So we were being drowned out by all of the Australian ones. So if you’re an Australian investor, and you say I want to operate a mine in Austria, I would just say you’re crazy. Mining doesn’t happen in Europe. So listing in Australia was an error of judgment. But we got the money when we listed, and we were able to progress the project. But then in 2017, we listed it in Frankfurt, Hamburg, Munich, Stuttgart and Berlin. And from that moment on, it exploded. The investor base moved from 100% Australian shareholders to now 55% shareholding base in Europe. And most of those European shareholders are German or Austrian. There’s a splattering in UK, France, Switzerland. So we realised we hit on something extremely good. If you look at a lot of the social media, our company is clicked a lot more than some of the bigger companies in Europe because of 1. EV, 2. it’s a unique story that a mine is going to be actually reopened 20 years later in a little country called Austria.

Matthew Gordon: I do want to say over the management since experience and so forth, but you talk about shareholders and the split between Europe and ASX. Obviously, it’s a European asset. So you’d hope that people would be interested in Europe, but just looking at your share price. Lithium companies across the world have been absolutely hammered. In fact, what is the Lithium price at the moment?

Tony Sage: We’re going to produce is Lithium hydroxide, at its peak was $22,500 per tonne. And you’re looking probably at $15,000 – $16,000 a tonne now. So it’s dropped a lot in the last 12 months. The actual raw Lithium price, got to just over a $1,000 a tonne. It’s probably trading at $450 to $500 a tonne now. Hydroxide has gone down about 35% over the last 4 months.

Matthew Gordon: Most of the numbers I’ve seen from you is using $16,000 a tonne. So obviously that’s taking a bit of a hit. I’ve read various things from JP Morgan that suggest that it’s going to go lower. What do you think?

Tony Sage: We look at benchmark. We look at Roskill, but we also look at the broader world. China has just announced, it wants to build 1M electric buses. Now you just think about the amount of Lithium required for 1M electric buses. The slide started when one of the biggest producers out of Chile said that they were going to double production, because they had an agreement with the Chilean government to increase their production. It didn’t happen. But that was the initial scare. From that date that was announced the Lithium price actually fell about 15% on the day. Lithium stocks all around the world just went down 10%, 15%, 20% because they thought all this production was coming off. However, 1. that production is not coming on. 2. you’ve got countries like China, who are now announcing that they’re going to be a 1M electric buses. Now, there’s not enough Lithium around today to produce those 1M buses in the timeframe they want. The price will go up.

Matthew Gordon: You’re projecting that. I think like most supply demand stories, there’s two sides to it. We accept that the demand is probably going up because of the whole EV story.  But likewise, as soon as the demand goes up, new entrants come into market or production, which is sitting idle at the moment or on a very low level, goes up. JP Morgan would suggest that there’s going to be double the amount of production out of South America alone into the marketplace. So that is going to affect pricing. It’s a question of where it settles. Production is not going to stay as is. It would be insane to think that. I think people will be attracted to come into the Lithium market again. It’s a question of can they do it economically. And we’ve spoken to a lot of Lithium businesses. You’re right, in the ASX lithium is a dirty word at the moment because people’s shares are underwater. It’s a question of when does the price start to move again? You’re going to get through this cycle into the next cycle. Can you get financed at current levels?

Tony Sage: I think we can. I wouldn’t be pushing ahead, spending already $12M-$13M on the Pre-Feasibility Study (PFS). Spending another $10M on the definitive or bankable, unless I was very confident. We’ve been in discussions with project financiers, quite large ones, European-based. What you’ve got to understand is the broader geopolitical situation. You’ve seen it now with Rare Earths. China has said to the world, we’re not going to export any more Rare Earths. At the moment China produce over 80% of the Cobalt required for EVs and 85% of the Lithium for EVs. Now, if they’re going to build 1M electric buses. And of course, with cars and obviously battery storage… how many batteries do you think they’ll be exporting in 10 years time? So the EU has made Lithium and Cobalt critical minerals. There’s only a few players in Europe that can produce in Europe. 25% of the world’s Lithium ends up in Europe. They produce none at the moment for electric batteries.

Matthew Gordon: Let me understand the terminology. You say critical minerals need to be produced from within Europe. Or have they got the ability to buy out in the wider market?

Tony Sage: Well, OK, let’s go into Hydroxide and Carbonate production. All comes from China. They’ve built one plant here in Western Australia. Who owns it? The Chinese. At some point like they have done with Rare Earths, they could say for their own critical needs, that they can’t export any more Lithium Hydroxide or Cobalt Hydroxide, or Cobalt Carbonate or Lithium Carbonate. At some point, it might not happen, but the security countries like America and Europe as a whole need to have is some production in their own backyard. Ours isn’t going to anywhere near create the supply that is needed by BMW, Volkswagen.

Matthew Gordon: So again just so I understand. Are you talking about production or are you’re talking about processing?

Tony Sage: I’m talking about production of Lithium Hydroxide or Carbonate in Europe.

Matthew Gordon: Right. Because it’s a fairly abundant resource, isn’t it? That’s the problem.

Tony Sage: It is. But mining it economically is the key point. So it is abundant everywhere. So, for example, we just take Pilbara Minerals, for example, 4 weeks ago, they were in big trouble. They got rescued by the Chinese because the price has fallen down, because they’re in a remote location. We’re in Wolfsburg, right near the railway line, 40km from Graz, where Samsung have a battery factory. We’re in an industrial area in Europe where we can export to any country in Europe by train for very little compared to having it from Australia or South America, shipping it to China to get produced in China. All China does buy it for $450- $900 a tonne, and sell it as Hydroxide at $16,000 a tonne to battery makers in Europe. The EU have recognized that. They’ve recognized that with Rare Earths. They were scared by the Rare Earths announcement by China on 2020 no more export. So they’re madly, as with the Americans now, trying to find Rare Earths. But it’s the same problem that will be with Lithium Hydroxide and Carbonate. Forget the raw stuff. I mean, there isn’t a plant in Chile that produces Hydroxide or Carbonate. They ship the raw product to China to get the Hydroxide.

Matthew Gordon: Are you’re saying that Europe is coming up these protectionist policies to be able to produce and process their own Lithium in their own backyard?

Tony Sage: Encouraging policies, encouragement for European mines to be able to produce Hydroxide, Carbonate for the European market.

Matthew Gordon: An encouragement! We’ll talk about the funding program launched by the German ministry, which you mention, in a minute. But if I’m Gigafactory producing batteries, I’m going to go to the cheapest supplier, aren’t I? I’m going to go to the South Americans. So how do you stack up against that?

Tony Sage: Well, 1. the freight cost. We’re not paying $22 – $25 a ton to ship it from there to Europe. 2. if you look at and read our Pre-Feasibility Study (PFS), our cost structure is very good. The number is $6,500 -$7,000 a tonne, whereas 12 months ago we could have got $22,000 for it. Now we can get $15,000. It’s still a very big margin of profit, excluding financing costs, for our shareholders. So we believe we can produce for the European market a safe green, very green supply of Lithium Hydroxide to the European market without any problem with geopolitics. If the suppliers, for example, as we saw 7 months ago, the Argentinian government slapped a tax of 10%-12% on every export, including Lithium. So if you’re a Lithium producer in Argentina, you’ve just dropped 12% of your profit.

Matthew Gordon: Yes, but they’re also producing at $3,000, so they got some margin. Lowest quartile producers.

Tony Sage: Well, in Chile they are, Argentina not so. But in Chile. Yes. Chile is very un-environmentally friendly.

Matthew Gordon: Meaning what?

Tony Sage: Well, they’re producing this from brines, which takes up a lot of water. And which is causing all the grief with the local population. And they don’t want any of those mines to be increased, because if you’ve seen a brines production facility, it’s pretty ugly to the environment. So environmental, ours is all underground. So we can get a big green tick and we’re producing Hydroxide for EVs or other environmentally friendly industries. So I think we get 1. a big green tick 2. the German car manufacturers for example, I think one got into a bit of trouble investing in a Cobalt mine in DRC.

Matthew Gordon: That’s a well-trodden path with regards to Cobalt and DRC and child labour and so forth. Let’s stay away from that. Let get into this. So what I want to understand is how does your project get financed today? I know you did a raise earlier in the year. What are the terms of that. $10M was mentioned. But it was a bit more complicated than that, wasn’t it?

Tony Sage: So it’s a financing facility that we can draw down on. It’s complicated because it depends on the share price at the time. They get a 10% discount to the market. Say we are trading at $0.10. They get it at $0.09. And they don’t do it all at once. So we’ve got the facility there. They can do it when they feel like. So, we’ve only drawn down on that facility $2M and so we got $8 million left.

Matthew Gordon: And you can drawdown in $1M tranches upon conversion of all the notes from previous rounds. That’s the way it works?

Tony Sage: So when they finished when they finished selling those to recoup their money, we can then draw down the next one.

Matthew Gordon: Got it. So it’s a real stagger. It’s not $10M per se. It’s a facility, as you said.

Tony Sage: It’s a facility and it can last 3 years.

Matthew Gordon: So let’s come back to financing, because that’s where the fascinates me. At $15,000-$16,000, you’ve shown your what the economics are here for you. But if I’m a banker, I’m discounting today’s price by up to 40%. So it becomes a question of, can you persuade people that your thesis about price going up is true? And if you can, that’s great. If you can’t, then what are your options in terms of getting this thing finance? Once your DFS is complete?

Tony Sage: Well, 1. the DFS will say whether we’re robust enough. So if the DFS comes out saying this is a very marginal project, I wouldn’t go to any bank with this. That’s one scenario. We’re expecting the opposite because the Pre-Feasibility Study (PFS) was very robust. So I’ll have a very robust DFS. So I go to the bank and I will say, ‘this DFS proves there’s a 40% margin in this. How much can you project finance this?’. They will say, ‘this much’. We will seek some EU funding, whether it’s a soft loan, whether it’s a…

Matthew Gordon: Tell us about that? You talk about the German ministry putting a battery production funding program together of €1Bn. That’s quite a lot of money. But how much of that would be applicable to you? How much of that €1Bn would be set aside for mining?

Tony Sage: Unknown. If we, for example, link up with a battery manufacturer, as a joint application for use of these funds, it might be a larger number. As a miner, by ourselves, I don’t think we would be able to do it. We’d have to link up with maybe an end user. I’m just throwing out names. An automotive maker in Germany or a battery maker in Germany. We can partner up and then apply for that. But separate to that there’s EU funding. It’s called Horizon 2020, and under that, there is a direct application for us as a critical mineral for Europe. We may be able to get a soft loan. So that soft loan might be €50M at a very attractive interest rate, which is probably almost zero repayable over X amount of years. So at the same time, say the number is $400M that we’re looking for. We would do $70M of that in direct equity, and the rest in project finance and or funding from a source like Horizon 2020, or from the €1Bn fund from the German government.

Matthew Gordon: How does someone like Horizon 2020 assess your project and the economics of a project like this.

Tony Sage: The credibility of being the… the PFS is done and the DFS is coming. We would have to present a case to them that 1. it’s very good for Europe. 2. it will create jobs in Europe. 3. it is green. We’re not going to hurt the environment by doing what we’re doing. The three key criteria in Horizon 2020. We take every one of those boxes.

Matthew Gordon: It’s interesting that none of those criteria are about the economics.

Tony Sage: No. Again, it’s about creating jobs. If you look at virtually any government around the world, it’s not really about economics. It’s about creating jobs. This is a fiscal investment by the EU into something that’s going to create jobs and solve the problem, albeit in a small way of producing a critical product for the European industry, rather than being reliant on China.

Matthew Gordon: So potentially that type of money is quite important, because it’s… I’m not saying dumb money but it’s money which is a different set of values or needs from institutional money, who does care about the economics, because they’re buying shares in your business, presumably on the equity side, and want some guarantees that you’re going to be able to mine economically and pay back the debt. So have those conversations been had? How do you know that Horizon 2020 is interest in investing in something like you?

Tony Sage: Well, because we’ve applied, and we’ve talked to the right people at the right agency. And we will await the outcome of the DFS. They’ve got a stringent programme as well. We’ve got to have a document that shows that we will be economic. We will create jobs in a low job area, especially for youth near Wolfsburg in Austria, where we are. So that would create long-term 300-400 jobs, short-term 1,500 during the construction phase. So we are going to create jobs in that. And if you go to the local government in that area, we’ve got two sets of competing mayors who want us to build the plant on their side of the fence. So we’ve got so much support from the local government. We’ve got so much support from the Austrian government. So now it’s one step higher, which is the EU in total. And they’ve got so many other factors to look at geopolitics, which we’ve talked we’ve touched on environment, which we’ve touched on. And most important jobs.

