Cobalt Doubled Last Year, And This May Be The Next Major Mine

Written by Gerardo Del Real
Posted January 14, 2018 at 7:00PM

Publisher's Note: Today we're bringing you the transcript of Gerardo Del Real's exclusive interview with the President and CEO of First Cobalt (TSX-V: FCC) (OTC: FTSSF), Trent Mell. First Cobalt went through a major three-way merger last year, and has emerged as a — if not the — premier cobalt project.

Cobalt was red hot last year, with prices more than doubling. Demand from power-hungry high-end electronics and electric vehicles will only push prices further upward for years to come.

Read on for a rare insider's perspective of what's to come for both First Cobalt and the global market.

To your wealth,

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Nick Hodge
Publisher, Outsider Club

Gerardo Del Real: This is Gerardo Del Real with Outsider Club. Joining me today is president and CEO of First Cobalt Mr. Trent Mell. Trent, how are you this afternoon?

Trent Mell: Hey, Gerardo. Very well and happy New Year to you.

Gerardo Del Real: Happy New Year to you as well. Now the last time we spoke and this is a while back, this was August of last year. You said that the goal of the company... Let me provide some context here. You had just announced a merger. You were merging to become the go-to exploration cobalt company in the space.

You said you wanted scale. You wanted liquidity and you wanted the expertise of the three companies coming together. I have to say, since the last time we spoke and I just touched on this privately off the air, you've done an absolutely brilliant job executing.

Let me start by congratulating you and let me ask you how you feel right now, now that you've traded, that you've seen the run up in the share price and frankly, you've consolidated some of the premier land in North America.

Trent Mell: First off, thank you, Gerardo. I'll say right out of the gate, these are always team efforts and there is a big team here. I'm just the head cheerleader, I suppose. The goal of that three-way merger that we announced over the summer was to consolidate the camp and to get scale. 

Coming out of that transaction, we expected to have a minimum market cap in Canadian dollars of $150 million. As we sit here today early January, we're just north of $300, probably closer to $330 million in market cap. 

The market response has been good. It's three things. It's the land package that we've managed to pull together in a near town called coincidentally, Cobalt, Ontario.

It's the team we've got. All of us in management alone have over 100 years of mining experience. Our board's got another 150 or so. These are people that are not promoters. We've all been involved around the world in exploring, developing, and operating assets. 

Then the last is just the market. I mean, the market for cobalt is red hot. There's a dearth of opportunities outside the Congo. EV projections just keep going up. On the buy side, whether you're a retailer or a big institutional fund, it's really hard to get exposure to a large liquid, credible cobalt story. I think we decided we delivered on that objective. The pressure, how I feel right now, the pressure is on us now to execute.

Last year was really about laying the foundation, putting the company together. We now sit here with what I would argue is the best prospective land position certainly in North America, if not the world, and $30 million in the bank. There's going to be a lot of activity. The first cobalt is ahead as we get busy rolling and doing other prospecting activities, not just in our camp, but also beyond.

Gerardo Del Real: Well that cobalt, that historic Canadian cobalt camp, was actually a silver camp at one point, wasn't it?

Trent Mell: That's correct. It was in the 1920s. It was arguably the world's largest silver camp. What we have, going through the archives 110 years later, 50 years, really, since any meaningful activity had taken place. What we have identified is the so-called failed silver mines invariably had more cobalt than they had silver. 

So, you've got these carbonate veins. They were just mining these things, just narrow underground deposits. They would typically mine these veins that were rich in silver. When they were getting into zones that were higher in cobalt content they would basically wither away and people didn't mine for that really, in that era. Still produced 50 million pounds of cobalt historically, but 600 million ounces of silver. That was the focus. We're going back now with kind of three different approaches.

One is we're looking for the cobalt content that was ignored in the past.

Second, we're looking for big bulk mining opportunities. Not narrow vein, but bigger mines that you would see in the current era.

And thirdly, this acquisition, this three-way merger and all the work we did last year allowed us to consolidate almost half the camp. You can start to look at regional formations and structures and opportunities where before everybody had this tiny little postage-size claim that didn't allow them to take a broader view of the camp. 

Gerardo Del Real: You're not looking for cobalt over moose pasture. You're actually looking in an area that's got over 100 past producers throughout. That's an important point to make, Trent. Can you talk about that a bit because that's incredible.

Trent Mell: Sure and if you want to look from open pit perspectives near us, we've got the Canadian Malartic mine that was built years or decades ago by Osisko Mining. Shortly thereafter Detour Lake by Detour Gold, these were two operations that are massive open pit operations that were basically rediscovered over, under, and around old underground mine workings.

So, we're taking that same approach in the cobalt camp. I did it myself with a company called Falco on an underground deposit called the Horn Mine where the Noranda Mining company was effectively born. Now, there are countless other examples. Young Davidson, when I was at AuRico Gold. It was another underground variant. Instead of going to an old mine and again, looking at bigger broader scopes and higher kind of job operations. There's tons of examples of this.

