Developing High Grade Cobalt Sulphide in Canada
In early 2018, Marquee took control of the project and has since commenced a 6,000-metre diamond-drilling programme, the first in more than 15 years. Encouragingly, results to date confirm mineralisation that starts from surface, continues at depth to at least 220 metres (vertical) and remains open. Assuming continued success with the current drill programme, an initial JORC resource (TSI estimate - 4Q18) is likely to follow, with a development study likely to quickly follow (scoping or pre-feasibility).
Why cobalt?: Cobalt has been the standout commodity in the past year, its price more than doubling during that time - largely in response to increased demand for lithium-ion batteries, a major consumer of cobalt. Typically, when demand for a commodity increases, as is the case with other electric-vehicle related metals, supply also increases to meet it. This typically leads to the price stabilsing or, in some cases, falling due to over-supply. In the case of cobalt, however, a unique set of circumstances (among them political risk and the fact that, typically, cobalt is a by-product metal), we believe supply is unlikely to match the increase in demand without fundamental changes within the sector ... meaning higher prices are probably here to stay.
Sulphide or laterite: Cobalt is found in either sulphide or laterite mineralisation, the latter being the most of the ASX-listed cobalt developers. Compared to cobalt sulphide projects, cobalt laterite projects generally have a larger resource however at a lower grade. Combined with more challenging metallurgy, operating and capital costs are usually significantly higher for laterite project.
On saying this, with the exception of projects in the Democratic Republic of Congo, where ethically unsound mining practices and political unrest are cause for concern - very few primary cobalt sulphide deposits with the potential to commence production have been discovered to date.
Werner Lake - results to date: as noted, early results from the ongoing diamond-drilling programme at Werner Lake have been encouraging, with most intercepts at a grade similar to or higher than the NI 43-101 mineral resource (0.43% cobalt). Importantly, drilling has confirmed that the mineralisation is continuous from surface to a depth of at least 220 vertical meters and remains open.
Development potential: while more drilling is obviously required, we believe the company is on track to deliver a maiden JORC resource before the end of the year. Subsequently, a development study that takes into account historical work at the project (including the development study begun but not completed during the 1990s) is likely to commence thereafter, with completion potentially as early as the first half of 2019.
We do not anticipate an initial resource in the 'millions of tonnes'. However, given the grade of the 43-101 resource, promising drilling results to date, as well as the strength of the cobalt price, we believe even a modestly-sized operation (with low initial capital costs) has the potential to deliver significant operating margins that could be used to further explore the vast, yet largely under explored, total project package.
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