Matthew Gordon: Most important for them. But I’m talking about shareholders wanting to come in and invest.

Tony Sage: But if we get that money. That’s a big chunk of shareholders who will go, ‘wow, that’s great’. That’s $50M, $70M. How are you going to get the other… $300M. $70M of that is going to come directly as direct equity. So that’s roughly 25% of it. We’ve done the numbers with banks. What they’re looking at for the project finance side, and they can project finance probably 60% of the project.

Matthew Gordon: So let me get this straight. I want to get the numbers right. You say $400M required. You’re getting potentially, let’s just say for a second argument, $50M of debt from Horizon 2020 on a 70/30 debt / equity split.

Tony Sage: Half of that.

Matthew Gordon: So I’m just trying to think as a retail /high net worth /family office investor looking at your company going, ‘I think this is a great story. I’m going to invest. How do I feel about Horizon 2020 coming in?’. I guess if they’re putting $50 million towards the debt. Great. But it’s still costing the company, whatever nominal rates that these people are charging…near zero. You’re suggesting. That’s great news. Do I look at that as some kind of endorsement of the project? I guess not. It’s about job creation, and is it green etc. So I’d need to some see who else would be involved with this, is what I’d be thinking. You talk about advanced stage discussions with some of the off-take agreements as a means of… would that be pre-funding in terms of the off-take? Who are some of the names involved with this who would give me some comfort around the validity of the project?

Tony Sage: We’ve signed NDA’s with these companies. But rest assured that a large German automakers and builders of batteries themselves is another company. And let’s go for one other one, which was in the industry of producing electronic tools. Now, the reason I don’t pre-sell the off-take now is, once this DFS is done and people see how robust the project is, you’ve got other suppliers around the world that will say here’s a foothold into Europe. So if we’ve already sold our off-take pre the DFS, we won’t be a takeover target.

Matthew Gordon: Ok.

Tony Sage: If I don’t and the DFS comes out, here we are. There’s a small player in Europe is only going to produce 11,000t of Hydroxide per annum. They are in Europe. They’ve got all these contacts. Wouldn’t it be great to have in our portfolio? So if we’d already sold the off-take is very much more difficult to have that story. I’d like to be in a position where we’re completely transparent. We’ve got no-offtake partner now. We don’t want one now. And we will wait until the DFS is done and we can sign 4 agreements today, if I wanted to. And a couple of those are outside of Europe, but I don’t want to sign one now for that reason.

Matthew Gordon: And I appreciate the insight into the strategy and the thinking. That’s well-noted. So, if I look at the project now, $16,000, which is what you’ve done the numbers on, and let’s say it’s roughly give or take that on any given day at the moment, you’ve got a 25% IRR, which is reasonable. But you’re right on the margin in terms of price in the market at the moment. So you’re looking for this price appreciation to drive not only the IRR, but the NPV of this project up. Are there institutions that you’re talking to or begun conversations with, in anticipation of what the DFS is going to tell you?

Tony Sage: Yes, we’ve got a couple of institutions already in the stock. They bought through the last equity raising we did. So they’re sitting back. I’m going to be completely honest now. Virtually everyone, the two major banks, European banks, and two off-takers want to wait for the DFS. The Chinese obviously don’t care about the DFS. They’ve seen the PFS. But we don’t want to send concentrate from Austria to China for $400-$600 a tonne, and it comes back in to Europe at $16,000-$17,000 a tonne. So we can take easy money now and breeze through the next 6 months, or we can hold tough like we have. Be true to what we want to be able to do, which is finish the DFS. And then go to the two major banks that we’ve talked to and say, ‘right, this is it now. You’ve asked us to be our clients. Can you raise X amount of dollars on the IRR based on this final report from DRA’.

Matthew Gordon: Those are an investment banks as opposed to debt providers. And the current investors are going to be very different from the types investors you’re looking for going forward, aren’t they?

Tony Sage: Absolutely. Yes. Completely different. At the moment, we’ve got, in Australia, we call them mums and dads; in Europe they are called family houses. So we’ve got a lot of family house investors in Europe based in Austria and Germany. We’ve got a little bit of investment, now that we’re listed in London on the NEX. And a few are coming through that. The reason we did that is to broaden our investments spread of investors from Europe, and a lot of family houses in London, and a lot of municipalities can’t invest unless you’ve got some sort of listing in London. So we chose the NEX because it was the quickest to get on. And since we were on, it doesn’t trade very well, because most of the family houses buy on the Frankfurt Exchange where we trade millions and millions a day.

Matthew Gordon: It’s cheap and quick on NEX, but doesn’t necessarily trade or give you the volume of liquidity you need. So how much cash are you sitting on?

Tony Sage: $1.7M in the bank right now. Our next drawdown is $1M, which should come through by the end of October, halfway through November. And that will continue. So in another 3 or 4 weeks, we can draw down another $1M or so on.

Matthew Gordon: So they let you know how they’re doing with regards to selling down the shares.

Tony Sage: Well, we see it because they have to come through us to convert their shares. We’ve obviously got the share register, so we know when they are selling it. So we’re okay for now. Would we want a different funding, partner? Maybe. So, there’s lots of different options on the table. We’re not going to say we’re stuck with this one, but this one will suit us for the time being until we finish the DFS.

Matthew Gordon: You mentioned part of your strategy is, you don’t necessarily want to take off-take partners on board yet, until you get clarity on the DFS, because then you’ll understand what your options are. You’re a small Lithium player. You’re in Europe. That’s a USP for you or your positioning it as such anyway. What are you doing? Some companies choose to hunker down until there is price discovery. The price gets back up. Or some people like charge on at 100 miles an hour. Some people JV. What’s going on with the board’s thinking. What are the things keeping you awake at night Tony?

Tony Sage: Well, the biggest one right now, believe it or not, is geopolitical. Because everything affects everything in this world. Trump’s fight with Xi Jinping, everyone should be worried about, the whole world should be worried about.

Matthew Gordon: We are. That’s why Gold has gone up.

Tony Sage: Yeah, $1,500. I’ve been reading reports over $3,000 an ounce by mid-next year. But if I’m thinking purely of business, that is my number one concern. China already has proven with this Rare Earth announcement that it will try and hold the rest of the world to ransom if it doesn’t get its way. Trump is belligerent on the other hand, and he wants his way. So, that negotiation is very important for a lot of things in commodity prices around the world. So that’s one thing that keeps me awake at night. I think part of the reason that the US now says, ‘I want to buy Greenland’, because I know there’s a whole lot of Rare Earths in Greenland. So that one maybe a parody or a joke from him. But he’s quite serious about getting investment in Greenland. And I think now with the Prime Minister going to visit Trump. He’s come out and said, ‘we want to really be involved in Lithium, Cobalt, Rare earths’, anywhere in the world with any Australian company. So geopolitically I think there will be a resolution coming up, whether it’s in Trump’s favour, China’s favour. Who knows? But that will settle a lot of the nervousness. You’ll see Gold maybe come down a little bit. But I think everyone then will think, right China’s ready to go again. We just saw the spurt in iron ore prices, for example. It went from $60 a tonne back to $125. Because they’ve got rid of their stockpiles and they needed it very quickly. If there is some sort of resolution, China will need to fiscally spend money again and that will increase the Iron Ore price. But that goes on to other things. If they’re building 1M buses, they still need Iron Ore. But they still need Lithium. I look at the whole of the world and think about things that can happen, cannot happen. For the board, we’ve got a very good project in a very good country. The government of Austria wanted to go ahead. The local government there wants to go ahead. We’ve had no environmental issues come forth for us. Being in Europe, you see every time there’s a new mine set up, there’s greenies everywhere trying to stop it. Ours is not like that. It’s all underground. I think we’re in a unique position to go ahead, finalize the DFS, have a document that we can present to project financers, institutions that will take chunks in an equity raising and obviously go to the $1Bn fund people out of Germany and also the Horizon 2020 out of the EU. I’m looking forward very positively and I believe that the Lithium price will start to move upwards from January next year.

Matthew Gordon: We shall see. I think lots of people want to see some movement there. And then it’s a case of what happens next. Do we get a slew of Lithium miners coming into market or not? And how do you take advantage of your unique position in Europe and capitalize on that? Tony that’s a great first introduction to the company. I would love to stay in touch and see how you get on.

Tony Sage: Thank you very much.


Company website: https://europeanlithium.com/

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Jervois Mining (ASX: JRV) – How Important is Cobalt to the Battery Revolution? (Transcript)

How much Cobalt, Nickel and Copper does the world need? We interviewed Bryce Crocker, CEO of Jervois Mining to get his take.

Click here to watch the interview.


Matthew Gordon: Now we saw you back in around 12th March, middle of March. You’d done, or just announcing the M2 story, but you’ve been quite busy since then.

Bryce Crocker: We have.

Matthew Gordon: Why don’t you start. Give us a two minute overview without getting into too much detail, about the recent news. And then we’re going to get in to it.

Bryce Crocker: Well I guess we’re looking at creating a platform that institutional investors can get exposure to battery raw materials. We’re big believers in thematic. We believe the investment alternatives that are open to institutional, and also retail investors, are substandard in terms of quality of the assets, and the quality of the management. And so we’re a group of largely ex-Glencore executives, who’ve come in Jervois and are looking to make a difference.

Matthew Gordon: Okay. So you’re focusing on Cobalt at the moment.

Bryce Crocker: Cobalt, Nickel, Copper because Cobalt obviously comes with both products generally.

Matthew Gordon: Fantastic. Just for people who don’t quite understand where you’ve been, and where you’ve come from. You mentioned Glencore there. Big name.

Bryce Crocker: They’re a large Cobalt producer. I guess I was part of the founding management team in Xstrata. Peter Johnson who’s our chairman. Peter ran WMC’s  Nickel business back in the days and then worked for Glencore for a long time sat on Glencore’s Executive Committee ran their global Nickel assets. So obviously Glencore have always been the largest Cobalt trader we’ve got a group of executives who’ve come out of that platform and now we’re looking to create as I said an investable alternative. We know Cobalt well We’ve obviously got a lot of history and the understanding the DRC to the extent one can understand that jurisdiction and but equally creating something that has decent assets non DRC sourced units which is increasingly.

Matthew Gordon: Why is that important?

Bryce Crocker: I think downstream users are increasingly concerned with the access and supply and the potential of that contaminates or is blended in with other way with regular unions

Matthew Gordon: When you say contaminate,  What’s the underlying issue here?

Bryce Crocker: The difficulty with Cobalt is tracking where units… It’s a complicated flow sheet it’s mined it’s concentrated. Usually it’s leached it’s refined and so it’s blended in a number of phases. And approximately in 2019 you probably had 30,000 tonnes of Cobalt in 120,000 ton market which came from artisanal sources which are essentially men women and children tens and tens of thousands hundreds of thousands in the case of last year. And that material is finding its way through the flow. The Cobalt chain particularly any units that flow through China and that creates challenges. When I was working with Xstrata Glencore we would provide guarantees to our customers to Intel, Dell. There were two limbs that we provided guarantees, on one was the non-conflict material which was obviously quite easy given we control Katanga and Rotunda in the southern part of the DRC well away from any conflict zones. So conflict Cobalt is somewhat of a misnomer but the artisanal issue is real. Nobody wants to have an iPhone or an electric vehicle with a battery that’s essentially represented by a significant component of children which had been working under terrible conditions unsafe conditions in mines underground in the DRC.

Matthew Gordon: It’s the child labour component that people are…

Bryce Crocker: The child labour is a significant social issue both in the DRC and also for Western consumers.

Matthew Gordon: I guess you’re touching upon also there in terms of tracking this there’s some sort of block chain component to it, or is it more basic than that?

Bryce Crocker: These initiatives underway. But I mean I’ve worked in Cobalt for a long time and I can tell you the trading is a complex industry. it’s a niche industry and it’s opaque industry and there’s going to be real value if we can… for those that can create an operating company. So we’re not promoters we’re not looking to kind of assemble an aggregated portfolio of assets and then move on we’re going to construct an operating company. And because we’re constructing an operating company there’s a real value for those downstream users to have sources of supply which don’t involve anything from the DRC at all.

Matthew Gordon: Fantastic. Okay. Let’s go back to the Glencore bit. You come from a big company big exposure big projects around the world and you come into the junior space. Okay so I imagine I’d like you to Tell me that’s a very different environment. I mean how has your thinking had to change for some parts of this or is it the same for all that.