You find an old mine... Where the old mine once stood or in the shadow there of. In our case, our footprint has 50 past producing mines. Some of them were pretty tiny. But yeah, you're right, Gerardo. We're talking about a camp here that has a rich history, but a rich history that hasn't really been explored for decades.

Gerardo Del Real: Well, along with that rich history, you also benefit from over $100 million in existing infrastructure. Can you talk a bit about that, Trent?

Trent Mell: Yeah. A key asset that we started to zero in on — in addition to the mining claims and the fact that we're in a camp — we're not that far north, so we've got roads and power and qualified skills right in our backyard. With this transaction that we pulled off, we also got our hands on the only permitted refinery in North America that is capable of producing cobalt battery materials. 

That's significant because the mineralization you see in North America, the cobalt mineralization is associated typically with high arsenic content. That arsenic is a problem for the refineries in Asia. They're not accustomed to dealing with it. It's not necessarily a problem of getting rid of it, but it's a permitting issue when you want to go in and build a facility that can extract the cobalt from these kinds of ores. 

Having the only facility permitted, ready to go, that can do that puts us in a really good position. You certainly don't need three of these things in the camp. You only need one. Probably one over a larger footprint. It just sets us up to be a go-to company for not just for our own material, but for any other feed that might be identified in Canada and potentially in the U.S.

Gerardo Del Real: You recently added to that land position. An already impressive land position. You also recently announced, I believe it was a $25 million financing. Can you talk about those two pieces of news, Trent?

Trent Mell: Yeah, so the financing $25 million US is more than we're going to spend in the year ahead, but we had such strong demand around the world — Australia, Hong Kong and the Americas, Europe — we thought that it was the right time to replenish the treasury and get ourselves in a good position to execute.

Now that we've got that money we're going to have our drill plans out next week. It'll be three-, four-, five-fold increase over what we did last year in the camp.

Now that we've identified targets and kind of felt our way around, built the team, this is going to be the year where we drill multiple targets simultaneously and really get a handle on where we want to focus our energies. The capital is going to be helpful in that regard, but we're also at a point as the biggest cobalt explorer in the world.

We're well positioned now to go out and look for partners or look for other acquisitions and opportunities outside of our camp. Starting probably with Canada and the U.S. and see how we continue to diversify and get exposure to some of the best assets in the world. 

We've got one that we think is phenomenal, but we're not going to stop there. I think the market wants to see us bulk up and we've been given a license to go and do so.

Gerardo Del Real: Great. So you're cashed up, you'll be drilling. I'm excited to hear the details of the drilling. I also understand that you're doing some sampling on past waste material for metallurgical work. How is that coming along and then what's the thought process behind that?

Trent Mell: Yeah, we've got two parallel programs. On the one had we've got the exploration program, which was modest last year. It was a million and a half dollars. We've identified some new cobalt veins and we're starting to get an understanding for what's going on underground and more to come on that. 

The program you're referring to is headed up by our VP of Business Development Peter Campbell, who is our engineer. That really started out with just sampling old historic, we don't call them waste piles, we call them muck piles. When they mine these deposits, in the old days, anything that wasn't these carbonate veins material was brought to surface. Get it out of the way. The hanging wall and the footwall material, as we call it. It was left as waste on the side of these underground shafts. 

We've gone through and sampled them with the view that, we know from the gold world, you don't go from high grade mineralization to zero in the host rock. So we started sampling a bunch of those and sure enough, we're getting some very interesting grades. Not just of cobalt, but also silver, some nickel, some copper, some zinc, so very interesting. Some poly metallic, I guess, contexts that we're working in. It's not the same two at the camp. There's different contexts that we're working in.

Now having done all that and seeing the grades Peter is overseeing the program of sampling many tons of these materials to try to get a feel for a dozen or so of these stockpiles, what the average grade would be. 

Our geologist went and picked the high grade stuff and sampled it. What's the average grade and if the average grade is sufficient across all the metals and the flow sheet works, could we find ourselves in an early cash flow situation by producing concentrate out of these muck piles across the camp over the next year or two. Stay tuned on that. I think once we get the muck piles sample results done, we'll want to do an economic analysis and try to validate the existence of a business plan to keep going on that. 

Gerardo Del Real: I think shareholders will be well served to look forward to that. I heard you say recently, Trent, that it was great to finally be a part of a cool metal. Obviously you're ahead of a mega trend here. Tell me a bit, just could you provide some macro insight because you're obviously having a lot of behind-the-scenes conversations with players in the industry. Both people that are looking for supply and then you yourself mentioned that you may be looking at potential acquisitions if the right opportunity presented itself. What are you hearing? What does it feel like to be involved, not just with a cool metal, but clearly, clearly what's early days of a mega trend?

