The combination of the falling cost of batteries and the rising cost of complying with emissions regulations has drastically increased forecasts for battery powered electric vehicles worldwide. Ford CEO Mark Fields even predicts the number of models of EVs will exceed pure ICE-powered cars within 15 years (Source: The Economist).
While lithium gets much of the headlines as being an integral ingredient in the lithium-ion batteries used in electric vehicles, cobalt is a no less important ingredient. According to CRU senior consultant Edward Spencer electric vehicle demand will consume 16.9% of refined cobalt by 2021, lifting total annual demand to 130,000 tonnes. Meanwhile analysts at Macquarie see mounting cobalt deficits over the next few years with the global cobalt deficit reaching 5,340 tonnes by 2020.
This precarious global cobalt supply/demand outlook has investors, including the Chinese government, stockpiling cobalt and driving the price up more than 60% in the last six months:
Cobalt (US$/lb) – 6 Month
The surging price of cobalt, driven by rapidly growing demand for electric vehicles, has turned investors’ attention to the most attractive North American cobalt assets which have a possibility of moving into production relatively soon. Scientific Metals’ (TSX-V:STM, US-OTC:SCTFD) Iron Creek Cobalt Project in Idaho is at the top of this list; the seven patented lode mining claims which comprise 137 acres are on private property which means that permitting is not an issue.
Yesterday STM announced its exploration plans for Iron Creek including rehabilitating the portals leading to three underground tunnels which currently have a combined length of 1,500 feet and access the mineralized zones, in addition to conducting surface core drilling on the patented lode mining claims, targeting the known mineralized zones.
The objective of these exploration plans are to conduct extensive underground sampling with plans to extract a bulk sample for metallurgical testing while confirming the previously identified historic estimates of cobalt mineralization, and to explore for extensions to these zones.
The fact is that the U.S. electric vehicle industry does not have enough secure, ethical sources of cobalt ready to come online to meet the rapidly growing demand. Iron Creek could play an integral role in the global cobalt supply chain over the next decade. The rising price of cobalt combined with the Trump administration’s commitment to sourcing raw materials from within the U.S. has created a perfect storm for Scientific Metals. Scientific Metals CEO Wayne Tisdale offered the following comments:
“We look forward to confirming and expanding upon the historical workings on this project. With cobalt currently reaching new 52 week highs along with mounting demand for a safe, secure and ethical supply of cobalt, we feel it is the opportune time to aggressively explore our flagship Iron Creek Cobalt project…..With the Trump administration’s emphasis on providing raw materials for electric batteries sourced in the USA, there will be an ever-increasing emphasis on developing projects such as the Iron Creek Cobalt. We expect that companies such as Tesla, GM, Apple and others will be forced to disclose the ethical shortcomings in their supply chain and source safe, secure and home grown materials for their phone, car and home batteries.”
Investors have recently begun to catch on to the STM story with the company’s latest bought deal financing for C$2.5 million (6x oversubscribed) receiving tremendous institutional interest even after STM shares have risen nearly 300% year-to-date:
To put the size of the Iron Creek Project into perspective, STM’s closest comparable company is eCobalt Solutions (TSX:ECS) which currently has a ~C$150 million market cap – ECS has 3 million tons grading .61% cobalt. STM currently has a C$62 million market cap and STM has a non-compliant 43-101 resource estimate completed by Noranda which shows that Iron Creek has 1.3 million tons grading .59% cobalt (at a US$20/lb cobalt price this estimates that Iron Creek holds ~US$300 million in cobalt). However, perhaps most importantly STM believes that it can prove that the Iron Creek resource is multiples of the Noranda estimate. Moreover, this comparison does not even include STM’s Deep Valley and Paradox Basin lithium projects which are also quite promising in their own right.
There is substantial potential for STM shares to continue moving higher, bridging the gap with ECS, as the company moves forward with its 2017 exploration program and completes a compliant, and potentially larger, 43-101 estimate at Iron Creek. STM believes that it might have the largest pure play cobalt project in North America on its hands at Iron Creek and the fact that it does not have to go through a permitting phase gives it a leg up over the competition in bringing commercial cobalt production to the market.
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