Bryce Crocker: I think it. I mean I’m from the Xstrata side I saw as part of what we sold to Glencore in 2015 but I work closely with Glencore and the rest of the team is largely being Glencore. If you came from a different large Mining company I think would make more of a difference. Glencore is very obviously it’s an owner operated principal type business. obviously junior mining company is different in terms of the infrastructure and the level of support in the…the way we’re set up organisationally is certainly. But I think that we’re a group of like minded individuals who purposely left large companies not because we couldn’t stay employed with large companies but because we wanted to do something different and essentially create a mid-tier company and we’ve got the opportunity at this end of the market. If you look back when we founded Xstrata. The reason why we did that was because the people wanted an investment alternative they had more beta if you like. They’re just purely choosing between Rio, BHP and Anglo. And that was essentially the fund manager investment decision options that they had at the time in London here. And I think what we’re looking to do with Jervois again create something that’s got a management team that is at a different level of quality than typically exists in the junior mining sector. Not always but Obviously management of the junior mining sector is perhaps not as strong as it ought to be and particularly is really focused on getting into operations and creating an operating company. So to take something that was essentially capitalised at a very low level and then build that up over time.  That’s exciting. Building mines and commissioning mines operating mines. That’s… it’s a part of it.

Matthew Gordon: I guess it’s very exciting. You know you’re in control of your own destiny to some degree obviously there’s some variables outside which you can’t control but you’re making decisions here. But sticking on this. As I understand it you’ve acquired two companies since I’ve known you so you’re quite acquisitive. That’s pretty impressive.

Bryce Crocker: We’ve got a couple of shareholder votes to get through. But where I think we’re sitting there is there’s small steps but they’re setting up… they’re important steps to set up the platform of what we want to do.

Matthew Gordon: Okay. And I want to come on to your strategy because I like it. I think it’s a good strategy. I’m interested in the team’s experience but if I look at M&A, you going to require to raise some money for some of this. You know to get this going. I know you’re doing deals, we can talk about how you’ve optimised that and reduced shareholder dilution et cetera but again coming from the larger background, as you say fund managers they had a choice of three or four guys to go to and that’s the background you’ve come from in this junior space I mean have you had to create new relationships? Who are you talking to for funding?

Bryce Crocker: It’s very different. It’s very different. It’s been a learning process for me and then I’ve worked independently since we the management team sold to Glencore in 2013 on behalf of the rest of the Xstrata shareholders and I’ve enjoyed working at the smaller level. I mean obviously our background in association and we work a lot with private equity but equally I think at this end of the market there’s… you have to build up the retail following you need a balance between strategic investors or if you’re frame private equity as strategic. But retail is important. Liquidity is important. If I look at most companies that are sub 100 more market cap there’s an argument as to that their ability to succeed, the liquidity is limited and that kind of creates a lot of challenges for both your clients and institutional clients as well

Matthew Gordon: Well I imagine with the institutions you’re having different sorts of conversations. it’s like they need to see X market cap they need to see why revenue potential near-term revenue. So those are very different conversation. So but you’re getting in there, obviously working.

Bryce Crocker: Yeah so far I mean it’s been a difficult market but we’re excited. Both of these transactions set us up. And in terms of really making that transition to become a producer particularly the Cobalt merger.

Matthew Gordon: Yeah. Well let’s talk about okay. So when I spoke to you, you were telling me about M2Cobalt great asset another great asset, great exploration team. Tell me about ECobalt because I think… The thing I thought quite interesting about that you’ve got a neighbour that lives next door to it this year you might know. Is Glencore not an owner of Assets nearby?

Bryce Crocker: No… Glencore and Blackbird correct, they’ve got the old Miranda close site, correct.

Matthew Gordon: Got it. Okay. So tell us about this transaction.

Bryce Crocker: So I guess why we’re attracted to a Cobalt the Idaho Cobalt project is it has the ability to transition us to become a producer. Much more quickly than could otherwise have occurred. So Kabanga in Tanzania and Kilembe in Uganda, they are assets that are in negotiation with both the governments in their respective jurisdictions they’re exciting assets that shouldn’t naturally sit within companies Jervois size. So that’s why we’re chasing them. but equally if we’re awarded tenure by either government tomorrow realistically they’re three years from first production. So three years is obviously it’s a reasonable period of time in the eyes of capital markets. the attraction of Idaho is  it’s been significant investment at site. They are $100M in, the resource: The quality of the resource is high 0.6% Cobalt, 0.8% Copper. DRC type quality. Without being in the DRC. Small. Smaller than the DRC. That’s 5Mt of inferred resource not 50M or 250M but very high quality and very relatively low development risk. They’ve probably got… they’ve got a pathway for production. Once we finalise the definitive feasibility study when we take control. Once you start that box cut and open the portal you’re 12 months the first door on the mill and then the commissioning is almost instantaneous as opposed to a large metal… If you’ve got a large part metallurgical or hydrometallurgical facility you’ve got a three year commissioning period. Three year construction, three year commissioning very long dated very high risk. This… the CapEx is small.

Matthew Gordon: Why?

Bryce Crocker: It’s executable with a simple sulphide underground mine. The tonnage is… they published feasibility studies on 800T per day. Of which the mine and mill was around $50M at the time they’re increasing that now to 1,200T per day which is the capital is going to rise but not significantly. But these are the type of projects that companies our size should be doing. I don’t want to be a junior mining company, I’ve said it very clearly that where you’ve got a $50M market cap and you’ve got this project that requires half a billion dollars in equity it’s a waste of time. Who are you kidding. You can’t do that. All you can do is sell it.

Matthew Gordon: So tell me more about the deal. How do you structure that? You say “by taking control”, so what does that mean?

Bryce Crocker: So yes, there’s two transactions. There are plans of arrangements so there are no or at market mergers. Both the M2 merger, then the ECobalt merger, independent subsequent transactions. So the M2 circular goes out next week. So that’s essentially a prospectus on Jervois for all intents and purposes. it will contain the PEA on the Nico Young project in Australia. which is our foundation asset that goes out next week and the shareholder date for the M2 merger is 14th of June. There are plans and arrangements. We need sixty six and two thirds voting present for the M2 transaction we have over 50% lock up. High probability of that going through. High probability of both transactions going through but the lock up’s on M2 make it almost arithmetically certain.  The ECS transaction, because the transactions is separate, the circular for the ECS merger will go out immediately after the M2 shareholder vote. Once the positive votes received the ECS shareholder circular goes out and the shareholder date will be the third week of July. So after the third week of July the pro-forma based on current prices the pro-forma of market capitalisation in the group will be approximately $100M

Matthew Gordon: You’re up there. You’ve kind of leapfrogged up to where you got noticed

Bryce Crocker: Yeah I mean we’re not doing it just to get noticed. We’re not in the business of getting bigger. Just for the big… just to get bigger. But for the reasons that I outlined in terms of the asset it does transition us because we’re going to be in production far more quickly than we would have been otherwise. We’ve got a project that’s essentially halfway constructed that we’re going to finish. what it also means…I mean it always, we had a long debate, essentially myself and all of the board we’re all compensated on value per share. So we’re very focused on dilution very focused on how we manage the capital base. Essentially there was an opportunity. Sure, I don’t want to issue shares at 25 cents, I have a perception that that’s significantly undervalues Jervois. But also this was an opportunity where markets are weak, the opportunity for others to raise capital is constrained. And the relative under-performance of other stocks was obviously significant relative to where we were. So it created an opportunity for us to do a transaction on favourable terms and it also means for both M2Cobalt and ECobalt shareholders – they’re along for the ride, they’re part of the story that we’re now moving forward together we have a team that can deploy and can construct and commission finally the Idaho Cobalt project and I actually want to do it now while Cobalt markets are weak, because for all of our shareholders whether they’re currently Jervois, M2 or ECS shareholders we want to be in production when prices recover and prices will recover. That’s one thing to say.

Matthew Gordon: I think everyone’s a big buyer of the EV story, battery metals should be doing well, for some reason at the moment that’s a bit of a lull but it’s coming. I think that’s a story which is well told, you told it you know in various conversations that you’ve had. But I want to talk about, not necessarily about the deals that you’re doing, I want to talk about the deals that you’re going to be doing. So you’ve got a strategy here, your thesis is Cobalt Nickel and…

Bryce Crocker: Cobalt Nickel Copper.

Matthew Gordon: Copper. Of course. That’s your theme and you’re gonna stick with that’. you come from a background of big companies, want to build and mid-tier. You’re up to circa $600 US now potentially when these deals happen. what’s the future look like for you, what is the strategy? Are you going to continue an M&A strategy, are you going to be acquisitive?

Bryce Crocker: I’m a big believer in never boxing myself in especially not where cameras are rolling so I’m not going to say definitively I’m never going to do a transaction because then I’ll come back and do an activity level of X Larry. The audience can replay that. But equally. It’s not a scattergun approach because we want to build an operating company that has to be focused right now.

Matthew Gordon: On what?

Bryce Crocker: Focus on constructing operations and what we have now as part of the portfolio we’ve got essentially a development project in Idaho which needs to be built. we’re in discussions advanced discussions with as I said the governments in Tanzania and Uganda. So the way that we’re looking at from a portfolio perspective is Idaho is going to be core as part of what we do. East Africa is also important. will we not do another transaction? I think it would be… we’re looking at anything else very very carefully. I’m certainly being explicit now in institutions who I made here in London now that we won’t do DRC. up until now we’ve looked at assets in the DRC. We understand as much as one can the DRC and it’s a tough jurisdiction and for those reasons as well with the dealing, because we’re also running through our residual asset, core asset in Australia, The Nico Young project we’re looking for offtakers for that to partner. So that’s not an organisational focus for us, for capital perspective. We’re still managing  it, but we’re not allocating any capital and dealing with the AMS on that. It’s clear that having… having an entity that can provide raw materials that doesn’t have anything coming from the DRC is just…

Matthew Gordon: I get that, but the bit I want to understand is, you know, some companies create value by doing M&A constantly M&A just rolling up and they do drive share price that way, but they forget about the business. What you’re saying is we want to focus on the business. The value is going to be created through developing the three assets that we’ve got but you will look at other opportunities but your focus is on what you’ve got today.

Bryce Crocker: We’ve got our hands full organisationally with what we have. That’s not to say we wouldn’t look at other opportunities sometimes other opportunities come with teams such as the deal in Uganda with M2. We’ve got a team essentially that was already undertaking that exploration. So I’m a big believer in focus and not having a crap shoot and just going out and looking and kind of chasing assets and disparage geographies I think for juniors as well, or for small mining companies I mean obviously we’re heavily focused on Courtney DNA heavily focused on overhead on expenditure and it’s important to… if you really want to move forward projects you can’t do it sitting behind a desk you have to be out there and myself and the board are very hands on. It’s again a different type of culture I guess and our board meets monthly. I’m here in London with Peter Johnson and Simon kind. Now we’re heading back to Africa shortly. BRIAN KENNEDY My non-executive he’s been with me for seven or eight times to Africa since we joined 18 months ago. The board’s hands on we are really… it’s quite a different type. I guess when I look through and when we do these type of transactions with others you do see it level… And it’s fortunate for me the level of support I get from my board is very very different to many mining companies

Matthew Gordon: It’s interesting, the assets at the moment you know you’ve got I think Nico Young with a pre-feas due?

Bryce Crocker: Now. It comes out… the PEA comes out with the M2 circular. so the M2 circular is essentially, it’s a prospectus on Jervois for M2 shareholders, So that contains a 43-101 PEA.

Matthew Gordon: It’s in there OK, great

Bryce Crocker: So there’s a 500 page technical report and everybody’s going to look forward to that.

Matthew Gordon: We might have you summarise it, that might be the smartest thing to do. Okay. And then with Idaho that’s got a feasibility on the way, what’s the timing on that?

Bryce Crocker: We’re working through. Peter and I were there with our, some of our directors last week.  we’re working through and agreeing on what is going to be the work plan. finish the definitive feasibility study. So that when the shareholder vote yes goes through on the third week of July we’re ready to deploy essentially immediately. With regard to the drilling that’s required both to finalise metallurgical test work, improve the quality of the resource before mining.  And also just to really just we think optimise the DFS, the DFS significantly . That will be finished in March 2020. We’re already talking to finances on the debt side with the intention that we’ll construct immediately and then its 12 month runway As I said earlier. First all .

Matthew Gordon: Okay. And then Kilembe, obviously, exploration

Bryce Crocker: We’re making progress with both governments on prog. I mean our intel is very good.

Matthew Gordon: Progress on what?

Bryce Crocker: So if you take them in turn we’ve applied in Bangor in Tanzania. So get back is the best undeveloped Nickel sulphide deposit in the world by another 60Mt of sulphide resource at 4% Nickel equivalent. So it’s on a par with Thompson Manitoba Raglan voices by phenomenal asset. Obviously Tanzania has been through a difficult time politically or as it pertains to the mining industry. We’re talking to government. We’ve applied for what’s called a prospecting licence.

