Last week saw Canadian cobalt developer Global Energy Metals (TSX-V:GEMC) announce that it is planning to build upon its strong UK shareholder base by co-listing in London. The firm has a portfolio of pure-play projects in safe mining regions and plans to address and profit from supply constraints in the cobalt market driven by demand, geopolitical risk and secondary mining.
Global Energy’s decision to list in the UK will give British investors seeking exposure to the forecast electric vehicle boom an opportunity to back a new, unique prospect with a dedicated focus on a critical battery metal. Here, CEO Mitchell Smith tells us how the company plans to use its strong foothold in Australia’s Mt. Isa region, Canada’s Kenora Mining District and in Nevada, America to develop into a major player.
Global Energy Metals has been established to provide investors with exposure to cobalt, an essential battery metal that is expected to benefit from a widely-predicted surge in the use of electric vehicles around the world.
Given that around three-quarters of electric vehicle batteries currently contain cobalt, the market for the metal is expected to double over the next four years alone and quadruple by 2028. To express this another way, 62pc of global cobalt demand is likely to come from battery manufacturers by 2020, up from 51pc in 2016 and 20pc in 2006.
Despite the strong potential presented by cobalt, Smith says there are still very few companies operating as a pure play on the metal. As it stands, 98pc of the world’s cobalt arises as a by-product of mining for other metals.
This has led supply to take a significant hit in recent years as traditional miners have scaled back production amid harsh market conditions.
By acquiring and developing high-quality primary cobalt assets, Smith believes Global Energy can help to reduce cobalt’s reliance on other metals and support its supply:
‘Miners across the majority of the world have never really gone out and looked for cobalt specifically. It has always been looked at as a by-product of copper and nickel production. We are looking at our portfolio strictly as a collection of pure-play cobalt opportunities. It is rare that a company exploring and developing cobalt-focused projects identify deposit types where the copper or nickel represents the by-credit on a valuation metric. By building a company that has a solid foundation in this key strategic metal we have created a unique investment opportunity for shareholders.’
Global Energy also plans to address the market’s heavy reliance on the Democratic Republic of the Congo (DRC). Following decades of internal conflict, civil wars, and failing infrastructure, the DRC has emerged as one of the most geopolitically unstable regions in the world. With the country currently housing around 60pc of all cobalt resources, these issues have repeatedly impacted global supply over the years.
Compounding this, the DRC’s problems appear to have now extended into the operational realm. Miners are grappling with a fall in cobalt prices and the introduction of a new mining code in the DRC that raises the percentage of royalties they have to pay to the government. This has called into question where new supply will come from if not from byproduct production in the African copper-belt.
By focusing on projects in established, mining-friendly jurisdictions like Australia and North America, Smith believes Global Energy can reduce the historically high levels of volatility in the cobalt market:
‘The recent supply disruptions in the DRC has illustrated how the whole cobalt production chain can be really shaken if you take away even a small amount of supply and highlights the need for supply diversification. In Australia, we are located in very safe, politically sound jurisdictions with very skilled workforces in place. Meanwhile, the US government has recently acknowledged its support for cobalt by highlighting it as a strategic critical metal. Establishing operations in these stable areas is key to clearing up the serious volatility in the cobalt market stemming from the DRC’s instability.’
Global Energy’s flagship interest is the Millennium Project in the world-renowned Mt. Isa region of Queensland, Australia. The growth-stage exploration cobalt site is located near established mining, transport, and processing infrastructure and has easy access to a very skilled workforce.
Millennium contains a defined zone of cobalt-copper mineralisation where a 2016 JORC Resource estimate identified 3.14MMts of inferred resources containing 0.14pc cobalt and 0.34pc copper with gold credits using a 1.0pc copper cut-off. Global believes that it can immediately enhance the economics of the resource by updating the estimate using today’s improved cobalt prices.
What’s more, it is reviewing studies to increase the size of Millennium’s deposit. For example, recent mapping, soil geochemistry and rock sampling identified 1.5km of untested cobalt-copper mineralisation along a potential strike extension from the defined zone.
A map of the Millennium project’s location within the Mt Isa region
Global Energy’s first involvement in Millennium came in 2017 when it agreed to acquire 75pc of the project from a firm called Hammer Metals in exchange for funding $2.5m worth of work commitments. Following a successful first round of work, the business decided to accelerate its involvement in the project in June last year by entering into an agreement for the exclusive right to purchase a 100pc interest in the project.
The company agreed to issue 19.9pc of its share capital to pay for this additional stake and Hammer’s CEO Alexander Hewlett has joined its board to provide operational and technical support. This deal closed in January and is pending Exchange approval in a move that Smith believes to have established Global Energy ‘as a cobalt leader in one of the world’s best mining jurisdictions.’
Global Energy is now preparing for a second phase of drilling on the northern and southern portions of the Millennium deposit to expand and upgrade the current resource. Smith told us he is highly optimistic about the value this work will add:
‘Moving forward, we believe that through expansion drilling we can significantly increase the resource size at Millennium both at strike and depth. This is something we will look to do in the first half of this year as well as carrying out additional assessments on the project to better understand its metrics and economics.’
