Cobalt Blue Holdings (ASX:COB) plans to close its initial public offering tomorrow aimed at developing one of the world’s largest undeveloped cobalt resources, the Thackaringa Cobalt Project, located near Broken Hill.
Cobalt is a critical commodity, which are considered vital for the economic well-being of the world's major and emerging economies, yet whose supply may be at risk.
Among these critical commodities are metals used in the manufacture of high-tech applications such as lithium-ion batteries, mobile phones, solar panels and electric cars.
The Democratic Republic of Congo (DRC) central bank recently announced that the production of cobalt, slipped 0.8% to 21,493 tonnes in the third quarter and is down 9% year to date.
With over half of global supply of cobalt coming from the DRC, the fragile supply of this metal is being increasingly stressed.
Balanced against this stretched cobalt supply is a demand shift towards high growth clean energy markets such as those of lithium-ion batteries and storage batteries.
Demand driver #1: Electric vehicles
Cobalt is a necessary metal for the production of the latest generation, high density lithium-ion batteries.
Due to its high run-time properties, the use of cobalt has risen dramatically as portable lithium-ion battery usage accelerates and electric vehicles become a reality.
Electric vehicles include a broad definition of battery electric vehicles (BEVs) and plug in hybrid vehicles (PHEVs), hybrid electric vehicles (HEVs), commercial trucks, buses and electric bikes.
Global growth in the EV market is driven by supportive government policy such as rising standards on vehicle fuel economy and emissions.
Lithium-ion demand is also spurred on by increasing battery sizes, for example the Tesla Model S has a much larger 85kWh battery compared with the Toyota Prius 1kWh battery.
Tesla and General Motors Inc. (GM:NYSE) have both said that they're aiming for a sub-US$35,000 car in 2017, which will see EVs becoming increasingly popular with householders at all income levels.
Demand driver #2: Renewable energy storage batteries
Solar storage batteries are 100x bigger than the batteries in laptops and represent substantial demand growth for cobalt.
With 1.5 million solar photo voltaic panels already installed in markets like Australia, these markets are being targeted as consumers become aware of the long dated, tax free, energy hedged cashflows that the solar-storage combination produces.
As energy prices increase and cross over solar-storage costs, these batteries will find buyers, not just in urban households, but also as energy storage for microgrids and fringe of grid townships.
Currently vendors such as Tesla and Enphase are attempting to push storage based power costs down from $500/kWh to around $200/kWh, at which point the payback period of storage battery installation lowers to 8 years, a figure nominated as desirable by households.
Going off-grid, which means not relying on traditional power networks, could be coming sooner than the broader market believes.
IPO background
Cobalt Blue plans to list in December 2016 through the offer of between 40 and 50 million shares priced at $0.20 to raise between $8 and $10 million.
The Thackaringa Cobalt Project is strategically located 23 kilometres south-west of the world class mining centre of Broken Hill within New South Wales.
All leases are 100% owned by Broken Hill Prospecting Ltd (BPL) and are subject to a farm in agreement with Cobalt Blue who can earn up to 100%.
BPL’s recent exploration activities have more than doubled the resource to 35.7 million tonnes grading 0.084% cobalt for 30,000 tonnes of contained cobalt.
The total JORC resource consists of three defined outcropping cobalt deposits, which remain open at depth and along trend: Pyrite Hill, Big Hill and Railway.
The large, near-surface deposits at Thackaringa also make the project suitable for large-scale, open cut mining methods.
Analysis
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With this week being the last opportunity for investors to bid for stock in the Cobalt Blue IPO, the ASX is expecting to welcome its first pure cobalt play at an opportune time.
Cobalt Blue provides investors the opportunity to gain exposure to an aspiring top five, ethical, global cobalt producer in a pricing environment experiencing supply-demand pressures.
Post-offer the company will have a tight shareholder register with 95 million shares on issue for an undiluted market cap of $19 million.
This is a compelling valuation when compared to some of the recent transactional activity in the space, such as the US2.65 billion purchase by China Molybdenum of Freeport McMoRan’s 56% interest in a DRC cobalt asset.
Canadian listed cobalt company, Ecobalt Solutions Inc (TSE:ECS) has experienced over 370% price appreciation year to date.
Similarly, Fortune Minerals Limited (TSE:FT) who produced premium battery-grade cobalt sulphate samples earlier in the year are trading up 450% year to date.