Matthew Gordon: All right. What’s that? And that just lets you continue what you’re doing?

Bryce Crocker: Essentially I mean obviously Glencore and Barrick spend $250M U.S. before the deposit was removed because they failed to develop it. So it’s called a prospecting licence but obviously there’s no prospecting that needs to be done. We just need to update the ESEA update the DFS and that’s a year process. Once we get tenure. we’re negotiating with the government there’s a couple of other parties who are also negotiating but we’re well-placed and the government also looks at us… they look at us credibly because they don’t see a junior mining company…

Matthew Gordon: When you say there’s a couple other parties there, what does that mean, on the same asset? are we bidding here or is it?

Bryce Crocker: That’s not a bidding process it’s a negotiation with the government as to how that money… how the project is best moved forward and you should have stewardship or ownership of that.

Matthew Gordon: And that’s I guess… And having worked in Africa myself for quite a few years, you’re gonna need to give them comfort or certainty and that’s got to come around your ability to finance moving this thing forward

Bryce Crocker: I think the government looks at us and this applies to Uganda as well. I mean if you look at the backgrounds of our boards collectively we raised I think $40Bn US in the mining industry so there’s probably only, aside from my co-founders at Xstrata, there’s a very small pool of people in mining who have done that

Matthew Gordon: True but there’s different circumstances. So you’re a new company. It’s your company your board’s company, shareholders’ company.

Bryce Crocker: But I think the credibility, the government they understand and we can raise the capital that there’s no… They look at us and they see that we have the technical ability to construct and operate mines. And they also I mean, ultimately it comes down to your track record. There’s plenty of junior to go through and say they can raise the capital.

Matthew Gordon: Well that’s the problem for these guys. This happens all too often people come and go “Yeah the money’s tight, it’s fine”, but it’s not, it’s a wing and a prayer. you think the conversations, you’ve been about to lend comfort.

Bryce Crocker: Yeah I think that they look at us and to be honest the financing isn’t…There are issues we’re working around with governments, ability to raise capital was not one of them.

Matthew Gordon: Great. Okay. Well that’s good news. What are the things that they ask you about? Just so, it’d be interesting to know.

Bryce Crocker: they want to under… Both countries want to understand What are you going to do from, how it’s going to be managed. They’re obviously looking at the way we’re building out the business and want to understand what they have as a priority which is understandable. I think there’s a greater focus now on environmental standards on social standards on the with community which places us in a good position because again we come from large mining companies. I’m a big believer in fit for purpose. So you don’t have to necessarily apply the same approach to capital intensity and de-risking in a junior mining company is what you do in a large mining company, you can kind of be more nimble and more agile, faster. But equally things like environmental standards safety standards they’re critical so that… the host governments they, I think, that’s where we have a competitive advantage over others. They do look at us and they look at how M2Cobalt has been operating in Uganda for example the kind of insight they were extremely well regarded. they’ve got a track history. They’ve been in the country as it pertains to Uganda protectorates. And we also through our history kind of know the asset and know the country quite well as well.

Matthew Gordon: That’s true, and what about from their side, of their side of the delivery. I mean what’s the mining code like in these countries? tax, royalties…

Bryce Crocker: Well Tanzania’s well publicised they’ve gone through some changes which have been complex. I mean we’re working through the government with those we’ve said that we believe we have a mechanism where we point whereby we will operate within their existing mining laws and that can be done. Uganda is very much open for business very positive very welcoming foreign investment into the mining sector and obviously Colombia. And the case CCL. See Cobalt refinery is a strategic asset for the country. I mean it when trial committee was operating it was 10% of the country’s GDP approximately.

Matthew Gordon: And You need some reminder of the terms again. You’re gonna be 100% owners of M2 and ECobalt?

Bryce Crocker: Correct. Their plans of arrangement. So essentially they become Jervois subsequent

Matthew Gordon: And you haven’t inherited any risks liabilities and all of that?

Bryce Crocker: Not that I… other over and above what was already in M2Cobalt and ECobalt. But obviously we had detailed due diligence on both

Matthew Gordon: Right. Let’s just recap for investors. Your plan here is to partner for Cobalt copper be a mid-tier. You’re at that phase at the moment where you’re having to have a conversation… no, you are having conversations about financing because you potentially are quite close to…

Bryce Crocker: My background’s in lending and you start conversations early. I mean I want to obviously get the most competitive source of finance and took in this for example Idaho.  And part of that involves making sure that the banks can do their due diligence. You’re not forced into alternative providers that many REITs.

Matthew Gordon: So people when they hear that they make assumptions around dilution. Okay. So…

Bryce Crocker: I think, I mean obviously at some point in time once the DFS is finalised we will be raising capital to, as part of an overall financing package.  To go into production but that’s of a very different base as to where we are now. At that point in time we’ve completed a definitive feasibility study. There’s a debt package in place that’s confirmed because equity is almost in the last path of tips. And I’m also very straightforward I mean people will sit here and I’ll talk, because I could not use equity I mean I could stream, I could use royalties.

Matthew Gordon: But it’s still dilutive…

Bryce Crocker: I’m a simple person and I… shareholders don’t buy our company for me to stream out Cobalt exposure. I think that’s rubbish. I’m not scared of equity and I think that we do it at the right time. Obviously where everyone associated with the company is highly motivated, personally motivated by the value for share. So we’ll finance in a measured and appropriate way. But also not introduce because… Idaho is part of our story it’s not the only story. I’m not going to gear off the company and introduce too much leverage by being afraid to issue equity. but these is the pool of capital that’s open for construction equity is large.

Matthew Gordon: That’s true. And so you’re trying to, again correct me if I’m wrong, you’re trying to move the company from a small player where perhaps it’s got more risk associated with it you know with lower market cap, the ability to raise capital et cetera to survive. You know wherever we are

Bryce Crocker: The company’s survived for a long time it has been on the ASX for 50 years. I just think that I mean we wouldn’t have assembled the board and the management team we had if we were looking to not build out a significant operating company.

Matthew Gordon: Well that’s what I’m getting to I think it strikes me through reading through the various material that is out there about you, you’ve got the mentality of a bigger company.

Bryce Crocker: Most junior mining companies they don’t want to do this because they don’t know.

Matthew Gordon: It’s about survival right?

Bryce Crocker: Well but it’s also this is hard work building mines and constructing operations that’s three or four years of your life you’re not getting back in a part of the world is not adjacent to where you live.  But we’ve got a team that none of us have retired. Everyone’s rolled up their sleeves and got go right on the board and we’re going to make it happen.

Matthew Gordon: Well yeah. Okay. That’s the insider’s view and from an investor’s point of view and again, I’m focused on retail high net worth family offices here, they don’t necessary want to sit around for three or four years with the shares not doing anything. So why don’t you leave it with: Where’s the value coming from. What are you doing and what do you want people to think about when they think about Jervois mining?

Bryce Crocker: Yeah I mean I guess we’re obviously highly focused on shareholder value and it’s not shareholder value just in four years time. I think if you look at what we’re doing we’re creating something because it’s we’re also conscious at the end of the market what’s required. So we are undertaking a drill program currently in Uganda for example. So the PEA which comes out in North America we have to circular as a PEA due to the inclusion of inferred resources. We made a conscious decision not to spend $5M drilling out the resource to measured and indicated to support a higher classification on 43-101 studies. those funds are being redirected to Uganda because as a junior mining companies infill drilling a lateral resource there’s no news flow there that’s going to get our share price going. Uganda is highly prospective it’s the DRC geology crosses the border it doesn’t stop obviously on the boarder and the rock samples that we’ve had published in and you can see the numbers and it’s extremely exciting and that’s where as a junior mining company if I’m going to spend money drilling that’s where I’m going to drill because that’s where I’m going to get in the section that’s going to put a rocket under the stock and do things for retail and do things for us and be able to give us more flexibility. That’s a better use of shareholder funds. If you’re in a $50Bn mining company we would’ve probably spend it elsewhere but it’s at this end of the market. We have to be cognisant of what works from a capital markets perspective but also spending it in the right way insofar as we’re not just drilling for the sake of drilling we’re not promoters we’re not… These aren’t how Mary is that it’s just kind of getting thrown out there hoping that something sticks. There’s… we’re excited by what East Africa represents and I guess from a capital markets perspective we’re trying to create something that’s got some developed world assets stable secure generating cash flow. But you’ve also got for the equity investor and for us as owners of the business that East African upside where if you get it right you can make 10 20 times money or money returns which is what you need. I mean obviously people don’t invest in a company like Jervois they want to invest in a low risk 5%-10% return on mining invest we are going to invest in BHP and Rio. We’re all doing this because we think we can do exceptionally well and generate money on money returns. And essentially the owners of the business alongside us think likewise.

Matthew Gordon: Yeah. And you’ve done it before.

Bryce Crocker: We did it at Xstrata, together with I guess the quality of the team we had at Xstrata was profound. One of the best management teams I think that’s been around the industry and I had the good fortune to kind of sit on the coattails of that and of the quality of the team we’re assembling at Jervois. It’s not everything. The guys we… no one’s , we’re not  alchemists but if you get the right people in place have the right philosophical approach then good things happen and that’s our strategy.

Matthew Gordon: That’s great. Great summary, lovely to catch up with you and see you. I know you’re jumping on a plane tonight but when you come through London do come and see us. Love to hear more about things as they develop

Bryce Crocker: It’s great to talk to you. Thanks for the opportunity.


Company website: https://jervoismining.com.au/

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Cobalt 27 (TSX: KBLT) – Cobalt & Nickel Royalties and Streaming (Transcript)

CRUX sat down with Cobalt 27 (TSX: KBLT) Chairman and CEO, Anthony Milewski. Is ethically sourced Cobalt & Nickel important? Does China care? Do they also focus on Lithium? The battery market and stainless steel is driving recent growth in Nickel so how can Cobalt 27 take advantage of that? And will copying Franco Nevada and Wheatons business model work for them? More deals than anyone else in the space over the last two years, now it’s time to give something back to the shareholders by focusing on cashflows. Hear Anthony’s insight on all of this and more.

Click here to watch the interview.


Matthew Gordon: How are you Anthony?

Anthony Milewski: Hey Thanks Matthew for having me…I’m great thanks.

Matthew Gordon: Thanks for joining us. Why don’t we kick off and kind of set the scene for everyone and give us a two minute overview of Cobalt27.

Anthony Milewski: Yeah. So you know when I think about Cobalt27, I want to step back and really start to think about the world. And know what we’re seeing today is a structural change in two of the most important industries in the world. Namely the energy business and the automobile industry. So you know if you if you think about crude oil today, something like 60% is used in transportation, maybe even more than 60. If you think about the automobile industry and what’s happening there. You’re seeing almost every automaker in the world transitioning into electric vehicles and hybrids. You’re seeing autonomous vehicles, and the rise of the autonomous vehicle sort of any day now coming out. I don’t know if you would have noticed in the last kind of week Tesla announced a million of these vehicles in the next year. I don’t know if they’ll hit that target. But you’re seeing massive disruption. And you know when we set out to create Cobalt 27, we’re thinking about how do you capture that disruption as an investment? What is the best way? And what we realised was it’s tremendously challenging, because while we can all agree that these changes are coming and you can’t really stop them, what we weren’t able to kind of nail down was how do you play it. Do you buy Tesla stock? I don’t know maybe actually Ford is going to be the winner. Potentially Beijing Auto. I don’t know. Maybe you should buy ENvida the chip maker. Maybe you buy one of the sensor makers. And then we realise something, which is so long as you believe that there’s going to be a winner. So long as you believe that there are going to be electric vehicles sold, the winner is actually basic materials. And the reason is is because every single electric vehicle, every single hybrid is going have a battery and that battery is a Lithium ion battery that has Lithium Nickel, Cobalt, Manganese. You know these basic materials and so we set out to create a proxy for the adoption of the electric vehicle. That disruption of the energy industry and that proxy is really Cobalt27.

Matthew Gordon: Okay. So I think there’s a general acceptance that people are moving towards electric vehicles, batteries whatever they do… Storage for homes is all coming coming down online and there’s a lot of information in the marketplace about that. So tell me a little bit about your strategy because a lot of companies come to us without a business plan. They’ve no written business plan which surprises me, having worked outside of this space. So tell me a bit about your strategy and why you think that’s going to give you the edge.

