Fortune Minerals Ltd CEO Robin Goad on Cobalt Supply for Tesla Inc, Volkswagen
Fortune Minerals Limited (TSE:FT) (OTCMKTS:FTMDF) (FRA:FMP) CEO Robin Goad says world cobalt supply is going into deficit, which puts Tesla Inc (NASDAQ:TSLA), Volkswagen (AMS:VWA) and other major electric car manufacturers in a tough spot when it comes to lithium-ion batteries.
James West: Robin, thank you for joining us today.
Robin Goad: Thank you, James. Happy to be with you.
James West: Robin, let’s start with an overview: What is the value proposition for investors in Fortune Minerals?
Robin Goad: So Fortune Minerals Ltd. has a development asset that’s primarily a cobalt project. Cobalt is an essential metal that’s used in lithium ion batteries for cathodes, and delivers the power and the charge life, essentially, for a lithium ion battery.
So we have the fourth generation of transformation of the lithium ion battery going on right now, which is the use of lithium ion batteries in the automobile. This is, we’ve had the first two transformations basically being use in portable electronic devices and use in hybrid electric cars, but now in electric automobiles, fully electric automobiles, and stationary cells.
James West: Sure. Okay, so first thing that comes to mind is, we’re pretty much told throughout the media universe in mining that primary cobalt mines are few and far between. In fact, I don’t know of a single one. Could you elaborate on the mine that you’re referring to, and exactly what is the volume of cobalt relative to other minerals?
Robin Goad: Sure. So our project is principally a cobalt project. Most cobalt is produced either as a by-product of copper or nickel; in particular, in the African copper belt, cobalt is produced as a by-product of copper in Zambia and also in the Congo, and then also nickel mines, sulphide deposits like Sudbury, Norilsk, have by-product cobalt production as well as laterite projects.
So our project is a little bit unique. It’s an IOCG, or Olympic Dam-style deposit, but its metal assemblage is a little bit odd in that cobalt is the dominant metal. We also have reserves containing 1.1 million ounces of gold; the cobalt content is 82 million pounds. And then the third commodity that we have in the deposit is bismuth, which is an unusual metal that has a variety of different applications in pharmaceuticals and principally in the automotive sector. But the growth in bismuth is coming as a non-toxic replacement for lead.
Having a project that is independent of both copper and nickel is very important, because depending on who you talk to, but some people would suggest that the copper production globally would have to double in order to satisfy the current growth in cobalt consumption from typical copper belt-type deposits. So that’s a non-starter.
James West: Yeah, that’s interesting. It’s been suggested to me by major mining executives that even the gigafactory in the Nevada desert that Tesla is developing, is going to be threatened by chokepoints in the cobalt aspect of the supply chain, especially in view of all of the gigafactory-sized plants being developed in the world. And I guess that puts you in a good position to capitalize on that?
Robin Goad: Yeah, that puts us in a very good position. Tesla’s plant alone will require about 7,800 tonnes of cobalt when it achieves full production. There are at least 15 megafactories either announced or under construction right now, so it’s not just a Tesla story, but LG’s building a couple of plants, Samsung, Boston Power, BASF. Daimler just announced one for the end of 2016. So we’re going to see huge factories being built all over the world, all of them requiring significant amounts of cobalt.
Now, the cathode chemistry that Tesla’s using is an NCA chemistry, which is a nickel-cobalt-aluminum. And most of the other automobile manufacturers are using NMC, which is nickel-manganese-cobalt. Traditional batteries in your portable computer, your cellular telephone, those are using LCO, or lithium-cobalt-oxide. So the principal battery chemistries all contain cobalt, but there are some batteries that don’t contain cobalt, but you use those at the expense of the performance of the battery.
James West: Okay. So your primary project is the NICO cobalt-gold-bismuth-copper project in British Columbia, correct?
Robin Goad: It’s actually in the Northwest Territories.
James West: Oh, okay.
Robin Goad: Up near Yellowknife, it’s about 160 kilometres northwest of Yellowknife. This is a project that we’ve expended more than $116 million to date. So it’s not something that’s been reactive to the popularity of cobalt; it’s a project that we’ve been advancing, it has positive environmental assessments in both the Northwest Territories and where we’re going to build the refinery for the project in Saskatchewan. It’s got a positive bankable feasibility study, it’s been test mined, it’s been pilot plant processed. So significant de-risking has happened.
