First Cobalt Corp. Merger May Create Largest Pure-Play Cobalt Junior As Shortages Loom

Photo: First Cobalt Corp. Merger May Create Largest Pure-Play Cobalt Junior As Shortages Loom

The world appears to be hungry for fresh supplies of cobalt, and First Cobalt Corp. (FCC, TSX-V), recently entered into a definitive merger agreement with CobalTech Mining (CSK, TSX-V). This move, which still has a few hurdles to get past, would create a very interesting junior mining company. The new company would control a portfolio of cobalt rich properties across Ontario, Canada.

As it stands today, First Cobalt Corp. has acquired the Keeley-Frontier mine, which was a working cobalt mine that produced over 3 million pounds of cobalt when in operation. If the merger is successful, the new company would control 11 former cobalt mines, as well as a mill facility in Cobalt, Ontario.

One of the most interesting things about the company that this merger would form is the geographic location of the assets, and the wealth of experience that the management possesses. The price of cobalt has doubled over the last year, but as a recent piece in the Financial Times points out, the issue that industry is facing isn't the price of cobalt, it is the reliability of its supply.

Wild Times

Until a few years ago, cobalt was an afterthought in the mining world. Generally it was produced as a byproduct of copper mining, if it was recovered at all. As it stands today, the vast majority of cobalt is produced in the Democratic Republic of the Congo (DRC). The small issue that industry faces is that The DRC is unstable politically, and as The Guardian reports, the current upheaval in the area has severely limited mineral shipments this year.

Another factor that makes The DRC less than perfect for ongoing development is the isolated nature of the region, and the lack of infrastructure. Freeport-McMoRan sold off one of the best cobalt mines in the world last year, and it may have been due to the challenges that exist in The DRC.

The Tenke Fungurume project took more than 50 years to bring into production, and despite the high grades of copper, Freeport decided to sell off their interests to China Molybdenum. Their are a few other projects in The DRC that also may contribute to the looming cobalt shortages, but even if The DRC is able to continue to export minerals, the estimated demand for cobalt will overwhelm supply over the next decade.

Looking For Security

One could be forgiven for thinking that cobalt was difficult to find. The DRC isn't the only place in the world that has cobalt rich ore, and with the problems there, industry may be willing to support the development of alternatives in areas with lower political risk.

There are a host of junior miners that have access to cobalt in both Australia and Canada, and some even have mining leases that are within range of Tesla's Gigafactory. Anson Resources (ASN, ASX) has a few early stage projects near the Gigafactory, and they are sitting on lithium brine, graphite, and cobalt assets, all of which Tesla will need in huge quantities. They are currently only worth a few million dollars, and given their assets and location, this may be a worthwhile company to watch.

Ardea Resources Limited (ARL, ASX), has a more mature portfolio and a partnership with Brasil's Vale in the Kalgoorlie Nickel Project. This project may be the largest reserve of cobalt on the planet, but regardless, it is in a great location, and the company is currently worth around A$50 Million. This isn't the only project in their portfolio, and despite the early stages of development, the market seems to be realizing the potential of their assets.

The bottom line is that if the world is going to change over to using a higher number of electric vehicles, industry is going to need to get their hands on a huge amount of cobalt. Tesla is only one of many companies that needs to secure supplies, and companies like First Cobalt Corp. may be a part of the solution.