Anthony Milewski: That that’s very simple. We have copied in a way, Franco Nevada or Wheaton Precious business model which is streams and royalties. We are not miners. We go out and we seek to do streams and royalties with world class partners. So if you look at the first Cobalt stream ever done, we did with Vale. So Vale is a world class mining operation right. So they’re the operator of the mine. If you look at a transaction that we’re in the process of closing, it’s a Nickel Cobalt mine once again in operation, MCC is the operator. So the business model is very similar to the Franco’s in the regions of the world who focus on precious metals. But what we’ve said is we’re going to replicate that business model but focus on the battery metals, particular Nickel and Cobalt that are absolutely critical to the Lithium ion battery.

Matthew Gordon: But you also have some physical product that I notice and some interest and other battery metals as well so it’s not as a pure royalty play is it?

Anthony Milewski: No I mean you know you have to kind of play the hand you’ve been dealt as a where and because of this speciality nature of of Cobalt and Nickel we had to be a bit creative. And when we launched the company we actually launched with 2,000, approximately, 2,000 metric tons of Cobalt. And then we bought another 900 tons subsequently you know a few months after the launch.

Matthew Gordon: Why do that? What are you doing, hedging?

Anthony Milewski: Well no so that was that was the foundation of the balance sheet. So you know when you have a physical commodity like that you can actually take leverage. And in the early days we wanted to build the balance sheet so that we could do the subsequent transactions, like the acquisition of the royalty Voisey’s Bay or the Dumont royalty. So that was really a strategy around building a balance sheet.

Matthew Gordon: So I mean so how does it work? You’re you’re leveraging that? Why wouldn’t you just sell it into the market?

Anthony Milewski: So we we have it is leverage to this point. However we have a credit facility available to actually leverage it.

Matthew Gordon: A couple hundred million.

Anthony Milewski: Exactly. So why why don’t we sell it? I think one of the things so I’ve talked to briefly about the fact that we’ve replicated the Franco Nevada model, I think one differentiated aspect of our business is we’re creating an ethically sourced supply chain. So everything we do is outside of the Congo and we can talk about it later. But there are a lot of issues around conflict minerals with Cobalt in the Congo. And so, one of the things in having this physical Cobalt position, having the Voisey’s Bay stream, you have flow of material, as it were, which is all outside of the Congo. So at some future date if a battery maker an automobile maker wants to step in and actually take that material, it’s another available source. So we sort of see ourselves in addition to copying the streaming and royalty model, we’re actually creating a conflict free supply chain outside of the Congo.

Matthew Gordon: I was going to ask you about this later actually. So explain to people what’s going on in the DRC which makes that problematic for you as an ethical sourcer.

Anthony Milewski: Yes so. So to be very clear we have zero investments in the Congo and we’ve told everyone categorically that we’re not going to invest. That a very important point. But what’s going on there is very straightforward. Some of the highest-grade Copper, some of the highest-grade ores actually sit inside of the Congo. And what happened and has happened for Cassiterite which is Tantulum and a bunch of other materials over the course of last 20 years, is that when a given basic materials price gets sufficiently high, it’s actually economic for literally an individual to go out there with a shovel. Dig up the ore and put it in a sack and sell it right and sell it. You know wha.. what happened and has been happening for a long time with with Cobalt in particular, but a bunch of other metals have suffered the same fate, including Copper and Consitterite and Tantalum is that you know in these situations where they’re very poor, you know people bring their kids along and so you have people who are missing school, or you have a family member or friend who’s kind of having this child, who might be 10, 12. I think there’s some great wall street journal reporting on this and Global Witness is reported on this. They’re having these children out there digging this this ore, that’s ultimately getting put into the supply chain. Where we come in and are saying look we can’t fix that problem. I believe people can fix, but we’re not unable to fix that problem. So what we’re offering is a product where none of our material touches any of that supply chain. And  what we think is, you know the early adopters of electric vehicles in particular in the US,  Canada and Europe. I think their green individuals. They care about the environment. And so I think that they care about the supply chain of the materials that comprise a lot of electric vehicle. And they want to know that their new, name the name of the car, is actually not having conflict Cobalt inside of it.

Matthew Gordon: Is this a marketing thing? I mean are we saying that these companies will find it easier to market a green product? I know it’s ethical but you know that there’s a kind of bond between is that. Is it a gimmick for marketers or is it a genuine concern for these countries?

Anthony Milewski: I think the companies. I think it’s also a legal concern. I mean you know if there are law like in the US I’m familiar with. You can’t be like, you can be selling a product with known conflict materials. I mean you know so you run into legal issues. I think it’s twofold. I think there’s just an ethical issue, but I think there’s also a legal issue. And look I do believe that with time, you know companies are thinking about ways with block-chain and different technology to bag and tag, which is what they did with Tin. Meaning you know you go all the way back to the source. You put it into a bag that you can verify, then they put a barcode on it. None of these systems are perfect but none of them properly exist for Cobalt yet.

Matthew Gordon: So. Well yeah. You say they’re not perfect. So who measures monitors what is and is not ethical?

Anthony Milewski: it doesn’t exist. I mean I think if you’re a cathode maker, a battery maker, an automobile maker, at the moment what you do is you buy directly from large mechanized miners. So you buy from them Glencore or a Vale. I do believe that those companies are able to look through the supply-chain. But I think there’s only so much Cobalt that’s produced by those companies. And so as soon as you step in to like an aggregator, I think you start to enter a pretty murky space. Which we’re completely avoiding. And you know people are making efforts to clean it up. It just will take time.

Matthew Gordon: In the Congo?

Anthony Milewski: Well what they’re what they’re doing, is they’re they’re trying to create tracking systems. There’s a couple of companies trying with block-chain technology, to really be able to demonstrate that, we’re talking about Cobalt, but this could be true of any of them. Just like Look here’s your car, by the way here’s the manifest. The Cobalt from here and it’s sort of ethically source but you know it’s a very complex issue. I’ll give you an example. If you’re a refiner or processor and you have 15 sources of Cobalt, 14 of them may be legitimate but if the 15th one isn’t, it all gets mixed up and then it taints the whole….the LME by the way, the London Metals Exchange, they’ve announced that they’re taking steps to try to look back into the supply chain. And so I think people are aware of the issue. It’s just very complex and it’s not going to be something that’s just sorted out. You know like that it’s going to take years.

Matthew Gordon: Yeah. Well I guess in the meantime there’s always going to be a market for…you are determining, well and others, are determining as unethical or not green.

Anthony Milewski: Well I mean there’s always there’s always gonna be a bet there will be that market. But I can tell you we spend a lot of time in China. I was in Beijing last week and there’s this kind of idea that the Chinese don’t care. And I think that’s completely false. I can tell you we were with a lot of major automakers, battery makers, they’re acutely aware of this problem as well. And they care also. I mean you know they, in China and we can talk about this. China is really setting environmental policy globally around the adoption of electric vehicle. You know the intention there is ultimately not to sell you a battery, but to sell you a car. So you’re driving your Beijing auto car in London. Like that’s going to be the future. But setting that aside. So they’re acutely aware of this problem and I can tell you that the Chinese consumers who are making these electric vehicles they don’t want to buy this stuff either. And so the problem isn’t… it’s a global problem I guess is what I’m getting at.

Matthew Gordon: Yeah  I think that’s going to become come onto China later. They seem to be leading from the front on ..certainly in the battery space at the moment. Tell me a little bit about you? You come from a financial background. I think you position this as a financial play, what you’ve constructed here. So tell us a bit about you. How that’s informed your thinking and the strategy of the business.

Anthony Milewski: Yes so look I’ve spent my career primarily as a Resource investor. Investing primarily in metals and mining, but also oil and gas to a lesser extent. And you know in Europe and New York. And it has highly informed the business because we really are taking a risk adjusted return portfolio approach. You know we tried to dilute concentration risk. We have multiple royalties, across a number of jurisdictions.

Matthew Gordon: But all battery metals related?

Anthony Milewski: All really at the moment Nickel and Cobalt related.

Matthew Gordon: Just those two? Would you be looking at the other battery metals as well?

Anthony Milewski: You know look I think our investors are primarily interested in that class one Nickel that goes directly into the chemical industry and Cobalt. So that’s the focus. I mean there are Lithium miners so you can actually go buy a Lithium company. And by the way there are actually a lot of Copper miners as well but Cobalt, as a byproduct, is very hard to invest in, in fact, I don’t think there’s any real legitimate way. And then you know the kind of Nickel that goes into batteries, once again it’s a harder play. And so we have that focus. And then within that focus, we have this portfolio approach of multiple royalties and streams, across multiple jurisdictions and so in a lot of ways it’s kind of trying to kind of diversify risk, such that if one asset something happened you sort of don’t cause a cataclysmic problem for the business.

Matthew Gordon: Tell me. Royalties is an interesting space. There’s not that many players in it. How do you, as an investor in this space, this is a financial product for you. Do you have any say in what the company’s doing or are you just looking at balance sheets. And going that where we are now.

Anthony Milewski: So there are like I mean each… one of the great things about the product is very bespoke. So each royalty or stream is addressing a specific concern a specific situation for that company. But one of the reasons I think why the company is like it is, you’re not running their business. This is their business.

Matthew Gordon: Do you have a say in it?

Anthony Milewski: You definitely don’t have a say but. But the structure is such that you do have protections. I mean you have minimum throughput right. You know you’re covering the entire mine because like if you just as by way of example, if you just focused on a little area you could create an incentive to mine a different part of the mine. So you structure the contract. And remember the industry has been around for over a decade now and so people have kind of learned from some of the early mistakes. But what I would say is you’re definitely not operating that business, and through the structuring of the contract you have protections.  But it’s a very hands off light touch approach.

Matthew Gordon: Say the hard work for you is determining which companies to invest in and structuring the agreement.

Anthony Milewski: And also getting them interested. You know because when you’re when you’re dealing with a counter-party that is a large, a large miner there has to be a reason why they want to do it as well.

Matthew Gordon: Yes. Yes. They are producing, they got options and then it’s a question of what’s the cost.

Anthony Milewski: Cost of capital….

Matthew Gordon: So what you spend your time doing then? If you’re sitting back looking at numbers I mean what was your time spent doing? Are you looking at M&A constantly.

Anthony Milewski: Yes so we have a list of probably almost every single Nickel Cobalt project in the world. I mean it’s an Excel document. And you know we track very closely the lifecycle where the companies are at. And then we have kind of a short list of situations. Companies that you may not even realize and I won’t say it in public. You may not even realize produce Nickel Cobalt and maybe there’s a capital expansion and they’re there fixing the refineries. Well hold on a second. They don’t even show that there’s Nickel there. But we know there is. So they’re getting no credit for that Nickel. So if we come to them and say here’s $100M ust by way of example. Then there would be other companies that would be moving along the development timeline and then there’d be a divestitures and maybe a companies buying into the company and they need asset finance and so they’re really buying a Nickel project. So these are all these different situations and we monitor them.

Matthew Gordon: But this isn’t about their needs. It’s about your needs. So talking about the structure is like what are you actually looking for? You’re looking for a quick monetisation event or you kind of building something bigger than that which when all the parts put together when.

Anthony Milewski: You mean Cobalt 27 specifically or?

Matthew Gordon: Yeah.

Anthony Milewski: So you know these contracts are usually life of mine. So you’re talking about getting product potentially to 30 or 40 years. So this is this is a business…

Matthew Gordon: It’s at your discretion you can opt out or cash in out or sell …

Anthony Milewski: The way the agreement works like take Voisey’s Bay. That’s the wife of mine. Or the royalty at Turnagain. That’s for what’s potentially 60 year of mine life. So these are very long duration contracts. And that also makes it attractive because ultimately if you’re an end consumer of the product. You can have this visibility than on the life in this particular mine.

Matthew Gordon: So give me a sense that. A life of mine this can be up to 60 years?

Anthony Milewski: But I could say…that’s one particular mine.

Matthew Gordon: What are you averaging?

Anthony Milewski: It’s very different. I would say by the time people put billions of dollars of CapEx into something. I think you’re talking 20 to 40 years on a lot of these.

Matthew Gordon: That’s right. And that must make the cost capital for you a lot cheaper?

Anthony Milewski: Yeah of course. I mean when you take an asset which is in production, or almost a production, you know the funny thing about finance is you know it’s like if you use a 10% discount rate after 10 years everything is a zero. But I can tell you that we can all agree that’s a nonsense right. So say it’s sort of the funny thing about the cost of capital and and how you look at these investments. So you actually have massive upside just because of the nature of the discount rate which is kind of this esoteric thing which people don’t care about in the short term. But as you compound these royalties and streams and you keep adding to the portfolio. You actually ultimately are creating a huge free cash flow scenario in years to come right.

Matthew Gordon: Well absolutely. And so what we… actually tell this how long you’ve been with the business?

Anthony Milewski: So my partner and I Justin Cochran and I took it public about two years ago.

