Canadian developers of cobalt and lithium mines stand to benefit from a round of investments from the makers of electric vehicles and the batteries powering them, a potential game-changer for small miners short on money to develop deposits of these critical battery ingredients.
Toronto-listed cobalt companies, Ecobalt Solutions and Fortune Minerals, are in talks, ranging from preliminary to more advanced, with more than a dozen groups, including car and battery makers, on financing their projects, their chief executives said.
The interest in miners from downstream players along the battery supply chain — a new area of investment for most — would provide a life-line to miners at time when equity funding for developers remains relatively tight after a five-year downturn on weak metals prices.
“We anticipate additional transactions in the coming months and years. It is a function of demand-supply imbalance,” said John Kanellitsas, President and Vice Chairman of Lithium Americas Corp, which raised nearly $300 million this year for a project in Argentina.
A string of potential financing deals in Canada comes after a handful of predominantly lithium miners in Australia — the world’s biggest lithium producer — secured investment from mainly Chinese automakers and battery makers this year looking to lock in future raw material supply.
Lithium mine developers have been able to secure funding earlier than their cobalt peers as fears of a supply shortage started in late 2015, when cobalt was still in surplus.
Like lithium, cobalt’s price has doubled — but most of that upswing has come this year on concerns of multi-year shortfalls in the next decade as demand from the electric vehicle sector surges.
Cobalt’s fortunes are more closely tied to batteries than lithium’s: about 55 per cent of all cobalt goes into battery chemicals compared to about 40 per cent for lithium, according a December report of BMO Capital Markets.
Although there are no guarantees that deals will be struck, the cobalt miners, who have been advancing their projects for more than a decade, are in their strongest position yet to secure funding, said Cormark Securities analyst MacMurray Whale.
That is because of deficit forecasts due to constrained supply and expected soaring demand from the electric vehicle market. “All those elements together suggest to me that it can’t be better,” Whale said.
With more than 1,200 publicly listed mining companies, Canada has long been the global hub for mine developers with projects around the world.
Vancouver-based Ecobalt’s “path forward” is to first sign a long-term supply agreement, called an offtake, with one or more customers to provide a portion of the funds it needs to develop its Idaho cobalt project, CEO Paul Farquharson said.
Once in place, this would significantly lower the risk for the project, making it more attractive for banks to provide debt financing and other investors to fund the balance.
Ecobalt outlined plans to produce for offtake a cobalt concentrate, a less-processed cobalt product than initially planned — a step that could slash as much as $100 million, according to analysts, off its previous project capital cost estimate of $187 million.
Ecobalt, whose Idaho project is the only fully-permitted, primary cobalt deposit in the United States, is the most likely of the Canadian cobalt developers to secure financing, possibly within six months, said Eight Capital analyst David Talbot.
Canada’s Nemaska Lithium and Mason Graphite, which both have projects in Quebec, could also secure funding in coming months, Talbot said.
Graphite is another battery ingredient but unlike cobalt and lithium, batteries are not graphite’s main end-use. Ecobalt’s Idaho project has unique advantages over other projects including that around 75 per cent of its revenue will come from cobalt and that it is located in a safe political jurisdiction, he said. — Reuters
Nicole Mordant
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