Cobalt Blue Holdings Ltd (ASX:COB, OTC:CBBHF) is progressing three key building blocks for a sustainable, value-added integrated cobalt supply business amid the backdrop of an evolving and growing global critical minerals industry.
COB, a pure-play cobalt company, is focused on delivering high-purity, high-value cobalt products to a world increasingly demanding a transition to a green future, incorporating electric vehicles and green energy.
BHCP remains core focus
While the Broken Hill Cobalt Project (BHCP) in Far West New South Wales remains the company’s core focus and has a definitive feasibility study (DFS) progressing, it is also advancing other building blocks integral to realising its strategy, including a cobalt refinery and Cobalt in Waste Streams Project.
COB’s chief executive officer Joe Kaderavek has outlined the company’s strategy in a letter to shareholders as global legislation aimed at a cleaner and greener future is strengthened and an allied critical raw materials supply chain emerges.
He said guidance for both the (US) Inflation Reduction Act (IRA) and (EU) Critical Raw Materials Act (CRMA) was finally in place and these were set to have positive implications for COB.
US Inflation Reduction Act
The IRA includes ~US$390 billion of spending/credits over the next 10 years related to energy and climate change, with the goal of putting the US on the path towards 40% emissions reductions by 2030.
The US Treasury Department has advised that it intends to remain strict on sourcing and content requirements in order to trigger more announcements in EV production and battery investment aligned to US interests.
In COB's view, these changes will lead to a global race for IRA-compliant supply. A breakdown of key IRA incentives is included below.
Summary – Inflation Reduction Act (IRA) 2022.
US Treasury defines critical minerals to include cobalt and other EV-destined metals.
The critical mineral requirement is met if the percentage of total mineral value in the battery made in North America or Free Trade Agreement (FTA) (such as Australia) jurisdictions is 40% in 2023.
This hurdle increases in annual 10 percentage point increments to an 80% ceiling after 2026.
EU Critical Raw Materials Act
COVID supply chain disruptions and the Russia-Ukraine war have exposed EU dependency on critical raw materials.
The three pillars of the EU CRMA are aimed at mitigating these dependencies: (1) an onshore CRM supply chain, (2) supply chain diversification, and (3) sustainable sourcing including circularity (recycling).
CRMA self-sufficiency objectives (2030) include 10% for extraction and 40% for processing. Recycling is targeted to meet an aggressive 15% of demand.
Additionally, no more than 65% of critical materials demand per value chain step (extraction, concentration and processing) should be met by a single country.
Allied supply chain
The US has defined Foreign Entities of Concern as excluded from assistance under the IRA. The focus is instead upon allied nations that include EU, UK, Japan, South Korea, Australia and other strategically aligned countries with the mining/refining industries of allied nations being incentivised to respond.
Their historical response to demand challenges has been poor and instead became heavily reliant on China.
In the cobalt market, the cost of metal sourced from unsustainable practices (for example artisanal cobalt from Africa) is a disincentive to a supply response from sustainable and ethical sources.
Both EU and US governments are attempting to encourage new supply chains that include sustainable metals production – a so-called 'race to the top'.
COB believes that these incentives will lead to the development of a new cobalt pricing index, one that will provide a premium for IRA and CRMA-compliant cobalt.
The cobalt resource, extraction (mining) and processing (refining) of allied nations.
Today, the allied nations extract and process 11% and 9% respectively of global cobalt, however, these nations are expected to consume more than 50% of global consumption by 2030.
Put another way (right-hand chart), allied nations currently produce around 30,000 tonnes per annum of cobalt metal. This amount will need to increase significantly to 140,000 tonnes by 2030 to meet its own demand.
This shortfall can only be overcome by creating new supply chains that include new mines and refineries. "COB is entering the global critical minerals market at a very exciting time," Kadeverak said.
Three building blocks
To address these market forces, COB’s strategy encompasses three building blocks. The BHCP near Broken Hill is the first and primary block but the other two blocks – refinery and Cobalt in Waste Streams – are also being advanced.