Matthew Gordon: Right. Okay. And what mostly kind of major moment? Did you did you get the strategy right from day one or was there a moment where you thought actually…

Anthony Milewski: That it was always the strategy to begin with. Go back and read the prospectus. I think even in the prospectus although we were focused on that physical at that initial physical holding when we went public. Even in that initial prospectus when you read it you can see that this was always the business plan. I mean we really even from the earliest days when we were putting the team together. You know Justin he spent, prior to joining us he was at Sandstorm which is one of the other companies in Canada. And then prior to that he was a banker at MBF. Doing the streams and royalties and so rock even like the formation of the team was two fold. One was getting the technical industry knowledge and then the other of course was the actual financial knowledge. And so this was always kind of the plan.

Matthew Gordon: So what’s it look like going forward? I mean you’re starting to build up a body of work as it were, a portfolio which gives you the credibility in this market. I mean is there a limit to this? How much think you can manage? You could quite a big board in a lot of advisors on there.

Anthony Milewski: So remember that there’s a board and there’s advisory board. There’s the advisory board is unpaid advisors who kind of help on the way. But the actual board as it is is kind of just I would say standard. So I think we’re kind of at a moment now where Voisey’s Bay was closed earlier last year and you know Highlands Pacific acquisition closes in May this month. And it’s time now to let the cash flow start coming in and let the share pressure appreciate. You know we we did a lot of capital raising in the first couple of years. We had a lot of price volatility around the commodity. I think it’s time now to let investors kind of reap the benefit of that. And so I don’t I don’t foresee anything immediate just because we need to kind of let the stock age here a bit.

Matthew Gordon: Because I guess you’re trying to bond or weigh up the options in the marketplace, because the price of commodity prices, certainly battery metals, even Gold, uranium. There’s a few  commodity prices which are suffering which often says opportunity, especially for companies struggling with cash. So you’ve got cash. People need cash and your big spreadsheet must be telling you there’s a few key people out there at the same time you’ve got these shareholders you’re saying it’s important to declare.

Anthony Milewski: Including Myself.

Matthew Gordon: I mean when you say we got to look after shareholders…?

Anthony Milewski: Ultimately the businesses.. the endeavors are not worth doing if the people who invest in the business are making money. I mean that’s fundamentally and I can have support. Yeah. And it doesn’t make sense. So we’ve been exceptionally active. I mean we raised hundreds and hundreds of millions of dollars in the last few years. We’ve done… I’m not I’m unaware of anyone who’s and more I’m in terms of deal numbers. And so I think there’s just a certain fatigue. And now you have to kind of let these assets settle into the business.

Matthew Gordon: Breathe a bit.

Anthony Milewski: Yeah I mean think about it. You have Voisey’s Bay. You have Highland Pacific to premiere world cost and assets on the developments on you have Turnagain in the largest Nickel sulphide, undeveloped Nickel sulphide. You have Dumont. I mean you started going through that. This has happened in two years. You know we had… we raised 300 and then we raised two hundred, we raised one hundred. A lot has happened in a very short period. And you know it’s time now to kind of digest it.

Matthew Gordon: I get it.

Anthony Milewski: Yes. This is what it is.

Matthew Gordon: So we talked about the board . Tell me about the active members of the board and the management team, people who are actually involved in the day to day basis?

Anthony Milewski: So I think on the management side besides myself we have Justin Cochran who as I described he’s really one of the one of the top streaming guys in the world. And he really joined because he has learned from the good and the bad and the ugly of the streaming industry over the last decade. Because it has evolved.

Matthew Gordon: In what way?

Anthony Milewski: Like just as a basic example like in the early days of a streaming royalty they had terms which might have been so oppressive that if anything went wrong with the mine, it could send it into bankruptcy. So there’s a little kind of things like that.

Matthew Gordon: Death spiral type structure.

Anthony Milewski: Exactly and so it’s completely evolved away from that or like a basic example can be you know if this is a piece of paper you know if this is your mine and you’re only streaming this little portion over here, you create an incentive for them to mine it over here. So that when you create that diagram you take the whole.

Matthew Gordon: So that your effective strategy on a company which you shouldn’t be running.

Anthony Milewski: Exactly. So the point is, I think the whole industry has learned from these from these evolutions as it were. And Justin was there through that process so he kind of brings that really critical knowledge of the underlying document.

Matthew Gordon: This is tough. Been there.

Anthony Milewski: The next guys called Martin Vedra. Right. And Martin is a very interesting case. So he was 30 years at Sherritt. And he worked in you know he was at MOAA which is the Nickel Cobalt mine. He was in the Technology Group. So he brings a real depth of technical knowledge about Nickel Cobalt operations globally.

Matthew Gordon: Right. So he’s part of the assessing process.

Anthony Milewski: Yeah I mean he’s just generally critical. I mean if if he’s going to look at a mine or talk about processing I mean really you’re talking to Martin, sort of 30 years of experience there. And interestingly prior to that his father was at Sherritt for 20 years so. So these guys have Nickel Cobalt in their blood. And that’s really the core the core of of the team. We also have a Director of Communications here who does that. But you know the model allows for very lean operation.

Matthew Gordon: Know I suspect I mean your G&A must be next to negligible.

Anthony Milewski: I mean I can tell you the biggest aspect of G&A was it was actually like legal fees and banking fees from all the transaction. So actually that goes down quite a bit when you’re not transacting.

Matthew Gordon: For sure. for sure. So you got a bunch of advisors which are I guess you go to specific matters.

Anthony Milewski: Yeah exactly. You reach into those advisors in specific moments based on whatever their expertise is. But then you have a traditional board of directors. And there’s a range of skill sets that I’d like you know take Frank Ostergaard you know Chairman of the audit committee and he was a partner KPMG. So an exceptional person to have on there. He is an NED. You know with the financial statements like someone like that is really helpful. You know take Nick French he was probably one of the main Cobalt traders in the world for 30 years. So once again a non-executive director. But you have a question and you call Nick and next got an answer for you. So you kind of go to that board. Phil Williams was a banker in Toronto. And so there’s a certain advice there on financings. Candice. She’s an executive at a Gold mining company. So you kind of put together this team of experience that you know everyone has an opinion and they’re all different. But everyone has a perspective which I think is beneficial to the broader board.

Matthew Gordon: Yeah I guess it says you know what you don’t know.

Anthony Milewski: The known unknowns, and the unknown unknowns.  

Matthew Gordon: I can never remember remember how to say that so let alone understand it. So tell me about the finances? I want to get into the share price because you talked about letting giving something back to the shareholders that the stock has seen a fall. You know from this time last year to where it is today. It is running about a third so you need to give something back. So tell me about the economics?

Anthony Milewski: So I think what happened is in the early days of the stock. You know know a lot of retailers what retail investors would have Bloomberg. But I think there’s other free sites. If you actually took our share price and the Cobalt price and overlaid it, like you’d see a pretty tight correlation going up. And by the way Cobalt peaks at $44lbs and you know it goes all the way down to $13 it’s going to back at $18 now. By the way our share price would follow it down the downtrend right. And so I think what happened was and probably rightfully so. The business was exceptionally correlated to Cobalt price and sentiment around Cobalt. And I think and hope what is going to happen now is, we’ll transition away slightly from being just a proxy for Cobalt, into actually being a proxy for cash flow. As you know Highland Pacific now closes on I think a middle of May. All the sudden there’s cash flow there. You know Voisey’s Bay, where they start producing you know the kind of about two years out, like there’s cash flow and so I think you transition away from this binary correlation to Cobalt, move although there is and always will be a correlation. It’s not like you’re getting the seesaw effect.

Matthew Gordon: It comes back to your strategy here. What kind of what kind of multiples do you get for cash in this business versus you know mitigating it by buying into actual mining equities, rather than royalties. Where there’s some upside or blue sky potential. I mean how does it work?

Anthony Milewski: So the large cap names like Franco And Wheaton you know they’re trading on at certain points over two times right. Two times like a Pnav ratio. Now mind you they’re highly liquid names. And you know the market has changed for for smaller cap companies, with a premium value obviously on more liquid names. That’s just the nature of the capital markets today. So I don’t know that we would achieve that per say but certainly in a trading in the mid one and a half this is achievable. If you look at it in Altius, which is a base metals trading company and it’s a completely different model. But you have to pick kind of comes out you know that’s potentially something you could look at. So we think that what will happen is, we’ve initially traded as a complete proxy for Cobalt price. But now as you bring in we bring in what’s really a Nickel asset Highlands. I think what will hopefully happen is a transition away from a binary correlation to Cobalt, to a more streaming like multiple. And that will also be an addition to implying a higher share price. I think that’s more stable right. Like that that that becomes a more stable valuation as opposed to like a whipsaw with the Cobalt price.

Matthew Gordon: You got to stick you gonna stick with that? You’re not going to … to get some investors could be listening to this on the podcast or watching a video you know, they have a blended portfolio approach. Are you going to resist that? Are you going to just stick with what you know.

Anthony Milewski: I think there’s no there’s no intention to move past Nickel and Cobalt. So we’ve looked at a Lithium royalty last year. And the pricing was wrong. We thought it was interesting the pricing was just not right. And then we also kind of thought of through and realised there are a lot of options for investors in Lithium. Yes and Alomar I mean any number of public companies. And so like why buy us over them. I don’t know why you would do that. And so I think I think we’ve kind of moved away from the Lithium royalty. I think we realized that the people are buying us and owning us for that for that Cobalt exposure and that cost one Nickel exposure.

Matthew Gordon: It that’s a good question. So why should they buy you for the Cobalt Nickel exposure?

Anthony Milewski: Yeah yeah exactly.

Matthew Gordon: So you know what was different about you guys?

Anthony Milewski: There is no primary. The only primary Cobalt producer is Managem which is owned by the Prince and the family in Morocco. There are some Exploration companies out there but that’s just totally different, every 10 minutes people raising capital and there’s dilution, and by the way in the right market that’s a great game. We’re not playing that game at all. So if you think about it like that there’s no exposure as it were to specifically the part of the battery that we’re offering and that’s the differentiator. If you want real Cobalt exposure like here we are. If you want that class one Nickel exposure that goes into the battery industry like  MCC. That Ramuu production that’s going into batteries everywhere. So that’s really that leverage that you’re getting which I don’t think you can find anywhere else. For instance if you buy Glencore stock. You like Glencore is the world’s largest producer of Cobalt but by the way that’s probably an irrelevance as compared to their Copper business and their coal business. So you’re not really buying Cobalt exposure are you?

Matthew Gordon: No.

Anthony Milewski: And that’s and that’s where even with Nickel, it’s kind of the same analysis I look Norilisk. Well actually are there Palladium company now? I mean you know based on Palladium run and so when you kind of go through the options out there.  Where there’s a great Nickel company in Australia I think. What is it called Nickel Mines maybe. Well that’s Nickel pig iron. That’s going into steel. So you start kind of going through the options, you know like take Giga Metals. One of the largest undeveloped Nickel sulphide deposits on earth. Fantastic optionality once again. That’s a development play. And these are all different and we’re offering something very specific. You know you’re not going to have that exploration upside with what we’re doing. This is a very conservative model.

Matthew Gordon: Yeah. So what do you think. I mean just to finish off from a shareholder component. What do you think that’s going to do for your share price? You know we talked about. ‘A time to breathe a little bit time to give back to the shareholders’. If people come in now, new people looking at you. Is there going to be reasonable appreciation there. How would you describe the opportunity for them?

Anthony Milewski: Forward looking statements popping up? I think the point is what what we’re striving to do is transition from this binary Cobalt proxy, to a streaming and royalty multiple. If that happens which.. that’s what we’re trying to do, if that happens, then that will imply a lot better share price. And so I’d want to give guidance about what…

Matthew Gordon: Sure.

Anthony Milewski: But like that transition implies a better share price.

Matthew Gordon: So let let’s talk about a couple of things more about the company but I want to kind of your view in the market in a moment if I may. So you had a busy year. A lot of M&A last year, probably a bit exhausted, but what’s your report card for 2018 look like? What would you’ve done differently?

Anthony Milewski: 2018. I mean you know it’s it’s hard in the business. You can’t hedge these illiquid commodities. So if you had this crystal ball and you looked at what was really a collapse in the Cobalt price from $44 down to $17 you would go back and say oh we would hedge this or do that. But you actually really can’t. And so it’s hard to look back. I mean we raised capital at a high Cobalt price and did not anticipate frankly that it was going to roll over as hard and as fast as it did. You wouldn’t raise the money at that price, in the same way because obviously you know, there’s implications there. But I mean there’s no way to hedge that. So that was the business model. We told everyone what we were going to do and we did exactly what we told the market we were going to do. So I don’t know how you can… other than just not doing the deals. I’m not sure how you can do it because unlike say Copper where you could actually hedge it out, with with Cobalt it’s just not really really possible.