The fact that we are vertically integrated, meaning that we’re going to go right through from the production of ores through to concentrate and then to produce a high quality cobalt sulphate that’s needed in these batteries, is something that’s very attractive to automobile companies and chemical companies, because they don’t quite care if you’re just mining a product; they want to know that you can actually produce the product they need.
James West: Right. So does Fortune – when would Fortune envision seeing production at this mine?
Robin Goad: Well, we’re effectively shovel-ready right now. So we’ve just announced the appointment of PWC as our financial advisor to help secure the project financing for the project. We need about $600 million CDN to be able to build this fully vertically integrated project, so that’s a mine, concentrator up in the Northwest Territories, and then the hydrometallurgical refinery in Saskatoon, Saskatchewan.
So we expect that the securing the financing can be accomplished. We had a fully financed project two years ago from a large Chinese EBC provider; then when outbound Chinese investment dried up a couple of years ago, and the commodity price went south, we’ve been more or less waiting for this opportunity to secure the project financing and build the asset.
James West: The obvious question is, have you talked to anybody at Tesla?
Robin Goad: I can tell you that we talk to companies, large manufacturers of electric cars, on a regular basis, and I have confidentiality agreements with some of those companies, so I can’t name any specific companies. But needless to say that Tesla is going to need 7,800 tonnes of cobalt. They’re going to need a lot of lithium, they’re going to need graphite. But I can’t tell you if we’ve had specific discussions.
James West: Sure. So also, 15 other gigafactories are going to need all that cobalt as well?
Robin Goad: The one I’m actually kind of excited about too is Volkswagen. Volkswagen, following Dieselgate, has gone fully electric; they’re going to have 20 models by 2020, 25 by 2025. They’re the largest car company in the world. But it’s everybody. I mean, General Motors, there’s a quote from the President of General Motors Canada saying that the future of the automobile is going to be far different than it is today. There’ll be electric, there’ll be shared, and they’ll be autonomous, as well.
James West: Okay. So let me ask you, Robin: I’m looking at your chart here, and it certainly looks like the market has failed to grasp, at this point, the imminent chokepoint that is directly in front of all of these gigafactories. I mean, if you look at the amount of cobalt being mined versus the future demand, if you were to assume that 15 gigafactories are going to need roughly 7,800 tonnes each of new cobalt production, there’s just no possibility of that in the whole global scenario.
So, at what point does the market reflect the imminent shortage in the share prices of companies that can deliver some cobalt?
Robin Goad: Well, I think you’re seeing that right now. our share price was beaten up pretty badly in the five years preceding where we are right now, but our stock is up about 10 times, for example, where it was about a year ago. The cobalt price has also just started to move at the end of 2016; this was something that had been forecast. Most people were – most credible analysts were projecting a cobalt deficit at that time, and about 1,600 tonnes per year, and then accelerating. Because we’ve had 6 percent compounded annual growth in the consumption of cobalt for 20 years now, primarily based on the use in batteries.
But up until this time, most of that cobalt has been able to be sourced either from the Congo or from existing nickel sulphide and laterite projects. Laterite has been a disaster; they were extremely expensive. The last one to be built that I’m aware of cost about 7.5 billion to build, and is only just starting to eke out an operating profit. It’s highly unlikely they’re going to be able to repay the capital.
The Congo is beset by all kinds of problems. It’s also a very high-cost jurisdiction. In addition to the political issues, which are significantly of concern, there’s also the near-surface oxide ores are largely depleted; they’re transitioning now into deeper sulphide ores that require more expensive downstream processing, and the President of the Congo has defied the Constitution and failed to sort of hand over power last year. There’s a truce that’s been negotiated for a transition in 2017; if that doesn’t happen, you could see a significant impact on the current supply, which right now is 60 to 65 percent of global mine production.
The other thing that’s quite interesting about cobalt supply is that 52 percent of the refining is done in China. 85 percent of the cobalt chemicals are refined in China. So again, we have to have a reliable North American sort of alternative.
So we are seeing this transition. So cobalt prices last year were about $10, $11 per pound; long-term average prices for cobalt are typically around $20 per pound, and we’ve seen the price recovering now to about $17 a pound. So we’re just starting to get up to historical averages right now, and when it does go through that, I think some of these battery clients are going to have a challenge getting material.
James West: You bet. All right, Robin, that’s a great introductory overview. We’re going to come back to you in due course and see how you’ve progressed. Thank you very much for your time today.
Robin Goad: Thanks very much for having me, James.