How is Nickel And Cobalt Landscape Shaping Up With The Global Emergence Of EVs?

Due to the global emergence of Electric vehicle market, the lithium-ion battery market has flourished a lot in recent times. Nickel and cobalt are two critical raw materials used in the production of lithium-ion batteries.

Electric vehicles are heavy consumers of nickel sulphate irrespective of battery chemistry. A general market perspective is that the next-generation lithium-ion batteries will be more nickel intensive. Currently, less than 50% of current global nickel production is suitable for battery applications.

Stainless steel remains the main driver of nickel demand. It is expected that the nickel use in batteries will grow by over 9% by 2023 than exponential growth, not only in the number of EVs that are expected to be produced, but also in the nickel intensity of individual batteries.

Cobalt, being a critical element in the lithium-ion battery, has also witnessed a rapid uplift in its demand in recent times. Due to the increasing use of nickel in electric vehicles, many analysts are worried that it may hamper the demand of cobalt in the EV space. In a present scenario, the companies with interest in cobalt and nickel exploration assets have a great opportunity to rise along with the Battery mineral sector.

Let us now look at few ASX-listed stocks with exploration interest in Nickel and Cobalt.

Clean TeQ Holding Limited (ASX:CLQ)

Clean TeQ Holding Limited (ASX: CLQ) is advancing the development of the Sunrise Battery Materials Complex, a nickel, cobalt and scandium project (100% owned by Clean TeQ), located in New South Wales, Australia. Due to its high cobalt content relative to nickel, this project holds a special place among nickel /cobalt laterite projects.

Project highlights:

Scale - One of the largest nickel and cobalt resources outside of Africa

Low Cost - Low first quartile position on the nickel cost curve

Efficient - A simplified flow sheet direct to battery precursor materials

Market - Positioned to address global nickel and cobalt supply constraints

Secure - Stable and low risk mining jurisdiction offering credibility and auditability

Experience - Project team has worked on several major laterite projects globally

Location of Sunrise Mine (Source: Company’s Report)

The Sunrise project has outstanding economic and technical outcomes which includes strong annual production, excellent project economics, 40+ year Mine life, exceptional cash flows and many others.

Based on a formal tender process, the company tasked Fluor Australia Pty Ltd (Fluor) as Sunrise Project Management Contractor during the third quarter of the year. Fluor will work with the Clean TeQ owner’s team through the Front End Engineering Design phase. Moreover, the company will be involved in the construction work as well as project commissioning work. Tasks to be dealt by Fluor also includes supervising the execution of associated non-MCC/EPC infrastructure and facilities.

Fluor Australia Pty Ltd headquartered in Irving, Texas, has been in Australia for decades, and currently has over 53,000 employees across the globe. Fluor is primarily involved in providing integrated engineering, procurement, maintenance and construction solutions for clients globally on six continents and after getting appointed by Clean TeQ, it intensified its efforts on mobilising their Beijing based resources into roles in the MCC/ENFI engineering office in Beijing.

In June 2019, the company appointed Macquarie Capital to run a partnering process for Sunrise Project.

In the June quarter, the company reported net cash used in operating activities of $3,210k which included an expenditure of $140k on research and development, $319k on product manufacturing and operating costs, $306k on advertising and marketing, $529k on leased assets, $2,529 on staff costs and $1,151k on administration and corporate costs.

The company spent $736k during the June quarter on purchase of property, plant and equipment and $17,057k on other non-current assets. Net cash used in investing activities during the June quarter was $17,681k. At the end of the June quarter, the company had Cash and cash equivalents of $78,871k.

In the September quarter, the company is expecting total cash outflows of $28,300k which includes estimated amount of $750k to be spent on Research and development, $400k to be spent on product manufacturing and operating costs, $100k to be spent on Advertising and marketing, $150k to be spent on leased assets, $5,900k to be spent on staff costs, $800k to be spent on administration and corporate costs, and importantly $20,200k to be spent on Clean TeQ Sunrise Project.

On the stock performance front, CLQ has given a negative return of 2.44 per cent in the past six months. At market close on 2^nd August 2019, CLQ’s shares were trading at a price of $0.370 with a market capitalization of circa $298.58 million. Its 52-weeks high price is $0.745, and its 52-weeks low value is $0.265 with an average volume of ~1.5 million shares.

