Cobalt Blue Holdings Ltd (ASX:COB, OTC:CBBHF) will progress its Cobalt Nickel Refinery Project in 2024 after fielding positive results from a study focusing on the refinery, which is proposed to be built in Kwinana, Western Australia.
The refinery is a proposed large-scale, cobalt-nickel operation representing Australia’s first cobalt refinery that will produce high-quality, battery-grade cobalt sulphate intended for Inflation Reduction Act (IRA) compliant markets such as the US.
It will be among the first large Allied Nation investments in cobalt refining for decades and is expected to establish COB as an early entrant into the emerging midstream segment of the Allied Nation Battery Supply Chain.
Refinery study
COB has completed a study to evaluate the construction and operation of a Cobalt-Nickel Refinery in the Kwinana Industrial Area 30 kilometres from the Perth metropolitan area to treat cobalt intermediates and produce battery-grade cobalt and nickel sulphates.
The study presents a compelling evaluation of a cobalt and nickel refining business in two stages utilising COB’s processing technology that is expected to generate stable margins throughout the highs and lows of the cobalt price cycle.
Sulphate and precursor strategies.
Stage 1 targets processing third-party feedstock with a capacity of 3,000 tonnes per annum cobalt sulphate and 1,000 tonnes nickel sulphate while Stage 2 offers optionality for the inclusion of feedstock from COB’s Broken Hill Cobalt Project (BHCP) with potential to bring the total annual throughput to 6,500 tonnes cobalt and 1,800 tonnes nickel.
The refinery will produce sulphate salts for use as raw ingredients to supply the precursor cathode material (pCAM) industry.
Positive metrics
EBITDA, NPV and IRR versus cobalt price and FX at SPOT and LONG TERM conditions and Benchmark Minerals Intelligence (BMI) forecast profile.
On a 100%-owned basis, the refinery has the following financial metrics:
- Preconstruction costs of A$10 million;
- Stage 1 of the refinery has an estimated installed capital cost of A$47 million + A$7-9 million contingency;
- Stage 1 NPV10 (Long-term assumptions) - A$118 million returning (Post Tax) IRR of 27%; and
- Stage 1 NPV10 (Spot market assumptions) - A$99 million returning (Post Tax) IRR of 25%.
COB says the investment case is sound, with the potential for robust returns and this provides a suitable platform for advancing the project through the next stages of pre-development up to a Financial Investment Decision planned in mid-2024.
Indicative project timeline.
Refinery rationale
The study summarises the strategic rationale for COB to pursue an Australian refinery taking into account:
- COB’s strategy is positioned to capitalise on the growing demand for EVs and the increasing requirement for responsibly sourced raw material in an Allied Nations supply chain.
- Analysis of the international cobalt market supply and demand dynamics.
- Feedstock procurement details from major suppliers of cobalt and nickel intermediates.
- The strategic advantages and permitting requirements for locating the refinery location in the Kwinana Industrial Area.
- An existing non-binding agreement with a major Japanese multinational that specialises in the production and trading of commodities.
Other factors outlined in the study are:
- During the prequalification/commissioning period, COB expects a positive netoff of post-tax income received against operating and fixed costs.
- Expansion costs of Stage 2 are appreciably lower than initial establishment costs.
- Expansion potential to increase the size of the plant in Stage 2 to treat cobalt-nickel hydroxide from the BHCP.
- Fixed processing costs of $14 million per annum, and variable processing costs related to quantity and quality of feedstocks.
- Recovery of 98% to final cobalt sulphate heptahydrate and nickel sulphate hexahydrate.
- Near-term cobalt prices of US$18/pound in 2026 progressively building to US$27/pound by 2033 as forecast by industry consultant Benchmark Minerals Intelligence, a leading industry commentator.
- Prequalification/commissioning period of six months at half throughput capacity, and 75% of revenue (via sales of technical grade sulphates vs battery grade sulphates) achieved during this period.
- Notional 20-year project life with further life expected.
A further upside case was modelled to evaluate cobalt price premiums associated with Inflation Reduction Act (IRA) compliance for the US market. Premiums modelled varied between 2–10% above the cobalt price, resulting in further uplifts in NPV and IRR.
Cobalt-Nickel Refinery production.
Ongoing negotiations
The company is engaged in ongoing negotiations with a potential partner that owns a suitable property in the Kwinana district and expects to commence refinery construction next year.
The potential partner is further determining an appropriate level of equity ownership in the Cobalt-Nickel Refinery via a funding contribution. COB will likely not own 100% of the project as a result of the partners' ownership.
This potential partner, a leading Japanese multinational specialising in the production and trading of commodities, has a global presence with subsidiaries and affiliates in several countries, with established partnerships and collaborations with companies worldwide.
It also has a large trading arm seeking to supply its Japanese partners in major global Electric Vehicle markets, including the United States.
As well as other potential benefits, COB believes that partnering with an existing property owner would substantially reduce development time for the refinery.
Future work
COB has developed a detailed forward work plan to the commencement of refinery construction. Between December 2023 and June 2024, the company plans to:
- Complete testing of feedstock samples;
- Finalise the refinery’s engineering and select engineering partner and construction firm;
- Secure binding feedstock contracts for the first 3–5 years of operation;
- Secure offtake contracts;
- Complete permit application studies; and
- Prepare financial information memorandum, identify sources of funds and close finance.
Refinery de-risks BHCP
Advancing the Cobalt-Nickel Refinery significantly de-risks the downstream portion of the BHCP, for which feasibility studies are progressing, focusing on finalising/optimising capital and operating estimates, with the study now likely to be delivered in April 2024.
COB is also advancing its Cobalt Waste Streams Project with targets being pursued in Queensland and the European Union as well as in North America where preliminary testing has proved successful on conversion of the tailings at the Flin Flon Project of Hudbay Minerals Inc in Manitoba, Canada.