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Cobalt Blue Holdings Ltd: THE INVESTMENT CASE
INVESTMENT OVERVIEW

Cobalt Blue a major ASX success story in past 12 months … and it has a long way to run

The company is the only ASX-listed primary cobalt player and aims to add value by supplying direct to battery makers.
Tesla electric vehicle
INVESTMENT OVERVIEW: COB The Big Picture
The company is linked to the electric vehicle market through the supply of battery-ready cobalt

Cobalt Blue Holdings Ltd (ASX:COB) has been a major ASX success story since listing early in 2017, riding high on the cobalt success story, which is based on the looming demand for lithium-ion batteries in the electric vehicle (EV) and energy storage markets.

After debuting at 18 cents in early February 2017, shares rose to 33 cents in the first three weeks and then stagnated, trading in the range of 14 to 19 cents until late October.

READ: Cobalt Blue delivers resource upgrade at Thackaringa Project, paving the way for 70% stage II earn in

Since then it has been onwards and upwards as Cobalt Blue, the only ASX-listed primary cobalt player, has reached new highs on a regular basis, supported by steady news flow from its Thackaringa Cobalt Project near the silver, lead and zinc mining stronghold of Broken Hill.

On March 26, Cobalt Blue cracked the $1.50 mark, up almost 45% on a week earlier when it announced a resource upgrade.

READ: Cobalt Blue partners with LG to source cobalt for the lithium-ion battery market, shares up

This was followed later in the week by news of a cobalt sourcing deal and US$6 million placement to LG International, one of the world’s largest lithium-ion battery makers in the world.

The Cobalt Blue story is not likely to end here, with the company to announce results of a pre-feasibility study (PFS) by the end of the June quarter and the cobalt demand story not showing signs of easing.

Thackaringa Cobalt Project is close to infrastructure, just 20 kilometres from Broken Hill.

Opportunities are “where we are going”

Chairman Rob Biancardi adds strength to the upward trend. “The opportunities for us are not where we are now, but where we are going,” he said.

“Things are moving quickly in the EV space with a lot of European countries dropping their dates for phasing out internal combustion engine vehicles and there are more smartphones around than ever before.

“Cobalt Blue is on the first step of a very long ascent and we are well placed to go the journey.

“We need to know where the tech-spec of the batteries is in the future, not in 2018 but where it will be in 2022 or 2023.”

Valuation appears compelling: Blue Ocean Equities

Blue Ocean Equities also noted the Cobalt Blue success story in a report issued after the LG partnership news.

“COB’s potential valuation appears compelling,” senior resources analyst Steuart McIntyre said.

“While the share price has performed strongly over the past 3-4 months, given the growing cobalt supply concerns with end users, in our view the company’s valuation remains compelling.

“Ignoring the impact of the LG placement, the company has about 133 million shares on issue and at $1.25 the market cap is still only about $150 million.

“With about $4.6 million in cash, plus $6.7 million due from option strikes, COB’s EV is about A$130 million.”

Cobalt Blue was spun out of Broken Hill Prospecting Ltd (ASX:BPL), which remains leveraged to the cobalt story by holding a 49% beneficial interest in Thackaringa as well as holding legal title to the leases.

72% of resource in indicated category

The cobalt project’s resource now stands at 72 million tonnes at 852 ppm cobalt, 9.3% sulphur and 10% iron for 61,000 tonnes of contained cobalt at a 500 ppm cut-off.

About 72% of the resource is now classified as indicated, which CEO Joe Kaderavek said is a big tick along with the scale of the resource.

“That is only the first double punch because as we come into the PFS investors will see how we will process the ore, and how effectively we can do that.

“The engineering then says what is the economic ore, what is the cut-off.

“The lower cost we have as a result of the processing, the bigger the resource grows and all of this will significantly de-risk the project.

READ: Cobalt Blue achieves high cobalt recoveries in tests of ore from Thackaringa project

“With the PFS coming by mid-year it is quite a quick step between stage I and stage II. We are finalising this work now, which is a matter of pulling together the above and below ground test work to create the engineering backdrop.

“Our results have been encouraging and we have demonstrated that we can take 88% of the cobalt that is in the ground and turn it into a payable product.”

Another factor that stands Cobalt Blue apart from other cobalt producers is the fact that it is not a by-product player.

“Chasing one metal”

“By chasing one metal we can optimise the whole process to extract that metal rather than concentrating on other metals,” Kaderavek said.

Then there is also step-out potential and the CEO said that although the cobalt in pyrite resource was unique to Australia, it was more than likely evident in other locations around Broken Hill but had never been sought previously.

“The cooperation MOU recently signed with Havilah Resources is indicative of management believing that this process can apply immediately beyond the borders of Thackaringa.

“This is just a 30-kilometre step-out for us but it is clear that based on the geology of the region, we can step out hundreds of kilometres,” he said.

“Another point of difference,” Kaderavek said, “is how we deal with the ore.

“From our point of view it’s simple as we have one metal to optimise and the sulphur is just a credit on the side.

Cobalt sulphate crystal made

“Importantly what we can do is to combine the cobalt and sulphur to make a cobalt sulphate crystal, which is basically a salt used in the cathode of the positive electrode of a battery.

“The efficiency of the process allows us to get high recoveries and low cost. That’s where the asset comes back to us and says you can now combine the two key ingredients of the ore and make a battery-ready product.”

The traditional relationship between a cobalt mine and the battery industry is via a middle party, such as a metal refinery and then a chemical refinery, which produces the battery-ready cobalt from the ore.

Most cobalt sulphate produced today is made into a metal at a refinery and then dissolved back into a salt with sulphuric acid.

100% payable cobalt product

“This is the metallurgical equivalent of 10 steps forward and eight steps back,” the CEO said, “and the miner then only receives about 30 cents in the dollar for the raw product.

“As a relatively new Australian upstart, we want to get into that market and make a 100% payable cobalt product.”

Blue Ocean believes a cobalt price of around US$25 per pound is probably defensible, particularly given the spot price is around US$43, and supply appears relatively constrained over the next few years.

“If mine life can be extended to about 20 years, and we believe it probably will, at a cobalt price of US$25/pound our NPV10 for Thackaringa is about A$800 million,” McIntyre said.

“In that light, could this company be trading with a market cap of $300-400 million near-term?  We certainly think so, particularly given the scarcity of viable cobalt exposures for global institutional investors.

“Added to this is the validation of COB’s strategy that we believe the LG investment represents.”

Kaderavek added: “Thackaringa production is focused on the period when the EV market will be really firing up and the relentless drive for improved battery energy storage will come right into play.”

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Cobalt Blue Holdings Ltd Timeline

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