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First Cobalt Corp. (TSX-V: FCC) CEO Trent Mell on Studies Supporting the Restart of its Cobalt Refinery, the Only One in North America

October 12, 2018

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Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is President and CEO of First Cobalt Corp. (TSX-V: FCC)(OTC: FTSSF), Mr. Trent Mell. Trent, how are you? Thanks for joining me again.

Trent Mell: Hey, pleased to be back, Gerardo. Thank you, I'm doing very well.

Gerardo Del Real: You had some pretty important news yesterday. You announced the results of three studies which support a restart of the First Cobalt refinery in Ontario. Can you share the details? A pretty significant bit of news for the company, and a lot to dig into, so I'm going to let you go ahead and fill in the details.

Trent Mell: All right, thank you. You'll recall our company is fairly new. We've been around a year and a half. Last year was putting the team and the optics together. As we turn the page on 2018, this is the time for us to deliver and put some meat on the bones. Less than two weeks ago, we announced that the first resource estimate on our flagship asset, the Iron Creek Project in Idaho.

And now we follow that up with the other big milestone, which is a near-term cash flow entity, our refinery in Ontario. This refinery study ­– actually there were three studies – is just meant to shine a light a little bit on the work we've been doing, and let the market know that this is a facility that could be brought back into production in 18 to 24 months, It can generate cash flow that would fund us on a go-forward basis for Iron Creek, and that there is a number of different feedstock options that while not on our mining properties, we could acquire these feedstock and produce a finished product for the U.S. market.

Gerardo Del Real: Now, when you talk about a restart. That's possible, from what I understand in the news release, within 18 months of selecting a feedstock under the base case scenario. Correct?

Trent Mell: Yeah, that's right. We've been looking around the world. We've got some sample materials that we've got our hands on, notably from the DRC. The opportunity here is once you've got your feedstock, you're going to need to tweak your flowsheet within the refinery a little bit and then refine your costing a little bit further. So with that final engineering spec, then you go back to the regulators. We amend the permits and then we start the resubmission process, which is going to involve about $25 million of capex to get the facility back into production with the replacement value today of $100 million or so.

Gerardo Del Real: Now when you say that the replacement value is $100 million, that equates to your current market cap roughly. Right?

Trent Mell: It does, it does. There's a real disconnect and in fact, I think, a buying opportunity. And we've seen it. Right? We're seeing a correction right now in the Dow and across the market. Even before that, the metals that have been under some pressure for months. But when you got a good asset, you got a treasury that'll withstand the pressures, this kind of market it's going to shake out the weaker players. People like us, we just keep our heads downs and hunker down for the storm. But we'll be back, but it is a great opportunity.

Gerardo Del Real: Well, you have a very deep understanding of the capital markets. You understand the people are front-running tax loss selling season and I think that's very clear in the market right now.

I want to get back to the base case scenario of the three studies. You're looking to resume operations if you make a decision to move forward, at approximately 24 tonnes per day. Is that correct?

Trent Mell: Yeah, that's right. So, we looked at a bunch of scenarios: 12 tonnes, 24, 45, 50 and the consultants even thought of a 400 ton scenario, which would be, frankly, way too big. But we've got a big land package and we've got room to expand where we're only using about 40 acres of the 120 that are permitted.

So with permits in place, the facility largely built, it's basically how much material do you want to run through it. There's a number of trade-offs you want to look at. Obviously upfront capital, and for us, 24 tonnes a day of some relatively high-grade feedstock could be very attractive. And it's hard to give economics. We have done the economics testing that the feedstock will dictate that, but we do give some operating guides and operating costs and capex. And importantly, at 24 tonnes a day, we think we could produce anywhere from, call it 600 tonnes to a little over 1,000 tonnes per year cobalt material, which is getting pretty close to 1% of the global market. So not an insignificant amount.

Gerardo Del Real: I know you're in discussions with feedstock suppliers and potential off-take parties. In a perfect world, Trent, what would a financing package look like for you?

Trent Mell: In a perfect world, the financing package for this refinery would mean that we're not issuing any shares to finance. I am mindful now of protecting my shareholders from any kind of form of dilution. So what we would seek to do is offset deals with an auto company or a battery maker. We have the option, we could produce battery chemical materials, a cobalt sulfate. We could also produce a metallic cobalt for almost the same margin to the aerospace industry in the U.S. for instance. But in any event you might lock up supply with one of those guys. You could also do a deal with a metal trader.

We're also talking to some private equity firms about some project finance. But keep in mind this refinery to me is not the ending for us. The ending for us is building a world-class mine in Idaho. If this is going to provide money to do that, there's a couple of ways to do it. One is to generate some cash flow and pay our way. The other would be to sell this asset outright if somebody wanted to come in and take it off our hands. Everything is on the table. My sole mission here is to bring money into the company and create shareholder value.

Gerardo Del Real: I have to believe that the refinery being just 500 kilometers from the U.S. border provides you a lot of flexibility when it comes to negotiations on both sides of the border.

Trent  Yeah, it is. And you know what's been interesting is when we initially made our acquisition of our asset in Idaho, we fully expected that we would be railing our material to our refinery in Ontario for processing. But the reality is the material in Idaho is cleaner than we thought in that we don't have any arsenic, which our refinery is designed to treat, and the deposit is looking to be a heck of a lot larger than we expected. So it doesn't make sense to move that amount of material across the continent, and so Idaho is going to develop as its own project and it'll need all of its own infrastructure.

We've now all of a sudden freed up the refinery. We don't need to have it sitting there for five years. We can put this into play right now and get some cash flow going, but it does provide the opportunity, as you say, it's not the only refinery in Ontario, it's the only one in North America. There is no cobalt refining on this continent. Most of that is happening in China, some of it in Finland, and we desperately need domestic production in the interests of both defense and the economic security of the United States.

Gerardo Del Real: Well said, Trent. Anything else you'd like to add?

Trent Mell: Just follow us. We've become, I think overnight here we're becoming a real company, right? When you're putting the pieces together, you're a bit of a “show me” story, and now we're starting to show the market what we've got, and it's a real asset in Idaho. We've got a refinery that can be activated in fairly short order. In tough markets, it's easy to gloss over really good news because you're caught up in the overall sentiment. But I would ask your listeners just to keep following us. We've got more to come and we've got a lot of upsides and a treasury that means we don't need to go to market to raise capital any time soon.

Gerardo Del Real: Trent, thanks again for the time today. Appreciate it.

Trent Mell: Thank you, Gerardo.

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