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First Cobalt (TSX-V: FCC) CEO Trent Mell on Advancing Projects in Canada and the DRC to Meet Growing Cobalt Demand

May 10, 2017

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is President and CEO of First Cobalt (TSX-V: FCC)(OTC: FTSSF), Mr. Trent Mell. Trent has 18 years experience in mining and capital markets with extensive international transactional experience acquired through more than 200 transactions, transactions which include M&A and over $2.8 billion in equity and debt financings.

Trent's experience includes tenures with Barrick Gold, Sherritt International, Aurico Gold and Falco Resources. Most recently he served as President and Head of Mining for PearTree Securities, advising on Canadian exploration and development opportunities. In 2016 his team raised $300 million in equity investments and became the largest provider of flow through capital in Canada. It's quite a background. Trent, thank you for joining me today.

Trent Mell: Thank you, Gerardo, pleasure to be here.

Gerardo Del Real: I provided that it was quite a background and I gave a brief intro there but could you share a bit more about your background and your experience, Trent?

Trent Mell: Sure. I guess out of the gate I'm a reformed lawyer. I started out as a lawyer and then got into mining more than 15 years ago. Most of my career has been on the operational side, so larger cap companies, experience around the world building and operating mines.

My foray into junior mining really has happened more recently, I was CEO at Falco Resources, which was basically pursuing what we used to call the mine below the mine, so in Rouyn-Noranda in Canada. Noranda, I guess a cornerstone asset, basically we're breathing a new life into it. That company continues on today, it had $30 million or so market capital when I started, it's sitting at about $200 million today.

That really whet my appetite for the kind of value creation opportunities that you can see in the junior mining space. First Cobalt's my second junior experience but I bring with me I guess very much the perspective of an operator, look for things with the view, "Can this be developed, can they be profitable and how can shareholders make money on them?"

Gerardo Del Real: Excellent. Now, when you are the largest provider of flow through capital in Canada you could probably pick your deal. What attracted you to First Cobalt? What made you want to get involved with the group?

Trent Mell: Partly the team, there was a group of people behind it that had the vision. They saw the space, they saw the supply constraint with ever increasing demand driven by electric vehicles. Never before in modern history has there been a company, a cobalt company if you will, that's actually looking for cobalt as its primary focus because the reality is cobalt is mined as a secondary or byproduct metal of nickel and copper mines around the world.

This idea that First Cobalt would go looking for cobalt, in this case we've got a silver-cobalt play and a copper-cobalt play, a little bit unique. The people behind it, it's all about people, the people that we're bringing together have a great track record, they asked me to step into the CEO chair and build out a management team, find some assets and so forth, but candidly we already had a good vehicle in place, well capitalized, good liquidity. I took the reins two month ago and it's very, very early days but been a lot of fun.

Gerardo Del Real: Excellent. On the macro side, the cobalt space obvious has really compelling supply/demand fundamentals and growth fundamentals. I'd love to talk about those in a second but before that I want to get into how you were able to put together a team that knows how to develop, knows how to finance and knows how to operate projects on a global scale. Can we talk about the team a bit?

Because the junior space for cobalt can be tough if you don't have that expertise, and obviously one of the things that I think is really attractive about First Cobalt is that fact that you bring that experience with the well-rounded team that you've put in place.

Trent Mell: Absolutely, our management team does, through our various experiences, does have that experience in the cobalt space. Again, it's a byproduct metal, in my case I was at Sherritt which is a nickel company that mines a lot of cobalt along the way. Key hires for me, being in Toronto it was easier to find maybe some like-minded people. There are a lot of mining headquarters in the city and lots of experience.

The team that I brought together includes Peter Campbell, who is a former mine engineer with Falconbridge, he spent 20 years there before going to the sell-side as an equities analyst for some of the independent banks here and ultimately was Chairman of Jennings Capital. Peter's got about 35 of experience.

Then I've Dr. Frank Santaguida, he's our VP Exploration. Frank is another big company guy, he started with Falconbridge just like Peter, and then spent the second half of his career with First Quantum Minerals. With First Quantum, around the world, he did some work in Australia. He was in Finland. I guess more interestingly for us he's worked in the African copper belt, lived in Zambia with his family, worked in the Congo, worked in Zambia and understands the cobalt space frankly better than I do.

