US Taxpayers to Support UK Cobalt Developer

That is no typo.  A United States government development fund has invested $25 million in British minerals developer Techmet to support a nickel and cobalt mining project in Brazil.  For all the current talk about ‘America First’ the U.S. is still involved beyond its borders.  In this case it is helpful that Mike Mullen, a retired admiral in the U.S. Navy and a former chairman of the U.S. Joint Chiefs of Staff, is on Techmet’s advisory board.

Techmet is a self-styled developer of the ‘technology metal supply chain.’  In this day and age, that largely means battery materials.  Indeed, battery recycling is on the company’s ‘to do’ list along with mining and processing of metals coveted for advanced battery chemistry.  Besides lithium, current battery designs need cobalt, tin, tungsten, vanadium, and nickel, as wells as several rare earth metals.  Apparently all these minerals are in Techmet’s sight.

The U.S. International Development Finance Corporation (DFC) is a Trump Administration creation through legislation passed in 2018.  Its mandate is to invest in development projects in emerging markets, advance foreign policy and generate returns for U.S. taxpayers.  The U.S. version of a development bank, the DFC provides debt and equity financing as well as insurance coverage against geopolitical risks. 

The U.S. already had a development bank, which was called the Overseas Private Investment Corporation or OPIC.  For collectors of acronyms, the DFC replaced OPIC.  It was not an even swap.  The new DFC has the option of taking equity positions in development projects and at $60 billion has more than double the lending limit of OPIC.  The agency has approximately 750 financing projects underway, including those initiated when the entity was using its previous moniker.  The DPC website provides a full project list by country or industry.

Political connections aside, the DFC’s mandate to advance U.S. foreign policy that has been touted as the motivation behind the investment in Techmet.  The Trump Administration would like to see less dependence upon China for supplies of critical minerals, including cobalt.  The policy grabs a lot of headlines and motivates Trump’s fans.  It gets investors charged up as well!

U.S. dependence upon cobalt may not be so acute in the future.  A good dose of cobalt in the negative electrode or cathode of a lithium ion battery helps boost energy density and stabilize the battery chemistry.  Among the most expensive metals used in a battery, engineers have been scrambling to find alternatives to cobalt.  For example, Tesla Motors already uses a nickel-rich cathode chemistry that is only 5% cobalt and at Tesla’s Battery Day in September 2020, CEO Elon Musk announced plans for a cobalt-free battery design. 

For his part, Musk appears unconcerned about China in the battery supply chain.  Tesla engineers are working with a China-based battery developer, Contemporary Amperex Technology Ltd. (300750:  Shenzhen)  on the cobalt-free battery.  Eliminating cobalt from the required metals list could help Tesla achieve its goal to sell cars under the $25,000 price level, which some have identified as the threshold for mass adoption of electric cars.

The shift in battery designs away from cobalt is not a cause for alarm for Techmet and its new Yankee friends at the DFC.  The advanced cobalt-free battery designs are chock full of nickel.  For example, a cobalt-free battery designed at the University of Texas at Austin mixes manganese and aluminum with nickel.  The battery cathode is a whopping 89% nickel.  Fortunately, Techmet’s Brazil project is expected to produce nickel as well as cobalt.

Techmet has taken a position in Brazilian Nickel, Plc., a British company undertaking the Piaui Nickel Project in northeastern Brazil where the geography is hilly and rocky.  The company plans to use heap leaching technology to extract the nickel and cobalt from the rocks.   The company claims to have completed the demonstration phase of the project and at least some of the environmental permits have already been awarded.  With almost three-quarters of the resource already measured, the group expects to mine 72 million metric tons of materials containing 1.0% nickel and 0.05% cobalt. 

Investors may wonder why the Trump Administration is not investing in domestic cobalt projects.  The U.S. does have cobalt deposits and currently there is one U.S.-based cobalt resource under development.   Located in east-central Idaho, the project is owned by Jervois Mining Ltd. (JRV:  ASX) following a merger with eCobalt Solutions in 2019.  Neither company has a retired admiral in their back pocket and capital has remained constrained.  Nonetheless, Jervois with its eCobalt friends claim to have made considerable progress at the Idaho cobalt project, with some construction on peripheral mining operation infrastructure completed such as water and power systems, water management ponds and maintenance buildings.

Despite all the activity, investors appear to be cautious.  Jervois’ revenue in the twelve months ending June 2020, was AU$3.3 million, none of which derived from the Idaho cobalt project.  The company has yet to produce a profit so Jervois used AU$2.6 million in cash out of the bank to keep operations going.  The company tapped the ATM for another AU$7.5 million for capital investments.  To keep the bank balance pumped up Jervois has been selling common stock  -  AU$16.5 million worth in the last twelve months alone.

Shares of Jervois trade under one Australian dollar, although investors in downunder are content to see a large number of shares outstanding and low share prices.  The stock was left out of the trading frenzy triggered by the big talk at Tesla’s battery day in September 2020.  Tesla announced a five-year sales agreement with another Australia mineral developer Piedmont Lithium (PLL:  Nasdaq), which is developing a spodumene lithium resource in North Carolina.  Piedmont plans to produce lithium hydroxide yet another mineral required for the advanced high-nickel batteries.  Trading volume skyrocketed on the deal announcement, tripling the PLL share price in just three weeks.

Piedmont has yet to realize revenue from its various mineral projects.  In the twelve months ending June 2020, the company used US$7.6 million in cash for operating activities and another US$3.7 million for capital investment.  At the end of June 2020, Piedmont’s cash kitty held US$18.9 million, providing a runway about two years long at the current spending rate.  That said, spending typically increases dramatically the closer a company gets to commercial operations and sales.  Investors might see Piedmont coming to the capital market with a stock sale to take advantage of the favorable move in its stock price.

In all the excitement even Westwater Resources (WWR:  Nasdaq) finally gained some attention for its efforts to develop its Alabama graphite resources, which could be the first U.S. graphite mine to operate in decades.  The company was put in the spotlight by Trump Administration pronouncements about its efforts to security supplies of critical minerals, triggering a buying frenzy in WWR shares.   

All lithium batteries need a generous helping of graphite in the positive electrode or anode to keep lithium ions charging and discharging.  Graphite for batteries must be 99.99% pure and Westwater has developed a proprietary purification process for the natural flake graphite expected from the Alabama mine.  A provisional patent application is pending in the U.S. to protect the process from competitors in the highly contentious graphite market.  Sometime before the end of 2020, the company will be using that process when it begins production of its Purified Micronized Graphite (PMB) at a low-volume pilot plant.

The U.S. DFC may have puts some of its eggs in a U.K. basket, but there are some domestic projects that could benefit from the same demand drivers as the DFC’s target.  Just like Techmet, Piedmont, Jervios and Westwater are fledgling operations. However, they offer the advantage of publicly traded stock that opens the door for minority investors.    

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  WWR is included in the CER Series published by Crystal Equity Research for issuer sponsored research coverage.  Crystal Equity Research has a Speculative Buy recommendation on WWR.