Matthew Gordon: Right. Okay. And so like you started two years ago. Share price of?

Anthony Milewski: $9 with the IPO. Goes all the way up to..

Matthew Gordon: $12

Anthony Milewski: It goes above $13 $14 And now it’s kind of $4 – $4.50…

Matthew Gordon: Back down.

Anthony Milewski: And a very important point. Is pull up the Cobalt chart to pull up our share price. And it’s like…

Matthew Gordon: These things go in cycles. But you’ve got a model which, Okay I think some people have been doing it for a while, but as you say the royalty business has changed. You think this is cyclical. It’s caused by commodity price. Things will get better. And you’re actively saying we need to give something back to the shareholders. That’s the message I’m hearing.

Anthony Milewski: Well it is this is just because… I mean obviously have a dividend policy and a buyback policy, which allows us to either give a dividend or buyback shares or do both. Give back and place that which is which is obviously part of the corporate policy right. But I think it’s also you know allowing the transition from binary Cobalt proxy to streaming royalty multiple takes time. When I say give something like what I really mean is to try and allow that transition to happen.

Matthew Gordon: Right. But that’s a message you need to share and I guess you are sharing all around the world that we’re going through this. We know what we’re doing. We’re in control. We understand the process. Just need to give it that time to get back to where we think he could be. OK so can we talk about the market? Because I want you to help our viewers and listeners understand a little bit more about what’s going on the battery storage space and battery space generally OK so commodity prices are down. Why do you think that is.

Anthony Milewski: So as you say and as I said earlier, this is a complete change in these industries. And I’m unaware of a single automobile maker who doesn’t have an EV planned or an already underway. Right. And although this is true in China, Korea, Japan it’s not just like Rover. So all these batteries are powered by Lithium ion batteries.

Matthew Gordon: Explain was in a battery for people just very quickly. So they are they’re getting tons of batteries. But generally what was it look like?

Anthony Milewski: So the main component of a Lithium ion battery is the chemistry and you know the main chemistry is a Nickel Manganese Cobalt chemistry. Tesla uses a secondary chemistry called Nickel Cobalt Alumina chemistry and it’s a higher Nickel chemistry.

Matthew Gordon: So what is the percentage breaks down of that? What are the main constituent parts?

Anthony Milewski: So it’s such a Tesla today is kind of an 8 1 1 meaning Eight parts Nickel, one part magnesium, one part Cobalt. The prevailing chemistry for the balance of the world is a 5 3 2. Over time evolving towards 8 1 1, 6 2 2, 8 1 1. The problem is as you reduce Cobalt, you increase the Nickel. And the batteries become unstable and can overheating catch fire, like a lot of these fires, are in part based on the fact that the transition from a high Cobalt battery to a Nickel rich battery, is complex and challenging. So I actually think the industry has to get there. You need that transition to happen, because frankly there’s only so much Cobalt out there. And while there’s plenty for the coming years, I just think mathematically if you assume that 70% of vehicles will be electric, well actually you’re going to need a lot more Nickel, a lot more Cobalt. You know you’re talking about doubling tripling the global production of Cobalt to meet the demand in 2025, 2030. And so you actually need this transition to take place. But I think what cathode makers, battery makers are finding is getting to that 8 1 1 chemistry safely and with the durable battery has proven more challenging and taking longer than people think.

Matthew Gordon: So you said 70% is a big number….

Anthony Milewski: So I’m thinking like we use like 15% in 2025.  70%. I’m just telling you ultimately, the world will be primarily electric. But you know you’re gonna have other…. So one of the misnomers here is that like there’s only one technology and the answer is there’s gonna be different technologies for different segments. So for instance I think fuel cell… I think automobile buses will very likely be on fuel cells. Because because a fuel cell is not interesting for cars but on a fixed route like you at a mine site would be an example. An auto bus where everyone gets sent to the same station. Potentially a long haul trucking for everyone is going the same round this same station. Yeah like there are going to be uses for fuel cells. Right? Moving to battery storage. Lithium ion batteries fantastic for things like your power wall at your house where it’s light and small. But you know if you’re gonna have a massive grid storage installation around a wind farm, you know frankly maybe Vanadium Redox is gonna be more interesting over time. Now that technology’s not quite there yet. But you know they’re not going to be one brush to paint everything. This is a complete transformation. And there is going to be multiple battery including Lead acid by the way including the Zinc. There’s gonna be a bunch of different batteries, for different applications. And this actually has implications I think, we’re talking about Cobalt a Nickel today, but this has implications for investors who are looking at the space more broadly through the cycle, and this cycle is going to be in like a decade long cycle, there are going to be moments where potentially Lead is interesting, Vanadium is interesting. You know the recent Vanadium run which had nothing to do with batteries. It was about steel policy in China. But these people were promoting it as batteries, unrelated, uncorrelated right. So a bigger takeaway for your investors is you know there are a bunch of basic materials that are going to benefit as this thing kind of rolls out. Like Copper 15% of Copper demand you know 2025 2030 could be related to electrification more broadly. So there’s a big macro kind of trend, that’s going to impact and touch a wide range of commodities.

Matthew Gordon: So general acceptance in the market, that’s where it’s going. Is it moving at the pace that people thought it would?

Anthony Milewski: Fallows are WAY faster right. I mean it’s actually stunning how much people don’t understand that point. So the Chinese numbers came out. Q1 this year EV sales up a 100% year on year. I mean there’s I’m unaware of any data point which isn’t showing tremendous growth. And I think it’s this funny thing …have you ridden in the new Tesla.

Matthew Gordon: Yeah.

Anthony Milewski: Okay. So most people say no. I always find it funny I say you know I’ll sit there with someone who says this is never going to happen. I’ve not heard a single person who has actually ridden in one not only necessarily ridden in one of these cars who doesn’t instantly see this is the future. By the way, I’ll tell you something which I know you probably haven’t done. Have you run in an autonomous vehicle yet?

Matthew Gordon: Yeah yeah.

Anthony Milewski: Yeah you have. Yeah I guess so. Like when you when you. It’s rare because most people haven’t. Cause you have to sign up for a demo. Yeah. So a fully autonomous one. I mean it is crazy it is amazing and what you realize kind of five minutes into, depending on who’s giving you the tour, five minutes and you’re like why am I even driving a car? And so it’s hard to appreciate that pace of change. If as the average person you haven’t either ridden in or experienced it. But it’s sort of like the iPhone, take the effort you say like oh I’ve got this new iPhone, Why do I need this new iPhone in the old iPhone. And then 20 minutes after you use the new iPhone. Actually this one is kind of clunky and old. And you can’t quite articulate why. I think that’s kind of the same experience although I could articulate why you know when you ride in the view when you ride in an autonomous vehicle you really then you understand why this is happening so quickly. And that doesn’t even get into the effects on the environment. That’s just like a practical thing.

Matthew Gordon: What do you think’s driving it? I mean like with things like the Paris Accord coming in here and you got government signing up to changing the way that their energy strictures are comprised so you know we put a lot of wind farms here now. So what’s driving this?

Anthony Milewski: Yeah I think it’s very simple like, we’re destroying the earth. Like I don’t care. You know global warming. What however you want to spin it, the most political narrative right. The bottom line is like we’re dumping enormous amounts of plastic into the ocean. We’re burning down the forests.  Like all these things are happening factually right. And I just think that there’s a growing awareness of the damage that’s being caused to the earth. I think that’s part of it. And so I think people are becoming more socially aware. That so that’s kind of in the West. I think that China’s very practical. I think in China in particular, the Chinese government has said look our people in these big cities are getting asthma, lung cancer and we need to clean up the air and there’s a bunch of ways to do it. But a very simple way is if you live in Beijing to say you know if you buy… internal combustion engine vehicle it’s gonna take you five years to get a license plate or we’ll give you one if you buy an EV. And even though subsidies cost the government nothing. And so I think you know in China it’s very practical. You know in London it’s very practical. It’d be interesting to look at on my phone on me. You’d be shocked to know that that the London air quality is actually on certain days some of the worst in the world.

Matthew Gordon: On The Strand here.

Anthony Milewski: Yeah. Exactly so so. So I think governments are acknowledging and realizing the need to clean up air in major cities. And so I think that’s another driver so I think there are multiple drivers here. But what’s clear is if we don’t act around our environment, then there’s gonna be a irreparable damage for future generations.

Matthew Gordon: There’s a lot more awareness about it. There’s you know everywhere you look there’s a lot of. And I’d encourage people to read your PowerPoint actually, some lovely little snippets of information in there. But there’s some discrepancy between this generation who are more aware, or greener, than compared to the price of some of these commodities. People aren’t investing into mining as much as they did.

Anthony Milewski: Let’s because they haven’t made money. Let’s be clear. Let’s call a spade a spade.

Matthew Gordon: There’s a discrepancy there.

Anthony Milewski: But people didn’t make money.

Matthew Gordon: So whose fault is that? Where does the fault lie?

Anthony Milewski: That’s a very complex discussion and there’s all these changes in global capital markets, with money moving towards liquidity. But mining means a relative… like the total market cap of mining is probably less than a couple of the largest single companies. So that all these complex things. But if you wanted distill it down to a very important point, by and large equity investors in the big global markets are judged on an annual basis performance right. What happens to me this year? And that’s what they get paid. That’s how they’re reviewed by peers. If you find… if you dig a shovel and you hit your Gold or your Copper you take whatever you have right now, if it’s ever mine, if it’s ever mine. On average it’s not going to be a mine for 12 to 15 years. You know it’s like, you’re asking some some gal or guy who gets paid based on next by the end of December to like take a view of what happens 15 years from now, it’s like good luck. And so it’s you how there’s a mismatch. You have this situation where it’s literally 15 years, if ever, to a mine. And capital duration today has gone increasingly short, like it’s literally in fact I would argue that a lot of the big funds in New York are platforms where like there’s not daily liquidity. Forget forget this year, their risk departments are looking at things and they’re trading today. Their trading by lunchtime and so it’s this interesting dynamic and then you have a move towards passive, which means that primary equity raises are harder to do because a passive investor doesn’t participate in a primary equity issuance. So you have kind of all these forces coming together. And ultimately what it means, I will tell you and I don’t know if that’s tomorrow or seven years from now. Forget the day. It just means it’s creating this bull market. Under-investment, under investment, inefficient investment in the sector will ultimately mean a massive bull market. And it won’t even be about by the way, forget electric vehicles like. We consume every single day like look there a look around this room. Everything is either mined or grown just about. And so consumers continue to consume every day and they don’t recycle everything that they consume. And so because of this inefficiency in the capital market, in the longer term you set the stage for bull markets and bubbles, in this asset class over time.

Matthew Gordon: Now I agree with that. Hence my question. There’s a discrepancy between what people want and their understanding of where it comes from. And you know the same can be said you know in… some of the kids at my children’s school their not actually sure where the meat on the table comes from because it comes in plastic bags, wrapped. That’s not a cow that’s just a piece of meat or chicken or whatever. So you know I’m trying to understand you know what’s changed or if you’ve got a sense of what’s changed, in say the last 10 years, 20 years, 30 years for investors. Mining used to be the go to investment class.

Anthony Milewski: That’s because it was a proxy. I mean if you look if you look at when where when the market was hot, people were really investing in mining as a proxy for GDP growth in China,right. Basic material, that was driving their interests. But also I think a lot of hedge funds had a lot of different constraints around liquidity. So in other words they could invest in a liquid it liquid assets and I think what happened in the global financial crisis was, a lot of hedge funds a lot of asset allocators were really illiquid things, not everything but a big part of the portfolio was in illiquid things. And you know when you have a cash call, when you have a redemption or redemptions, and you have to start selling stuff, like what you find is like a part of your portfolio goes no bid. And I just think that that that completely changed the way that funds were. This is very high level to show. It changed the way that funds were structured. And so now a fund who maybe in 2005 could have 15% of his or her percent portfolio in liquid assets maybe today they run 1%  just made up the number right. And so that’s. And so by the very nature of of mining companies, you know you’re in a  billion market cap one point five billion on market cap in mining like, actually that’s a big company. By the way, that is completely irrelevant, in that and the spectrum of daily liquidity, like these funds now, they want to have $100M of our position and they want to be able to sell out of that in two trading periods. And that doesn’t exist in mining. And so it creates that inefficiency whereas a decade ago or maybe longer, now those constraints weren’t there.

Matthew Gordon: Yeah. Well well it’s definitely been a move away from exploration from some institutions.

Anthony Milewski: I agree with that that’s gone because that’s too binary. But that’s different than liquidity. I’m talking about.

