Interview: Mari-Ann Green of Formation Metals (TSX: FCO)
Cobalt is classified as a strategic metal by the United States Government and a critical metal by the European Union. Highly purified cobalt, a technology metal, has applications in the aerospace industry because it is very resistant to corrosion and damage, even at high temperature. It is also used in the manufacturing of rechargeable batteries and in medicine.
Although cobalt's use is varied, only about 76,000 tons of refined cobalt was produced globally in 2010. With cobalt trading on the London Metals Exchange for$35,000 per tonne, this represents an estimated market value of US$2.7 billion. The main source of the element is as a by-product of copper and nickel mining. The copper belt that runs across the Democratic Republic of the Congo and the Republic of Zambia yields most of the cobalt mined worldwide. But one company is looking to break tradition.
Formation Metals is well on their way to becoming North America's next cobalt producer having raised over $170 million in equity financing. Based on a NI 43-101 technical report released by the company in 2007, the Idaho cobalt project's projected output will be equivalent to 3.3% of global cobalt supply which translates into 14.9% of North American's annual demand. With political issues in the Congo which have, since 1998, chronically threatened to disrupt global cobalt supply, Cobalt's recent status as a strategic metal and proximity to local markets in the U.S., some think Formation Metals is a good bet.
Jennings Capital analyst, Ken Chernin, issued a speculative buy recommendation on May 26th, 2011 with a 12 month target of $2.60, more than double today's current price of $1.24. Chernin sites low costs of production, few impurities, the mine's U.S. location and the company's hydrometallurgical facility as reasons for his recommendation.
MiningFeeds.com recently connected with the President & CEO of Formation Metals, Mari-Ann Green, to find out more about cobalt and the company's progress in Idaho.
Cobalt is a minor metal, one that many of our readers may not be familiar with, could you please provide some background on pricing and production?
Cobalt is a metal that many readers may not be familiar with, but they come across it every day in items from re-chargeable batteries to jet aircraft. It is also used in a number of green energy technologies including hybrid cars, fuel cell and wind turbine technologies, and as a catalysts in oil de-sulfurization and in Gas to Liquids technologies. Because of its use in jet turbine engines, cobalt is alloyed with steel to form high strength critical components of the moving parts of these engines. The U.S. government considers cobalt a strategic metal and yet they have no domestic source. We plan on providing the U.S. with a stable domestic source of this critical metal.
The price of cobalt has averaged around $22/lb over the past couple of decades, and high purity super-alloy grade material, 99.9% purity or better, the variety that Formation plans to produce, goes for about $20/lb today. Last year in February, the London Metal Exchange started trading “Grade B” material, which ranges in purity from 99.3% – 99.8%. This “low grade” cobalt trades at around $16.00 lb at the moment.
The copper belt in the Congo and Zambia yields most of the cobalt metal mined worldwide; however, your lead project is based in Idaho in the United States. Please tell us about the project.
That’s correct. Western Africa accounts for about 65% of the world’s production. Historically, the price of cobalt has risen sharply in response to political developments in the region that led to uncertainty of future supplies. Our project, on the other hand, is located in the heartland of the United States, who accounts for 58% of the world’s consumption of superalloy grade cobalt. We also own and operate a hydrometallurgical refining facility, which will be capable of producing the high purity cobalt metal right here in the U.S. – and we will be the only company in the country doing that.
What are the key differences between your deposit and those found in Africa?
There are a number of differences. Firstly, as was pointed out already, the project is located in the United States which is a big consumer of cobalt but does not have a domestic source of the metal. Secondly, it is the only primary cobalt deposit in the country. Just as importantly, we know from metallurgical test work that it will be capable of producing high purity cobalt suitable for critical applications in the superalloy sector. Lastly, being able to refine the metal ourselves offers the great advantage of producing value added end products that meet the high standards and specifications for domestic end users.
We hear about cobalt being a "conflict metal" but cobalt production in the Congo is produced in the Katanga province, hundreds of miles away from the conflict zones in the eastern part of the country. What is your take on this status?
Cobalt from the Congo is not defined as a conflict mineral, unlike coltan from the eastern provinces where niobium and tantalum are extracted. However, cobalt produced from the Congo often ends up being comingled with ore from other areas and refined out of the country. This produces end products with uncertain supply chains. End users, like large electronic companies, are being held to task more and more about where the raw materials used in their products originate from. Being able to clearly demonstrate a continuous supply chain of ethically sourced raw materials is becoming more and more important in today’s emerging socially responsible corporate world.
Formation Metals also has gold/silver projects and uranium projects, to what degree are you focused on developing your other projects and what are your long term plans in these other areas?
Yes, we have several satellite projects that we expect to do more work on as the cobalt project nears production. We have a number of gold projects in Idaho that have been on care and maintenance while we moved the cobalt project towards construction. Strong precious metal prices has resulted in renewed interest in these projects, which are likely to see more work done on them by ourselves, or through joint venture opportunities.
In the state of Tamaulipas in Mexico, we own a high grade silver-lead zinc project where grab samples have returned silver values near 2kg/ton. We recently announced we had acquired additional central ground on the project, and we expect to do more exploration work to define drill targets in the fall and winter of this year.
Lastly, we have two uranium projects in the Athabasca basin of Northern Saskatchewan joint ventured with Cameco and AREVA. One of the projects, the Virgin River project, where Cameco is acting as operator, has discovered the Centennial Deposit, a high grade uranium deposit that has been traced for over 650 metres. Cameco has indicated they are looking for a McArthur River style deposit, the largest and highest grade deposit on the planet, and to date they have spent over $26 million dollars developing the Centennial deposit. The project has returned results as high as 8.8% U3O8 over 34 metres – that’s 8.8% over 110 feet! They are currently drilling the project with a budget of $3 million for this year. We have a vested 2% interest in the project with the first right of offer to earn up to 10%. Time will tell how that project develops, but at this stage the future looks promising with continued excellent results coming from the project.
On July 26th Formation announced that mine site earthworks construction commenced on your Idaho Cobalt Project, what does the timeline look like going forward and when do you hope to be in production?
We actually completed Stage I construction last year with timber clearing and site preparation, and this Stage II of construction will see the development of the portal bench and the construction of the mine site structures. If all goes according to plan, it is expected to take about a year to construct, so conceivably, we could be in production by this time next year.
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