Gerardo Del Real: Excellent. The junior resource space I think more than any other space is definitely a people first business and you obviously have a great group together. Let's talk about the cobalt market and the opportunity. Supply is very constrained and a lot of it frankly comes from let's say jurisdictionally challenged areas.

Demand on the other hand is expected to increase approximately 5.1% over each of the next four years. Obviously a large part of that comes from electric vehicles and the battery storage market. What's your take on the cobalt market given your past experience? How are you positioning the company to take advantage of that?

Trent Mell: What's interesting with the cobalt space is this is a battery metal, it's a clean energy market and so the interest that we see in First Cobalt and what we're doing, in some respects it comes from non-traditional investor base. As a mining guy who's done nickel and palladium and gold there's a certain set of profile of investors that like going into mining. But it's interesting when you start talking battery metals and electric vehicles, there is an increased interest in millennials because they get it, they understand what this metal is for, they understand the market, they understand the demand fundamentals.

That's been fun to be interfacing with a different class of people who truly understand the value of what we're doing. The demand side continues to grow. You've already put the stats out there but that's right, the electric vehicle market is the real driver. Historically cobalt was used in maybe less sexy applications like jet engines and gas turbines and some chemical applications but with lithium ion batteries, an unfortunate name because by value cobalt's of almost equal value to lithium in a battery but cobalt's become a go-to value battery metal for storage for energy density purposes.

It's found a real important home in 81% of electric vehicle batteries on the market today. Now you contrast that growing market, and the battery market, well, electric vehicle market's forecast to grow 25% this year alone. China's the big leader there. Contrast that to the demand side, which is where I am, the global miners have not been exploring over the last several years. As commodity prices dropped one of the easiest things to cut is your global exploration program. Basically the big miners continue with their mining, they rationalize their teams, they cut cost where they can.

They don't explore because that's something you can do without in tough times. Then if the market picks up there's always this period of catch up, and that's where the junior miners come in. Companies like ours have to go out and find them, and we provide a bit of a feeder system for the majors to come in and either work with us or take us over. On occasion, we'll choose to go it alone and that's the backdrop. The forecasts are that there could be a deficit of cobalt in the market a few years out and you're starting that see that in the way the cobalt price has gone up.

Gerardo Del Real: Excellent. Let's talk about you providing that market. You mentioned the fact that the big miners cut back on exploration, I think that allowed you to come in and pick up some pretty compelling assets in pretty good jurisdictions on very opportunistic terms. You have the Keeley-Frontier Mine in Canada, and then you also have some exploration plays in the DRC. Can we talk a bit about the assets and what the plan is as far as moving those forward and advancing them?

Trent Mell: Sure. From a big picture strategic perspective, two thirds of the cobalt today is being produced out of the DRC in the Congo, in the African copper belt. It's hard for me to imagine building a cobalt company that doesn't look, at least consider, the most important cobalt supply in the entire world, because once you leave the DRC the next biggest producer, there's a few, there's Canada, China, Australia, Russia. All of them are around 6%, 7%. You're going from 65% down to 6%, prospectively you've got look at the Congo.

Gerardo Del Real: Yeah.

Trent Mell: But our cornerstone asset, I'll start with that one, it is in Canada. It's an old silver camp, long forgotten, in the 1920s and 30s an area called Cobalt, Ontario the broader camp. There were two towns Cobalt, Ontario and Silver Centre, Ontario. This was the largest silver camp in the world. It was what we call native silver veins, so these were wide veins that were coming right up to surface that were stumbled upon when they were building the railway in northern Canada. It set off a mining boom as we've seen in a bunch of gold camps, in this case it was a silver boom.

There were some 70 mines or 100 properties that ultimately saw some kind of mining activity but call them 70 mines that were operated over those two jurisdictions over several decades. The asset we picked up is in Silver Centre. I think some 80% of the production out of Silver Centre would be within the property boundaries that we now control. Keeley was one mine and Frontier was another, and they were eventually integrated. When you look across all the production in the earlier part of the 20th century in that camp, Keeley was a top five producer of cobalt, it was top 10 in terms of its silver production.