Matthew Gordon: No I understand liquidity but that you know the knock on effect is you know and for a lot of people certainly they invest in the junior mining space here in the UK, there wasn’t the liquidity for them wanting to get out of a million dollar positions forget a hundred million bucks. Okay. Because things weren’t moving there no volume there. So that’s had a big knock on effect in the way that juniors in the UK and then we see a lot of Canadian companies coming over here hoping to find some money and there’s more of a reliance on this retail high net worth family office type money for the smaller your pretty big company now, but I know you’re still are classified as a junior.

Anthony Milewski: There is a place for retail because historically way the way it’s been is like retail. Friends and family retail was the early money. You know the stock would run then hedge funds would step and the stock would run again. Institutions. And that was the plan. Look it still happens from time to time but that that system has been slightly disrupted by a change at the bigger end of the street. I still think with with retail that you can make money. Remember you know by and large even in what we’re calling illiquid names, you know $5,000 which is a real amount of money. My dad’s a high school. So my dad’s a high school teacher like I can tell you for him that would be a huge position. There’s sufficient liquidity even in… our stock trades you know 1 to 3 million dollars a day. So $5,000 on a position you can kind of come in and out. But you know if you’re in a name where you’re going to build a mine, with a you know a $1Bn capex is making a number up. Ultimately the big guys are going to have to write a cheque and I think when you’re a retail investor you have to think about that question. Like unless you’re just taking a punt which is fun and everyone does it for time to time but if you’re ever saying there’s a longer term investment like you have to think that the stock is going to rerate. So at the next capital perhaps it’s higher than when you came in.

Matthew Gordon: That’s the name of the game. We’re buying shares, not the company.

Anthony Milewski: Exactly. And so you have to think that ultimately there’s a path towards that big capital raise and becoming a mine. And that has been completely disrupted. And and that is I think going to result in at some point the next decade in big bubble asset class bubbles in our assets and in big, big bull markets because you know the pipeline is not getting built. Like look at Nickel. OK. If you need, if we all agree and I don’t know anyone who disagrees with the statement, that we’re going to get a heck of a lot more Nickel in five years. I’ve got to literally don’t know a single sophisticated person who disagrees with that statement. Not one. OK so what’s getting built right now globally. Like the answer is not much.

Matthew Gordon: And that’s just that’s the same for a lot of commodities at the moment because.

Anthony Milewski: Copper is the same way. But then this comes back it’s all circular comes back to my point. So let’s assume we agree. Well you’re an investor you get paid by year end December. I’m talking at the big end of the market now. Like you can’t be bothered to think about five or six years, now because you’re really worried about having your job this year. And so it’s creating this weird moment where these projects aren’t getting pushed along. And so we’re going to wake up and it’s going to go kaboom on on some of these commodities.

Matthew Gordon: That’s really interesting … example here.. you know UK politics. You know we vote every four years and decisions by politicians are made on a short term basis. But look at the Japanese government, they’re making decisions 25 50 years out. There’s there’s a very strong difference between the way that the politics work seems you know for the greater good or for yourself.

Anthony Milewski: Look look. Last week China just put a few hundred million more to Ivanhoe which has this huge Copper deposit the DRC. Why? Because they know they need Copper.

Matthew Gordon: But what happened to the ethical component we talked about earlier?

Anthony Milewski: I think that’s different. Because that’s it that’s a development project. But you’re developing your own project you can control those parameters. So that’s not so that’s not it. There’s no artisanal mining there. That’s that’s developing probably one of the largest Copper mines on Earth. So that’s a different that’s different. My point is. So what’s interesting is China has so I don’t begrudge the investor whose job is what their job description is like, they can’t control that by a large right. Because by the way they have their own set of investors who are demanding that liquidity.

Matthew Gordon: Everyone gives up a business model.

Anthony Milewski: And so China, where China has a unique position and stage… kind of seat at the table as it were, is that they’re able to say whatever.  We think Copper is going to happen. So we’re buying the Copper mine and that’s going to have big implications on the Fourth Industrial Revolution, which is underway. Because if if we all agree EV’s are going to happen but not just a bunch of things like renewables and all these other things. Those are all powered by somewhat esoteric commodities and China’s going to control all the major deposits. And so you know like government. It’s really smart.

Matthew Gordon: I think that’s fantastic. I think they’re fantastic. In a way they kind of control price in that way because they are price insensitive to a degree.

Anthony Milewski: I would say yes /no I mean like I can tell you were there a lot of these people as a misnomer. They’re not just spraying money. They have a very sophisticated process. They they still think about NPV. They do think about the greater good as well right. But like I can tell you there’s no free ride. Right. Like that’s not true.

Matthew Gordon: That’s why I said to a degree because I think they know their tolerance levels are more than most.

Anthony Milewski: They can look through cycles is what I would say. So one of the big differences is that a Chinese investor on a world class project can look through the cycle, whereas an investor sitting in New York very much is concerned about the cycle, and trading around the cycle. And that’s a fundamental difference.

Matthew Gordon: That’s the difference between a daily trader, a day trader versus forward for planning.

Anthony Milewski: I’m not calling you as investors day traders, I’m just saying it’s a different model.

Matthew Gordon: I understand. So can we just quickly touch Gold and it’s not your thing but you’re a finance guy. You’ve got experience in this thing. And it comes back to the discussion we’re sort of having now about sort of sentiment and marketplace. Gold has traditionally been a safe haven to use that well-worn phrase, for investors in troubling times, when you know the world’s at war or the trade wars in this case. That’s not happening right now? It’s not moving

Anthony Milewski: I’m of two minds on Gold of two minds on Gold. First of all I challenge you to find a Gold bug who is under 40 years old. There is not one that I’m aware of. And so I think you actually at this age problem with Gold wherein there’s not a new kind of group of investors who are enamored by Gold who were under 40. By the way. those happen to be like a lot of the PMs out there. And so I think there’s just this element of crypto and some other asset classes have supplanted Gold now. But mind you on the drop of a hat it can all kind of come back but I think that’s part of it. I do I do actually think though that Gold is interesting from a different perspective. We know what the weaponization of the U.S. dollar and with these big Gold purchases by the Russian and Chinese government. You can see and also China’s trying to redenominate crude in some different commodities in the RNB. So this is all a big strategy to say like why should the U.S. government have visibility on every swift transaction in the world. But this is like a 20 year thing. And so like it’s very hard to read in. I think on that basis when Gold actually is going to become interesting. I’m not negative or positive. I’m just saying that that’s a big macro change which is roll out over 20 years. I also think at some moment you know we’ve had unprecedented in modern history printing. At some moment the US will slide into a recession. No I’m not saying end of world, just a typical business all recession. You know they’re going to try to print at some point inflation, I’m not I’m not a Gold bug, I’m not a hyper inflation guy, but inflation comes in and Gold becomes interesting. But I find that that cycle is so hard to call that that I can see it you can see it kind of from a hundred miles away. But you don’t quite know how fast the car is going to get there right.

Matthew Gordon: But there’s the point. You just used a great phrase is no one can see when it’s coming. You can apply that to Uranium, Gold Copper.

Anthony Milewski: Commodities.

Matthew Gordon: And that’s I guess the…

Anthony Milewski: Gold is slightly different because I like Cobalt is highly driven by Supply Demand model, like highly correlated. Gold like I don’t know like our Indian rice farmers buying,  Indian farmers buying Gold and like what you’re like… I don’t know a search engine but so I would I would argue that base metals and Gold are differentiated on the basis that that a supply demand model really impact your Copper view.

Matthew Gordon: I understand but I’m trying to wonder if the sentiment applies across commodities as a whole, irrespective of whether it’s an emotional purchase like know some of the precious metals, because people as you said earlier, people are viewing it differently, people under 40 are viewing it differently now. This stuff which we’re going to need, to build the stuff we want to use every day. And you know at some point people come to wake up the fact that, as you say, there’s going to be a bull market, there’s going to have to be a bull market because there’s not enough mines and production producing the stuff which people need to be able to produce the things that we use every day. So people will wake up to it. But I just I’m not sure why we.

Anthony Milewski: They’re not asleep. Let me be clear like on the base metals, like when you go through New York. The Fund Managers. They’re really smart intelligent shredded women right so they can see the same thing I see. It’s just the structure of capital dictates their investment horizon. So it’s not like they, ‘oh one day magically Copper is going to run and they didn’t see it coming’ it’s going to be that you know, they think it’s coming in 24 months and so let’s get it in 22 months. I just made that up right. So that’s different. Where as Gold. Gold. I don’t think you can have that view as much because. Probably it is coming. But who what when where why is much harder to predict when you don’t have a supply demand model informing you. In my opinion.

Matthew Gordon: The point at this point I’m trying to make about institutions, they’re a bout making money. Right. So they set up structures and we are saying they’re not nimble or flexible enough to change that up take advantage of a situation.

Anthony Milewski: Why would you invest in Gold? What’s the S&P return right now 20%^ this year.

Matthew Gordon: Not necessary, I’m talking about the other commodities which are lagging.

Anthony Milewski: I’m plying devil’s advocate. Why would you invest in commodities this year or the last year. I mean what is this new show to someone right up to the lady in New York who’s running… You know they want like, funny joke here for the retail investor… When you’re in New York there if they don’t tell you how much money they’re running it means it’s less than $10Bn. Because when you show up “we’re running $100Bn. Like why why does that individual who can invest maybe in anything care about kind of a sector that’s underperforming. Apple and Amazon! Like why do they care. You know like that, I mean you’re trying to get them as a company. You’re trying to get them to care. Look we had a moment of caring because of the adoption electric vehicle. But you talked about the sector more broadly where they can invest in anything they want and frankly a lot of this stuff has massively outperformed basic materials, which by the way in addition to having underperformed. It’s also kind of a liquid and kind of hokey, and not all the management teams are that great. So you know if you think about it that perspective. You know it’s not it’s not time and you know there’s an argument that it becomes time when that market’s fully invested maybe some of the money flows down. But I often suffer from this, and I think a lot of investors who focus on mining, suffer from  missing the forest for a tree season.

Matthew Gordon: Are you saying people are institutional and retail just got smart the game played in the mining sector?

Anthony Milewski: I’m not calling anything a game. I’m just saying that there’s been a lot of other opportunities which have materially outperformed. You know like look at YETI, I just said because I have I bought some Yeti stock I think it’s doubled this year. You know I mean so. And by the way it’s liquid. You know like start naming these stocks and so I think you know if you’re an investor…

Matthew Gordon: You’ve got choices.

Anthony Milewski: You have choices and that’s just a reality and we shouldn’t we should not pretend like.

Matthew Gordon: I say all the time.

Anthony Milewski: So you know and I think one of the things that we’re trying to give people the choice is around and EV proxy adoption, but talk about the industry more general. If I’m Antony and I can buy anything like tell me why should I buy your Gold company over Apple stock right now. And the answer is maybe I shouldn’t. And I don’t maybe I should I don’t know.

Matthew Gordon: Yeah you can have a long term view about the commodity sector and all of that.

Anthony Milewski: I’m going to give you a longer view so OK I’ll play devil’s advocate. Great. So your time at Gold’s going to run in two years. Great. I’m going to own Apple for two years collect my dividend and then and then. I’ll buy Gold and that may be kind of what you but that’s what you’re facing because I talked to these investors all the time. Yeah that’s this. Anthony So is this happening. When’s this happens. I don’t know. That’s great. Yeah I’m up 20% of the S&P this year. Like let’s talk when it’s going to happen.

Matthew Gordon: I mean maybe discussion for another time but then that leads to issues for again some of these companies who are struggling for cash. You know it’s a self-fulfilling prophecy. But it’s great for companies like you that likes a conversation for another time like let’s some let’s finish up here because I want to ask you about, well without forward looking statements, I want to ask about this year. You’ve sort of explained that earlier on but when you talk about deliverables or focus this year or the next year.

Anthony Milewski: I think the balance of the year. It’s about closing the Highlands acquisition and getting it all everything kind of in place and really making sure that everything is buttoned down. Having done a bunch of acquisitions and then hopefully having the Cobalt and Nickel price come our way a little bit so that you know we get a bit of a rerating, not only from the underlying commodities but also from this transition from being what was initially a stockpile, to now being really a streaming &  royalty company.

Matthew Gordon: Fantastic fantastic. I’m going to finish you off give me five reasons why people should consider investing in Cobalt 27.

Anthony Milewski: It’s simple. We’re a proxy for the adoption of electric vehicle and I think there’s no one else out there doing what we’re doing.

Matthew Gordon: Going for one big one!

Anthony Milewski: That’s the big one.

Matthew Gordon: Okay fine. Hey thanks very much. Good to meet you.


Company page: https://www.cobalt27.com/

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