Trent Mell: No, it is a mega trend. The cool factor is that you're not one of a thousand gold companies out there. You're one of sort of investible cobalt players. You're one of, depending on your threshold, four to ten players. Automatically, you kind of stand out from the crowd when you're looking for a vehicle, the name comes up. 

The mega trend that you refer to, it's a true revolution of mobility. We've got a 1% penetration rate of electric vehicles specifically, going on in the world right now and we're just starting. I think most people would agree that we're at a point in overturn. So pick your penetration rate. Whether were going to go at 10% in the next five years or 20 or whether we go to 35% in 15 years. 

It doesn't really matter. The reality is we're at a point where lithium-ion batteries — and now I'm including laptops and phones as well as vehicles and scooters and what have you, buses — that's 50% of the cobalt supply today. So you double the penetration rate overnight. There just is not enough cobalt on the planet to satiate that. Players like us are out there trying... There is going to be discoveries. I think we will find a way to fill that gap, but over the next five years it's going to be a really interesting space to watch as the miners play catch up with consumer demand. 

With millennials, with Chinese regulators trying to clean up their atmosphere, with the Tesla movement and so on and so forth. We haven't even looked really, myself and also the analyst at what the impact might be from things like grid storage and the power wall and all the other ideas out there. 

Lots and lots coming. I can't wrap my head around projections because frankly, they just turn out to be wrong. There were visions that we seen this year were all upward. Every auto company on the planet has done a massive shift of their R & D away from diesel completely and increasingly away from the combustion engine in favor of electrical vehicles. I don't think most of... Particularly North America were laggards in the adoption side. I don't think most of us really appreciate what the world is going to look like in 10 years, let alone five. 

Gerardo Del Real: Agreed. Agreed. Now you mentioned, you touched on this a bit earlier. You said that most of the cobalt is processed in Asia. The majority is mined in the DRC. How important was it for you to have this dominating jurisdictional advantage?

Trent Mell: We actually started out by looking at the Congo. That's where 60% of the production is coming from today. We thought, "Let's go to elephant country to go looking for cobalt," but the reality is the world wants cobalt that's not in the DRC. So, you've got a situation right now where the majority is being mined in the Congo, and the majority of the battery materials is being refined out of China.

The problem that creates is you've got the political instability in the DRC, but you've also got this overlay of child labor and human rights violations in the Congo. Consumer groups have put pressures on the likes of Tesla and Apple and Samsung to source clean cobalt. So, now anytime you're getting cobalt out of China, which is 80% of refined cobalt, you've got to be able to certify your supply chain. 

As a result, it's created a lot of interest in what we're doing in North America. Both from the end users, the buyers, as well as the tributaries. Whether they be refiners and even some of the lithium miners have started to pay attention to what we're doing because people identify that we've got something that's pretty unique.

Gerardo Del Real: Just to be clear, there's not anybody in North America that's got the infrastructure, the refinery and the exploration upside, frankly that you possess. Is that correct?

Trent Mell: Yeah. Certainly I would say when it comes to the refinery, we're unique. The exploration upside likewise. We've got a massive land package here and it makes us pretty special. There are other cobalt exploration and development plays out there, but I think we've got a couple of attributes that are going in our favor here. 

With this company, 9 or 10 months old effectively, so kind of watch out. We've got a lot to come. Again, we've got a heck of a team and we only strengthen the team once we've completed this merger. Paul Matysek came on as chairman of the board. Bob Cross came in. Then that sends a good message to the market. We've got a management team that knows how to build and operate mines. We've got a board that's capital markets friendly and frankly, they won't stand in the way of a transaction at the right time if somebody wanted to buy us out. 

As an investor, you should feel comfortable that this team can execute or get out of the way if somebody bigger wants to come and do it for us. 

Gerardo Del Real: Excellent. Now we talked about the financing. We touched on it a bit. What does the cash position look like. You mentioned not having to dilute any time soon. What is the updated cash position and share structure look like right now, Trent?

Trent Mell: Yeah, we raised about $25 million US as you mentioned. By the time the transaction was done, our exploration plans for the year, we were completed. We were getting down to the last million or so. That's probably where we stand right now. Our budget this year probably won't be more than half of that. I say that with a little bit caution because with a little bit of success we might just ramp things up even further. 

Ostensibly, we've got enough cash for the next two years. If we need to spend this faster, then it's good news because it means we're onto something that we think is worth pursuing. 

Gerardo Del Real: Absolutely. Trent, I want to thank you for your time. Is there anything else that you'd like to add? 

Trent Mell: No. I think these are happy days for us. We feel fortunate to be where we are. The market is hot. I think this is certainly a space to watch, not just in 2017 where it was top performing metal, but there's no signs of letting up into 2018, so cobalt, I think, will continue to be in the headlines in the year ahead. 

Gerardo Del Real: Well, as you check off milestones, I'm looking forward to having you back on to update everybody, Trent. Thank you again.

Trent Mell: As am I. Thank you so much. Have a great day. 

Gerardo Del Real: You, too.

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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