Cobalt Blue Holdings Limited (ASX:COB)

A green energy exploration company, Cobalt Blue Holdings Limited (ASX: COB) is focussed on advancing its mineral resource at the Broken Hill Cobalt Project, located in New South Wales.

In April 2019, the company announced a significant Mineral Resource upgrade at the Thackaringa or Broken Hill Cobalt Project, located near Broken Hill, NSW taking the global Mineral Resource estimate at 111Mt at 889ppm cobalt-equivalent (CoEq) (715ppm Co & 7.8% S) for 79,500t contained cobalt which includes a maiden Measured Resource of 18 Mt at 1150ppm cobalt-equivalent (CoEq) (928 ppm Co & 9.9% S) for 17,100 tonnes of contained cobalt (at a 400ppm CoEq cut-off).

The Thackaringa Mineral Resource update is a result of some 9,500m drilling completed during Q4 18 – Q1 19, targeting definition of a component of Measured Mineral Resource through enhancement of geological confidence and data density by infill drilling.

The updated Mineral Resource estimates for the Thackaringa Cobalt deposits detailed by Mineral Resource classification (Source: Company’s Report)

In the June quarter, the company reported net cash used in operating activities of $366k, net cash used in investing activities of $208k and net cash from financing activities of $2,882k. Cash and cash equivalent at the end of the June quarter was $4,839k. For the September quarter, the company has estimated a cash outflow of $1,330k.

On the stock performance front, COB has delivered a negative return of 21.71% in the past six months. At market close on 2nd August 2019, COB was were trading at a price of $0.115 with a market capitalization of circa $18.74 million. COB’s stock is currently trading near at its 52 weeks low level. The Average volume of COB’s stock is 500,827.

Panoramic Resources Limited (ASX:PAN)

The western Australian mining company, Panoramic Resources Limited (ASX: PAN) is focussed on the development of Savannah Nickel Project located in the East Kimberley. In the June 2019 quarter, the Savannah Project produced 1,518 tonnes of Nickel, 814 tonnes of Copper and 80 tonnes of Cobalt contained in concentrate, and departed three concentrate shipments to Wyndham that contained an aggregate 1,471 tonnes of Nickel, 731t Copper and 78 tonnes of Cobalt, with a total provisional value of A$23.6 million.

Savannah Project Operating Statistics (Source: Company’s Report)

During the June quarter, the company mined a total of 141,613 tonnes of ore which was 31% higher on quarter-on-quarter basis. At the end of the June quarter, the company had 1,310wmt of concentrate which is worth around $1.5 million.

In the June quarter, two underground diamond drill rigs were mobilised to begin infill grade control drilling on the Savannah North deposit from the recently completed 1570 East Drill Drive.

In April 2019, the Company received $14.2 million after costs on the pro-rata renounceable 1 for 13 Rights Issue to eligible existing shareholders, and in June 2019, the company received $2.6 million on the Conditional Placement to the Company’s major shareholder, Zeta Resources Limited.

In the financial year 2020, the company expects to produce around 10,000-11,000 tonnes of Nickel contained from its Savannah operations. Along with this, the company also expects to produce 600-700 tonnes of Cobalt contained from Savannah operations.

At the end of June quarter, the Savannah hedge book had a negative valuation of $0.2 million mainly due to the negative 0.9 million valuation of Copper Forwards which was offset by $0.6 million of Nickel Forwards and $0.1 million of Bought Nickel Put Options.

On the stock performance front, PAN has generated a negative return of 29.90% in the past six months. At market close on 2nd August 2019, PAN was trading at a price of $0.330 with a market capitalisation of circa $188.22 million. PAN has a 52 weeks high price of $0.600 and a 52 weeks low price of $0.275 with an average volume of ~781,467.

The boom in the Electric vehicle market has provided new wings to the nickel and cobalt players. While there are some analysts who are little skeptical about the expected demand and price of cobalt in future, the positive outlook for Nickel has been universally accepted by almost everyone in the market. In a current scenario, investors must keep a close watch on the activities of nickel and cobalt players to identify good investment opportunities.

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