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General Market Commentary
First Cobalt to acquire US Cobalt and its Iron Creek project in Idaho
The proposed acquisition of a junior explorer with a cobalt project in Idaho will give Canada-focused First Cobalt Corp. (TSXV: FCC; US-OTC: FTSSF) a footprint in the United States and burnish its reputation as a pure-play cobalt company with assets outside the Democratic Republic of Congo.
First Cobalt will acquire US Cobalt Inc. (TSXV: USCO; US-OTC: OTCQB) in a friendly all-share deal worth about $149.9 million. Once the transaction closes, existing First Cobalt and US Cobalt shareholders will own about 62.5% and 37.5% of the combined company, respectively, on a fully diluted in-the-money basis.
“We know most of the world’s cobalt is mined in the DRC and refined in China but we want to find it and refine it in North America and sell it to North Americans,” Trent Mell, First Cobalt’s president and CEO, says in an interview. “Our vision is North American cobalt from end to end.”
If shareholders approve the transaction, it will be First Cobalt’s third big acquisition since late last year, when it acquired Cobalt One and CobalTech. Now the company controls over 10,000 hectares of prospective land and 50 historic mining operations in the Cobalt area of Ontario.
In addition, it owns a mill and a cobalt refinery about 25 km from its Keeley-Frontier project. The Yukon refinery is one of only four facilities in Canada that is environmentally permitted to treat and process ore containing arsenic, and the only one in North America with no set limits on processing or storing arsenic from feeds.
First Cobalt has had its sights on US Cobalt’s Iron Creek cobalt property in central Idaho since October 2017 because it fulfills three important criteria: First, it’s in North America; second, its geology is favorable and easily understood; and third, if it can be fast-tracked into production, it could provide feed for its refinery in Ontario.
Currently Iron Creek has a historic resource of about 1.3 million tons grading 0.59% cobalt, and Mell says he expects a National Instrument 43-101-compliant resource estimate can be completed before the end of the year.
Mell notes that while First Cobalt’s existing assets include almost half of the historic mining properties in the Cobalt camp of Ontario and its exploration team has confirmed fifteen targets there already, it’s at an earlier stage and the company still has a lot more work to do in order to understand the geology and structural controls of a camp that primarily mined high-grade silver from underground. The Ontario properties also contain five elements—silver, cobalt, nickel, bismuth and arsenic—making it more complex, Mell says, adding that the company probably won’t have its first resource estimate out until sometime in 2019.
By contrast, US Cobalt’s Iron Creek project in a well understood geological setting and already has a historic resource estimate.
“In Idaho, you have these specific lenses, and once you’re in them, it’s pretty straightforward to drill them out,” the mining executive explains. “We have a massive land position in Ontario and the potential there is really good but over the shorter term, US Cobalt is a smaller footprint with real resource potential and it could go out well beyond the historical estimate.”
Iron Creek, 42 km from the town of Salmon property and about 29 km southeast of eCobalt Solution’s (TSX: ECS; US-OTC: ECSIF) feasibility stage Idaho cobalt project, initially drew interest in 1946 as an iron prospect.
Hana Mining explored for copper at Iron Creek in the 1970s, while Inspiration Mines, Cominco, and Noranda Exploration, all completed work programs there in the 1980s and 1990s. It was Noranda that put together the historic resource estimate.
Since US Cobalt took it over, the company has completed about 10,600 metres of core drilling from surface, rehabilitated two of its three adits, and started underground core drilling.
Underground workings in the three adits total 450 metres. The first adit cuts the eastern portion of the mineralized zone and the second adit is cut along strike of the mineralized zone in the west.
Highlights from US Cobalt’s drill program include hole IC17-19, which was drilled between the first and second adit on the western portion of the mineralized zone where the historic resource was calculated, and about 15 metres below the level of the second adit. That hole returned 16.46 metres starting from 36.88 metres downhole averaging 0.34% cobalt and 0.54% copper, including 6.10 metres of 0.43% cobalt and 0.30% copper.
Hole IC17-29, which was drilled below the first adit, returned 30.48 metres from 113.08 metres downhole, averaging 0.35% cobalt and 0.53% copper, including 6.06 metres of 0.52% cobalt and 0.94% copper.
“The two adits are some distance apart and they’re successfully drilling in the gap between adit one and adit tow and they’ve also tested the western extent of known mineralization and had some great hits,” Mell says.
If all goes according to plan and Iron Creek ever becomes a mine, it would probably cost about US$125 per tonne to ship concentrate by rail from Idaho to its refinery in Ontario, Mell estimates. “The freight cost on a tonne of copper-cobalt concentrate is quite manageable he says.”
In the meantime, First Cobalt is evaluating what it would cost to re-commission its refinery and expects to have the results of some of its early engineering studies in the next few months.
Under the transaction announced on Mar. 14, all of the issued and outstanding shares of US Cobalt would be exchanged on the basis of 1.5 First Cobalt share for each US Cobalt common share, representing a 61.8% premium to US Cobalt’s closing share price as of Mar. 13, and a 58.5% premium based on the five-day volume-weighted average trading prices of both companies.
Mell says the management teams of both companies recognized the strategic nature of the deal and its upside.