Small Cap Power Analyst Article: Canada Cobalt Works (TSXV:CCW) Aims for Leadership Status in Battery Metals Race

Peter Kennedy | January 16, 2019 | SmallCapPower: Battery metals, including cobalt, lithium and nickel, continue to attract the attention of investors in the junior mining sector who are seeking to capitalize on the boom in demand for mobile consumer devices and electric vehicles. It is why Canada Cobalt Works Inc. (TSXV:CCW) (OTC:CCWOF) (Frankfurt:4T9B) is positioning itself to become a vertically-integrated North American leader in cobalt extraction and recovery.

The Company aims to achieve that goal by developing a number of business lines that include exploration and mining, production of cobalt-rich gravity concentrates and the sale of concentrates to battery cathode makers in Asia and Europe.

Another line of business may also involve the use of proprietary technology called Re-20X, which is designed to efficiently extract cobalt from ore and produce cobalt sulphate to the specifications required by battery sector end users.

Re-20X technology is also being tested at SGS Lakefield Research Ltd. at Lakefield, Ont., to see if it works for extracting cobalt, lithium and other metals from used lithium-ion batteries.

Canada Cobalt Works is headed by President and CEO Frank Basa, a 60-year-old metallurgist, who worked for Agnico-Eagle Mines Ltd. (TSX:AEM) (NYSE:AEM) during the 1980s.

The foundation stone for Mr. Basa’s business plan is a past-producing property known as the Castle Silver mine, which is located near the northern Ontario community of Gowganda, 85 kilometres north of the historic Cobalt Silver Mining Camp.

Records show that over 9.5 million ounces of silver and 299,847 pounds of cobalt was recovered from the Castle Mine. That includes the 3 million ounces produced by Agnico-Eagle before a collapse in the price of silver prompted Agnico-Eagle to abandon the operation in 1989.

It was Mr. Basa who developed the Re-20X process while he was employed by Agnico. But the technology was never commercialized because Agnico switched its attention to gold mining.

In an interview with SmallCapPower, Mr. Basa said potential customers in the battery manufacturing industry are looking for alternatives to the Democratic Republic of Congo, currently the source of 54% of the globe’s cobalt supply.

Amnesty International has warned electric car companies to seek out alternatives to the DRC, which is well known for its mineral wealth, but also civil wars, corruption and use of child labour.

“Our initial investigations found that cobalt mined by children and adults in horrendous conditions in the DRC is entering the supply chains of some of the biggest brands,’’ said Seema Joshi, Head of Business and Human Rights at Amnesty International.

Reports of child labour at small mines in the Congo has prompted some end users to trace the supply chain for cobalt in the batteries they buy.

It is a trend that is presenting opportunities for companies that can offer cobalt mined from jurisdictions such as Cobalt, Ont., which are not tainted by an association to undesirable practises in the DRC.

Now that it has picked up cobalt properties that Agnico left behind, Mr. Basa believes his company is well ahead of competitors who are merely doing exploration drilling in the Cobalt camp. Mr. Basa said Canada Cobalt Works is the only company in the region that can produce the type of cobalt sulphate that cathode manufacturers require.

“You have to give them the purity and grade that they are looking for,’’ he said.

Following the assembly of the 500 kilogram per day pilot plant, the Company has been able to produce gravity concentrates on the Castle mine site. One recent test showed grades of 9.25% cobalt, 5.65% nickel, 9,250 g/t silver and 49.9% arsenic.

It said this would allow for the scaling up of the Re-20X process testing at SGS Lakefield, which the Company said can resolve a long-time issue in the Cobalt camp by removing 99% of the arsenic from concentrate containing nearly 50% arsenic, while achieving cobalt recovery rates of 99%.

Prior to the recent arrest in Vancouver of the Chief Financial Officer of Chinese telecommunications firm Huawei Technologies, Mr. Basa said he had been involved in advanced talks with cathode manufacturers about the possibility of building a refinery in China that would source concentrates from the Cobalt region.

But those discussions have been hampered by the arrest of Huawei CFO Meng Wanzhou, who faces possible extradition to the United States. As the arrest has put a chill on relations between Canada and China, Mr. Basa said he is talking to cathode manufacturers in Germany.

“If the Huawei thing gets resolved, the Company hopes that a pilot scale refinery will eventually be built in China,” he said.

Indeed it is hard to see where Canada Cobalt Works could proceed without doing a deal with someone in China, as China accounts for more than 80% of the production of cobalt chemicals, according to Darton Commodities Ltd.

Aside from its ability to produce cobalt sulphate, Canada Cobalt Works is currently the only company in the Cobalt camp that has the permits to undertake underground exploration. This work is being conducted on the first underground level of the Castle Mine, which operated at various times between 1917 and 1989, producing silver and cobalt from the No. 3 shaft. Additional unspecified production also occurred between 1951 and 1966, with material that came from the both the Castle No. 3 and Capitol shafts.

The Company has said there is a strong likelihood that future cobalt mining economics will be enhanced  by metal credits such as nickel, silver and others.

In a press release dated December 14, 2018, Canada Cobalt Works said underground drilling on the first level of the Castle mine has continued to identify cobalt-silver-rich vein structures, occasionally also mineralized with gold and nickel.

Economics of mining cobalt may also be enhanced by a custom milling agreement with Canada Cobalt Works’ sister company Granada Gold Mine Inc (TSXV:GGM), Mr. Basa said. This may involve the processing of gold-bearing ore from the Granada gold mine near Rouyn-Noranda, Que., at a 600-tonne-per-day mill that Canada Cobalt Works hopes to install at the Castle Silver mine.

In its December 14, 2018, press release Canada Cobalt Works said two widely-spaced holes have intersected an apparent syenite-hosted gold system with nearby cobalt potential in a previously undrilled area 1.5 km east of the Castle adit and mine shafts.

The announcement appeared to take investors by surprise, causing the share price to spike to $0.55, from $0.45 on December 13, 2018, and then drop to $0.40 on December 20, 2018. Its shares have since clawed back some lost ground and traded at $0.51 on January 15, 2019 in a 52-week range of $0.90 and $0.19.

That leaves Canada Cobalt Works with a market cap of $38 million, based on about 75 million shares outstanding.

Meanwhile, as noted in a recent BMO Capital Markets report, the main challenge facing Mr. Basa and his company is the fact that the vast majority of cobalt supply globally is either from a primary copper or primary nickel operation as a by or co-product stream. “The cobalt price, while potentially helping with overall mining costs through credits, will rarely justify development of a project on its own,” the investment firm said.

“For example, for most nickel-based projects even a fivefold increase in the cobalt price barely moves project IRR (internal rate of return). Thus, unlike its battery peer lithium, there are next to no projects that could come to market in short order,” BMO said. Even with funding in place, BMO said the process plant needed for cobalt is many times more complex than that for spodumene (lithium in rock), where the Australian miners have been able to react quickly to pricing.

The good news for Canada Cobalt Works is that silver and cobalt are typically found together in quartz and calcite veins. Mr. Basa has predicted that high-grade silver production may prove to be the most profitable part of its operation.

“I know it is a little odd but I think I will make a killing on the silver,” he said.

To find out more about Canada Cobalt Works Inc., please visit the company’s website at www.canadacobaltworks.com