Every so often, an attractive supply-demand opportunity presents itself in the global resource marketplace and investors take note. While lithium may have been the commodity darling of 2016, investors across the globe are wagering, with very good reason, that cobalt investments will be the new leader in 2017.
Things have certainly changed since the Egyptians first used cobalt compounds for blue pigments in jewelry, paint and glass. Centuries later, the metal is an essential component in the surging lithium-ion battery market.
Battery-powered automobile manufacturer Tesla Inc. as well as the electronics manufacturers that build the mobile devices we use daily to communicate, such as our cellphones and tablets, have fuelled much of this strong demand.
In short, investors see that cobalt demand is strong and given global appetite for these products, it is expected to remain so.
Cobalt remained in oversupply after the credit crisis up to 2015. However, last year marked a strong shift that saw prices, based on demand consumption and supply constraints, move to record highs of more than $16 per pound, an increase of some 80 per cent compared to the lows of 2015.
As we move into early 2017, this price trend has continued. Until now, no additional cobalt supply has come on the market due to new mining efforts. Since there seems to be no reason to believe otherwise, investors expect cobalt prices to keep going up.
Cobalt is not typically mined as a primary metal, but rather as a byproduct of mining copper, nickel or silver.
The overall market is small at some 100,000 tonnes annually. About 60 per cent of that comes from the Democratic Republic of the Congo (DRC), a jurisdiction wrought with political instability and human rights violations related to child labour abuses as documented by Amnesty International in 2016.
Due to these supply uncertainties and constraints, Tesla and other multinational electronics companies have begun obtaining new cobalt sources in North America, far away from the DRC.
Today, Canada supplies approximately six per cent of global cobalt production. This could increase as one ambitious junior miner looks to hold onto a true first-mover advantage with the recent acquisition of a cobalt processing plant, above-ground stockpiles of ore rich in cobalt, and a highly prospective exploration opportunity. Until now, no new Canadian cobalt projects with these attributes existed for investors.
Aptly named CobalTech Mining Inc. (TSXV-CSK), the company has acquired the right assets and technology, located in none other than Cobalt, Ontario, and is set to become one of North America's first vertically integrated cobalt-processing companies.
These assets include the November 2016 acquisition of a 100 per cent interest in the formerly producing Duncan Kerr project, a past silver operation that yielded strong quantities of cobalt as a byproduct of mining the precious metal.
(CobalTech Mining changed its name from Big North Graphite Corp. last year following the Duncan Kerr acquisition.)
Based on an independent mineral study completed in 2014, CobalTech has estimated that it has some 6,500 metric tonnes of rock already crushed and ready for processing at its fully permitted milling facility, which can handle up to 100 tonnes a day.
The company further estimates that the 32-hectare property contains a further 1.3 million tonnes of ore stockpiles that would require further crushing, which is customary in these circumstances.
Exploration potential exists for CobalTech investors since underground operations at this past producer never went deeper than 182 metres. Thus, there are opportunities to discover more cobalt at deep exploration targets that await drilling.
Who better to find them than newly appointed president and CEO Antoine Fournier, who has more than 25 years of experience exploring for precious and rare metals.
The infrastructure surrounding the company's operations supports both processing and exploration opportunities; amenities include access to municipal roads, highways, and rail as well as power and fresh water.
Bearing in mind CobalTech's strong balance sheet (the company just recently completed a $2.8-million equity financing), Mr. Fournier is adequately funded to exploit the processing and exploration opportunity before him.
For potential shareholders, the share structure is clean with approximately 70 million shares outstanding. This provided more than adequate liquidity for both large and small investors alike; an average volume of some 200,000 shares changes hands daily.
Regarding its market capitalization, CobalTech Mining appears to be undervalued at 20 cents per share, considering it has on-site mineralized material awaiting processing, owns its own fully permitted milling facility, and has exploration upside while being properly funded.
Of course, the best determinant of value is always a peer comparison. Its closest peer, eCobalt Solutions Inc. (TSX-ECS), had a market capitalization of approximately $85 million as of late January. The company's mining operations are in Idaho, so political climates where operations exist are similar for both eCobalt and CobalTech.
However, less than one year ago, eCobalt shares traded at 20 cents per share, the same share price at which CobalTech trades today. Could CobalTech shares trade significantly higher and match those of eCobalt?
Well, comparing CobalTech to eCobalt, it is certainly possible that this could happen. Both of the companies share similar geopolitical environments and have processing facilities with upside.
In 2017, as investor awareness increases, CobalTech management plans to move the Duncan Kerr project up the value curve so that its shares can trade at eCobalt-type prices too.
As global companies like Tesla and Samsung seek out cobalt supply certainty without the unpleasant overhang of human-rights issues, companies like CobalTech will become increasingly attractive to big and small investors alike.
In contrast to jurisdictions such as the DRC, CobalTech has applied ethical business practices respecting worker human rights, according to management.
Management adds that the company is committed to community development and social well-being as well as safeguarding the health and safety of its workers. CobalTech has even stated that it wishes to protect the environment while producing its namesake.
It may sound at first like a tall order, but as CobalTech exploits the metal to large customers' delight, investors in the commodity will have nothing to feel blue about, knowing that mining cobalt can be done in Canada, ever-so responsibly. Richard Buzbuzian, a shareholder in CobalTech Mining, is the president of Drone Delivery Canada Corp., listed on the Canadian Securities Exchange (CSE) under the symbol FLT.
This is an edited version of an article that was originally published for subscribers in the February 24, 2017, issue of Investor's Digest of Canada. You can profit from the award-winning advice subscribers receive regularly Investor's Digest of Canada.
Investor's Digest of Canada, MPL Communications Inc.133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846