Perhaps more interestingly it had the best ratio of cobalt to silver, for every 5.8 ounces of silver produced it was producing a pound of cobalt. That's significant, A, because we're looking for cobalt, but B, cobalt was a byproduct metal. This was a silver mine and often you were not even getting paid for your cobalt, so there is a strong belief that the cobalt endowment and potential of this camp to this day is not understood. When we got into this asset, we've got a dominant land position, we've got one of the most attractive assets, but our thesis if you will is if you're going to find a new mine you go in the shadow of an old mine, and sometimes it's the old mine itself.

A lot of the gold mines that have been developed over the last 20 years in North America are not new discoveries, these are mines that you go back and 20, 30, 40 years later, and so, wait a minute, modern geoscience, modern mining methods, lower grades can work with our engineering today and our metallurgical processes, so can we have a higher tonnage, lower grade operation in this old camp? That's the lens we're bringing and over the course of the summer we're going to take a very disciplined approach to model the data, to go back to basics before we actually start to mobilize the drill and get a real appreciation for what a modern mine might look like in this camp.

Gerardo Del Real: Excellent. Now the grades, you mentioned Keeley was a past producing mine. The grades are pretty compelling, I think the cobalt grades are about a half a percent and the silver grades I think were like 1,800 grams per ton if I'm not mistaken.

Trent Mell: Yeah. Yeah, that's over 1,800 grams a ton, which would be about 50 ounces a ton of silver, remarkable grade. When we start drilling this, and this is important for your listeners, you start drilling, we're going to have some wonderful grades and anybody else up there among the juniors drilling is going to have some spectacular grades, but you've got to look to the team and you've got to look to the grades.

Do the grades, does it hold together? Are there enough tons? Are these great intercepts continuous enough through space to actually result in an economic mine. So yeah, spectacular grades, about 25% cobalt on a global standard. That's actually a very good cobalt grade. I think they could be higher, just because cobalt wasn't tracked, but you can't really say that until you've done your homework.

The other assets, quickly, I didn't talk about the DRC, I got carried away on Canada. The DRC asset is a strategic relationship, it's a South African firm that we are partnering with and we are going to be 70/30 joint venture partners that the underlying land owners are Congolese. Our partners have African experience, one of the principals is a Congolese, he will sit on our board. We're basically entering into a strategic transaction there. Frank, my VP Ex, knows people from the days at First Quantum and knows the country. We basically brought together two teams with Congo experience to go in there and explore seven different pieces of property.

It's 190 square kilometers of land, so really a big, big land position. This is in the southern end of the Congo, this isn't in the northeast where you've got Rwandan rebels and conflicts and armed groups. This year in the middle of the mining belt, we've got Glencore nearby, we've got Chinese producers, we've got Ivanhoe near us. This is Katanga province, it's where you want to be for copper-cobalt exploration. The reality is these camps, these systems are big, so if you're successful in this particular camp things can move and develop very favorably, very quickly.

Gerardo Del Real: You mentioned copper and I understand that the seven properties are prospective, and I think this is important, for both cobalt and copper. Is that correct, Trent?

Trent Mell: That's correct, yeah. They would be associated, so you'd find your copper and your cobalt basically together. There's some variations of grades as you go through it, but as you see First Cobalt develop its strategy in Canada we're chasing cobalt with silver and in the DRC it's going to be cobalt with copper.

Gerardo Del Real: Perfect, perfect. Now obviously you've built out a great team, you've acquired some great assets, what can we expect here in the next few quarters from First Cobalt? What does the rest of 2017 look like?

Trent Mell: In an exploration play you want to have a few arrows in the quiver to give yourself the best chance of success. I think with 190 square kilometers in the DRC we're probably well setup. We could seek to add more maybe to the Canadian portfolio or elsewhere in North America or maybe even Europe, but having said that we've got a lot before us.

