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$WCTXF Poised for Cobalt Success: a Strong Partner and Prime Location

Click to enlargeMining is often a high-risk/high-reward proposition, especially for the junior mining companies exploring for and developing new projects. Strike success with a particular exploration initiative, and a single project can make an entire company.

Conversely, failure carries its own obvious costs. A company’s share structure can become excessively diluted, often to the point where it becomes impossible to continue to advance operations. This makes the formula for success for a junior mining company relatively simple: minimize risk as it pursues its high reward.

How?

There are a number of ways in which a prudent management team can de-risk their mining operations, but two avenues are frequently employed:

Select an optimal location for mining operations
Find a strong partner who is capable of providing both financial support and operational expertise

This is the strategy currently being pursued by LiCo Energy Metals Inc. (TSX: V.LIC, OTCQB: WCTXF, FRA: 43W1, Forum). As the Company’s name implies, LIC’s focus is on lithium and cobalt. These are two of the most strategically important metals as the mining industry seeks to meet the demands of the lithium-ion battery and electric vehicle markets.

Industry analysts point to cobalt as the base metals sector with the most critical need for new supply. As a result, LiCo is presently prioritizing its cobalt operations. Where is a safe jurisdiction to explore for cobalt, one which also has a history of significant cobalt production? How about Canada?

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In 2016; Canada was the world’s 3rd largest producer of cobalt (just behind #2 producer China) at 7,300 tonnes. Today, most of the cobalt produced in Canada is a byproduct of nickel and copper mining. This is typical of cobalt production around the world, where 98% of the world’s cobalt supply comes as a byproduct of nickel and/or copper mining.

However, skip back a few decades in time, and most of the cobalt produced in this country came from Canada’s “Cobalt Camp”, situated roughly around the town of Cobalt, Ontario. In some respects, this is a misnomer.

The primary metal produced in this “cobalt” camp was silver: an estimated 18,000,000 kg’s of high-grade silver was produced in this mining district. But along with all this silver was 14,000,000 kg’s of cobalt, occurring as a byproduct of silver mining, in relatively high concentrations.

Canada’s Cobalt Camp is unique in the world, as virtually the only place where cobalt is found naturally occurring with silver in significant concentrations. In a world suddenly hungry for cobalt, the mining industry is coming back to the Cobalt Camp, seeking to both redevelop older projects and search for new discoveries.

This is LiCo’s strategy, but it’s not looking to capitalize on opportunities in the cobalt market by itself. LIC’s first project in this district is the Teledyne silver-cobalt property. The land package is comprised of 5 patented and 8 unpatented mining claims, covering a total area of roughly 607 hectares.


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Teledyne entrance to mine shaft; infrastructure worth $25 million

Toward the northern boundary, the claims extend into the mining operations of the (former) Agaunico Mine. Through the first half of this century, Agaunico produced 980,000 oz’s of silver and 4.35 million pounds of cobalt. A significant portion of that cobalt came from structures which extend onto the Teledyne property.

Teledyne has seen extensive historical work totaling $25 million in inflation-adjusted dollars, according to management. Included in this work is over 3,000 meters of drilling as well as construction of a modern adit that parallels a silver-cobalt vein for 500 feet.

The historical drilling (in the early 1980’s) resulted in a resource estimate: 3.0 oz/t Ag and 0.45% cobalt, contained in 75,000 tonnes of ore. None of these numbers are NI 43-101 compliant.

Perhaps the real game-changer for this Company, however, was the acquisition of its second Cobalt Camp project on September 5, 2017. The Glencore Bucke property comes to LiCo by way of one of the marquee names in the world of mining: Glencore Plc. Title to the property was held by Glencore Canada Corporation.


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This is not just a straight sale, but rather a joint venture. While LiCo has contracted to acquire a 100% interest, Glencore retains off-take, production royalty, and back-in provisions. The 3.5% Net Smelter Return is a typical clause in these purchase agreements.

The off-take agreement is registered in Glencore’s favor. However, what this really represents is a pre-existing market for LiCo, for any/all ores and concentrates produced from this property.

Glencore also holds a back-in provision. But the clause only comes into effect if/when LIC produces a discovery resulting in metals with an in situ value of $100 million or more. Should Glencore exercise this clause, LiCo would retain a 49% interest, while allowing (well-capitalized) Glencore to become the project operator.