An image showing the scale of the Millennium project’s zone of mineralisation
As part of the Millennium deal, Global Energy has also acquired two further Mt. Isa properties called Mt. Dorothy and Cobalt Ridge.
The sites, which expand the firm’s Australian land position by nearly twenty times, have yet to be exploited. However, exploration to date has returned high-grade cobalt intercepts at both. To follow this up, Global Energy has already lined up numerous targets for further investigation as well as test work to define a resource.
Although the two sites are at a very early stage, Smith tells us their inclusion takes Global Energy’s Mt. Isa position into another league:
‘Obviously, the Millennium alters the capitalisation of the company because we are issuing shares to Hammer Metals. However, with these two resources turning the acquisition into a district-scale exploration opportunity, we think it will end up being highly accretive for shareholders. We are very excited to see how these sites develop and look forward to updating shareholders.’
Moving away from Australia, last month saw Global Energy agree to acquire an 85pc stake in two Nevada-based cobalt sites called the Lovelock Cobalt Mine and the Treasure Box Project.
Lovelock covers an area of around 1,400 acres and is said to have produced 500ts of cobalt and nickel mineralisation between 1883 and 1890 when it was last in operation. Global Energy believes exploration work and modern drilling techniques could unlock a large amount of potential value at the site.
Aside from providing Global Energy with permitted, drill-ready locations in a well-established jurisdiction with historically high cobalt grades, the sites are also located just 150km east of Tesla’s Gigafactory. Smith emphasizes that the acquisition was a low-cost entry to an exciting jurisdiction that is in close proximity to the world’s largest battery factory:
‘Some of the grades at these sites are exceptional. Historically, grades were reported as high as 14-15pc cobalt, which is just unheard of. It shows there is a real opportunity in this significant land package covering two past producing mines. Given our proximity to Tesla, this could really provide us with unique access to the growing demand for domestic cobalt supply in the US.’
Lovelock and Treasure Box location map
Global Energy’s final interest is a legacy asset called the Werner Lake Cobalt Mine in Ontario, Canada. This operated as a high-grade source of cobalt in the 1940s and was taken back to mine decision in the late 1990s.
To allow it to focus on Australia and the US, Global Energy has teamed up with Australian miner Marquee Resources to advance the project. Marquee is in the process of sole-funding a $2.5m exploration and development work programme in exchange for a 70pc interest in the pit.
Last month, Global Energy said Marquee’s work over 2018 had confirmed the extent and continuity of high-grade cobalt mineralisation at Werner. It added that it has also extended the limits of mineralization defined by the current mineral resource model.
Aside from its broad portfolio of assets in mining friendly jurisdictions, Global Energy has established a partnership with leading battery manufacturing firm Beijing Eastspring Technology Material. The two business jointly invest in and develop cobalt projects. It has also appointed a company called New Tiger Consulting to seek additional investors and material supply partners in Mainland China, Hong Kong, and Taiwan.
Global Energy is also backed by a management team with decades of experience in the niche cobalt and battery metals sectors.
Having held senior roles in the resource sector in the past, Smith has experience in negotiating off-take agreements for cobalt material and building relationships with Chinese battery manufacturer intermediaries. Meanwhile, CFO Luis Hadic has more than a decade of accounting experience in various resources sectors while directors Erin Campbell, Peter Reynolds, Paul Sarjeant and Gaston Reymenants have senior expertise with specialist mining companies.
Smith says he and the board pride themselves on being some of the first people to recognise cobalt’s potential:
‘As a management team have been involved in the cobalt space for over a decade. I think it rare for a group of people to have collectively realised the importance of cobalt being a niche under-exposed metal with serious supply constraints and opportunity within the demand side. I think the market is really starting to wake up to the criticality of cobalt in batteries and the growing electrification of vehicles and we will benefit from being early adopters.’
Global Energy’s belief in cobalt’s prospect is backed up its management team’s considerable ‘skin in the game’, with insiders currently owning 20pc of shares. Institutional investors own a further 10pc.
Meanwhile, Smith tells us the firm has decided to co-list in the UK’s NEX exchange in response to considerable demand among British investors:
‘Over the course of 2017 and 2018 the company has seen great demand to undertake a UK listing and given that we already have a strong UK presence through UK investors participating in previous financings we are excited to commence trading in the country. This listing will ensure that UK investors, both existing and prospective, have the ability to invest in GEMC through a domestic exchange. In conjunction with this listing, we have engaged the services of respected communications providers including Mining Maven to enhance our reach within the British-investing community.’
Global Energy has enlisted Peterhouse Capital to act as lead adviser and manager of the proposed listing process. It expects to provide additional updates on timings with respect to listing in the near future.
With a broad portfolio of projects in safe jurisdictions and cash available to progress them, Global Energy is well positioned to make a real difference in a cobalt market suffering from severe supply constraints. Shareholders can expect a steady stream of updates from all of the company’s projects over the coming year. With its pure focus on the cobalt market, Global Energy will provide both its UK-based and globally-situated investors with a unique way of playing the forecast boom in electric vehicles.
Author: Daniel Flynn
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