I think the DRC, it's going be let's close the transaction, we just announced it, and now we're going through the documentation and whatnot. My VP Ex is on a plane tomorrow going to meet with our partners. We're moving forward on formalizing the joint venture agreement. In about 30, 40 days time hopefully we'll be able to close that, and at that time we'll announce a work program, it might be somewhere north of a million dollars and it's going to be to get on the ground pretty quickly and do some geochem work and ultimately mobilize some drills to try to see what's there.

That will play itself out over the next three, four, six months. The Ontario program, we announced that in a press release about a week ago, that's a little bit more defined. It is going to be initially a $1 million dollar program. I talked about the methodical approach, it's going to be compiling 50 years of data, we're going to put that into a software and produce a 3D model, an invaluable tool for us as we try to understand what's happening, what the controlling structures are, where the mineralization might be for our follow up work. We'll do some ground geophysics and some mapping and sampling.

A lot of boots on the ground, go out and check out the property. Once we've done all that in the summertime then we'll start mobilizing the drills, and that's when you’ll see some great grades, but more importantly we're going to try to see if there's enough mineralization to put together a larger deposit maybe than was the case historically.

Over the next six months I think we'll start to get a real appreciation because there's been no real modern geoscience, not just at Keeley-Frontier but across the Silver Centre in Cobalt Camp, so we're all going in this with a fresh perspective. It will be interesting to see how many other juniors take the approach we're taking, and rather than just drill try to develop a camp-wide thesis that could benefit future mining activity.

Gerardo Del Real: That's a lot of irons in the fire, it's going to require some capital obviously. What's your cash position right now, Trent?

Trent Mell: Yeah, cash position, we're sitting on about $5 million dollars. I'm not taking a salary for the company, I took shares when I came in. Our cash burn is pretty low, we don't have too many employees. It's four of us effectively on payroll. Most of our money is going in the ground so to speak, in terms of moving the assets forward. We're going to spend $600,000 to buy our position into the Congo, so there is some cash outlays there.

For the balance of the year we're certainly from a good position from a cash perspective. Our market fluctuates, I think we're just a little bit below $30 million dollars Canadian as we speak. Early innings but a decent market cap relative to some of our peers.

Gerardo Del Real: Wonderful, wonderful. Trent, I've got ask, you were an attorney before, what are you takes of the junior resource space? You’ve come from bigger companies, more established names. You've obviously put together a great team, you've got some good assets to explore. How has your experience been in this space?

Trent Mell: I guess the biggest adjustment for me is when you go into junior mining, it's getting out and meeting as many individuals as you can. You win your investors over one at a time. Investors in junior mining appreciate both the risks involved but the real potential upside. My top priority when I go out there, sure you got to talk about your assets, but out of the gate there's what I call the two-headed test. You want to meet the team and make sure the management team you're going to invest in is competent.

I think that's the initial test for all of us as we start out in the cobalt space. The properties and the work, I think hopefully our reputations will give some comfort but the work and the results will slowly start to come together. If we do our homework well we hope to reward our shareholders accordingly.

Gerardo Del Real: Well you're doing it the right way. Trent, is there anything else that you'd like to add? It sounds like an exciting 2017 and I'm looking forward to having you back on as you develop both assets, the DRC assets and the asset with the Keeley-Frontier mine in Canada.

Trent Mell: I appreciate that. I guess the only other thing I would say is it's fun to be in the battery metal space. It's a different feel, it feels like we're cutting edge. I think there is going to be a lot of activity in this space and we're still trying to figure out our way around. There's a bunch of other cobalt junior that have popped up, I know most of them. Probably a space to watch in 2017, not just on the commodity price side given the electric vehicles and so forth but a lot of players and I think you'll see a lot of opportunities to invest over 2017.

Gerardo Del Real: You mentioned the other cobalt juniors, I can tell you most of them will not have the team in place and the strategy moving forward that First Cobalt has in place. With that I'll encourage you everyone to go to the website which does a phenomenal job of explaining the opportunity and really outlining the people involved with the company. The website is firstcobalt.com. Trent, thank you so much for your time.

Trent Mell: My pleasure, Gerardo. I hope to connect again with you soon.

Gerardo Del Real: Absolutely.

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