Glencore Bucke covers 16.2 hectares and adjoins the Teledyne property along its western boundary. In the 1980’s; more than 3,000 meters of drilling was also conducted here. That drilling program identified two, separate silver/cobalt vein systems, known historically as the Main Zone and North Zone.

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New drilling underway at Glencore Bucke

With their land package assembled, LiCo is wasting no time in adding value to the properties. On September 26, 2017; the Company announced a 2,200 meter drilling program, starting on the Glencore Bucke property and then moving on to Teledyne.

LiCo’s President and CEO, Tim Fernback couldn’t hide his enthusiasm concerning the potential of the Glencore Bucke joint venture.

We are very excited to acquire this strategic Canadian property from Glencore. The property is conveniently located adjacent to our current Teledyne Cobalt property, and this purchase agreement allows LiCo to expand upon one of Glencore’s longstanding Canadian cobalt assets. If all goes as planned, we could be selling all our cobalt produced back to Glencore in the future. It is a property sale, but we have also found a significant future customer.

Fernback is a relatively recent appointment, taking over as President and CEO in April of this year. His background is in finance, including oversight of Investment Banking and Corporate Finance for Wolverton Securities. Fernback also has extensive Board-level experience with several Canadian mining companies.

Glencore is not merely a general powerhouse in the global mining industry. The company is already plugged into the cobalt market as a major producer, via its mining operations in the Democratic Republic of Congo (DRC). The DRC is, by far, the global leader in cobalt production. But it’s a troubled nation, plagued with internal strife and corruption.

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For various reasons, the supply of cobalt from the DRC is seen to be uncertain. Indeed, in 2008 cobalt prices spiked due to a dramatic drop-off in cobalt exports from the DRC.

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[chart produced courtesy of Infomine.com]

This is one of the reasons that Tesla Motor’s Elon Musk has already publicly stated his intention to supply Tesla’s North American gigafactory with metals produced only from North American sources. This is yet another built-in market for any/all cobalt produced from LiCo’s properties.

Investors new to mining may still be wondering what all of the excitement is about. There are two dimensions to the cobalt story: a powerful surge in demand and limited capacity of the mining industry to increase supply.

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As already mentioned, cobalt is a byproduct metal. Nearly all of the world’s cobalt comes from the primary mining of other metals. In this respect, cobalt is almost more of a rare earth than a conventional metal.

This means that it will require many more nickel-cobalt mines, copper-cobalt mines, and (in Canada) silver-cobalt mines to meet this explosion in demand. With the supply curve for cobalt being relatively slow, this translates into sustained high prices for this metal.

Meanwhile, additional developments continue to impact the supply/demand fundamentals in this market.

China bans major Beijing construction projects in 'war against air pollution'

How is this relevant to cobalt? Pollution from conventional automobiles is one of the worst sources for air pollution in China. China needs to keep building things. It doesn’t need gas-powered automobiles.
China to ban production of petrol and diesel cars 'in the near future'

This paradigm shift isn’t occurring purely at the national level. Major players in the auto industry are already embracing this wave of the future. And these companies are now thinking strategically, seeking to lock-up their own supply of (in particular) cobalt. Volkswagen recently solicited proposals from cobalt producers to secure a 10-year supply of this metal.

As LiCo pursues development of its cobalt assets, it’s important for investors to realize that the high-grade silver present in this mineralization is hardly just a throw-in. Silver is a precious metal, sold by the ounce, not the pound.

Severe, structural under-pricing of silver has plunged the sector into a permanent supply deficit, draining global inventories and stockpiles. Only a dramatic, upward revaluation of the price of silver can restore balance to this market.

Silver is also a hi-tech metal, with numerous important cutting-edge applications. In this respect, it fits clearly into the Company’s mandate as a hi-tech/green-tech metals producer. This leads to the other branch of LIC’s operations: lithium.

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Management hasn’t forgotten about LiCo’s lithium assets. As another important hi-tech metal, lithium demand has also soared. Given the current strength of the cobalt market, LIC’s Canadian cobalt prospects are the current focus. However, management also plans on concurrently advancing the Company’s three lithium properties.

Purickuta Project: Salar de Atacama, Chile
Dixie Valley Project: Nevada, USA
Black Rock Project: Nevada, USA

http://www.stockhouse.com/news/newswire/2017/10/10/poised-for-cobalt-success-strong-partner-and-prime-location#3D04hf6Tjm8lgUtp.99