The company’s Demonstration Plant at Broken Hill is a key component of the BHCP and is also important in the refinery plan.
COB Refinery
Plant operations continue, systematically addressing scaling risks in COB’s transition towards a commercial operation. This includes refining of BHCP mixed hydroxide precipitate into separate cobalt and nickel sulphates.
Nickel forms a minor portion of the BHCP production, however, COB’s ability to successfully produce nickel sulphate from that plant provides strong optionality for the future.
The company’s plan remains to make a high-quality cobalt sulphate via an integrated BHCP mine/refinery process, albeit in two locations.
In keeping with earlier guidance, it is intended that COB will retain ownership of the BHCP production chain through to the production of cobalt sulphate.
Kwinana MHP proposal
During the DFS process, COB is examining the option to refine BHCP cobalt mixed hydroxide precipitate (MHP) into cobalt sulphate at a separate location, namely in the Kwinana district south of Perth.
The strategic reasons for this decision are (see graphics below):
Access to export markets - Kwinana has a deepwater port and export facilities. Cobalt sulphate is a fragile product that absorbs water (particularly in hot/humid regional conditions) if left exposed and needs to be stored/shipped carefully. Direct port access provides a meaningful advantage.
Cost advantage - Kwinana is a major chemicals district. Approximately 60–70% of the costs associated with conversion from MHP to cobalt sulphate come from reagent/chemical costs. This location provides ready access to low-cost chemicals.
Integrated business - Refining is fundamentally an economy-of-scale business. A single, larger refinery allows COB to process future material sourced from BHCP and (in future) other COB-owned cobalt projects, rather than build out individual refineries at mine sites dispersed through Australia:
- BHCP will produce around 12,000 tonnes of MHP per annum which equals about four rail wagons per week (~230 tonnes). As a reminder, the transcontinental railway line (linking Broken Hill with Kwinana) passes through the COB tenements;
- new Australian mining projects (typically nickel/cobalt producers) that wish to enter the battery production chain (providing the COB Refinery with a 'first mover advantage'). The projects are typically based in Western Australia;
- globally sourced materials (for example Philippines, Indonesia) will likely qualify for significant US and EU financial incentives if processed via an approved country; and
- Cobalt in Waste Streams Project/s (CWSP).
Australia’s advantage - Australia is the only country that mines all four of the cathode elements. These metals are processed through Kwinana and so represent an ideal location to cooperate with battery industry peers to make cathode precursor or active cathode materials for global markets.
This overall strategy has been condensed into the graphics below:
COB Refinery – multiple feedstock sourcing. Whether Stage 1 comes ahead of Stage 2 BHCP material is not important, rather they are on different timelines. Stage 3 refers to the CWSP-focused initiative. The graphic also explains the refinery capacity build-out. With BHCP refining capacity included in previous BHCP capital estimates, there is no material change in capital estimate guidance for BHCP by simply moving the refinery to Kwinana.
In addition to cobalt, COB is planning on processing nickel in the refinery to be sold as nickel sulphate crystals.
An illustrative (~3,900 tonnes per annum) cobalt sulphate (metal equivalent) refinery in the global cobalt refinery comparison. Note that COB's refinery targets for Stage 1 & 2 include a similar volume (~3,600 tonnes) of nickel sulphate (metal equivalent).
Simply put, Cobalt Blue is targeting an integrated approach focused on mining (extraction) at Broken Hill and refining (processing) at Kwinana.
Large-scale extraction and processing in Australia will support secure compliant global supply chains.
Cobalt in Waste Streams Project
The Demonstration Plant will finalise its BHCP focused test-work in coming months.
Beyond mid-year, the plant will be available for large-scale test work for other projects, which COB believes will arise from its current suite of identified opportunities.
Recycling mining waste to commercialise metals contained within remains a focus for the business with a majority of Australian opportunities being cobalt dominated, while international opportunities include other metals.
Whilst the current Queensland focused test-work continues, a mining specialist whose role will include a global search for mining waste stream and primary resource opportunities is expected to start with the company shortly.