FCC.V: Undervalued.

Updated: Mar 4


First Cobalt Corp. (FCC.V) aims to be the first vertically integrated cobalt company in North America. FCC.V controls over 10,000 hectares of prospective land, including a cobalt project in the United States (Iron Creek) and significant mineral assets in the Canadian Cobalt Camp, as well as, North America's only permitted cobalt refinery.


We initiated coverage on May 2018 and issued additional notes on October 2018, and May 2019. Below is an update.


May 21 - Glencore to Support Restart of First Cobalt Refinery. Glencore AG (“Glencore”) have signed a memorandum of understanding to supply cobalt feedstock and financing to recommission the First Cobalt Refinery in Ontario, Canada.

Glencore intends to provide feedstock for the refinery which is expected to result in annual production of approximately 2,000 to 2,500 tonnes per annum of cobalt in sulfate from the refinery.


May 27 - Ausenco Study Doubles Production Potential of First Cobalt Refinery. Annual production could reach over 5,000 tonnes per annum (“tpa”) of cobalt, more than twice the previous estimate.

The Company has engaged Catch Advisory Group (“Catch”) to conduct investor relations activities on its behalf. Catch will be paid in cash based on a prescribed hourly rate which is expected to approximate $5,000 per month.


June 13 - Attend the TD Securities Battery Metals Roundtable.


June 25 - Urges Fellow eCobalt Shareholders to Vote Against Value-Destroying Jervois Transaction.


July 11 - Reminds eCobalt Shareholders to Vote Against Value-Destroying Jervois Transaction


July 15 - Notes Former eCobalt Executives’ Opposition to Value-Destroying Jervois Transaction


July 16 - Conclude Term Sheet for Refinery Restart with Glencore. Total capital investment under the three phases is estimated at approximately US$45 million and Phases 2 and 3 remain subject to the findings of the studies undertaken during Phase 1. Payment from by FCC.V from cash flow generated under a long-term refining arrangement.


Aug. 26 - Sign Definitive Agreement with Glencore - US$5 million loan facility with Glencore AG to complete advanced engineering, metallurgical testing, field work and permitting associated with a recommissioning and expansion of the First Cobalt Refinery in Canada. FCC.V is concluding a RFP process for the feasibility study, metallurgy and environmental work with a view to commencing field work in September.


Sep. 4 - Awards Contracts for Refinery Studies. To complete a 55 tonnes per day (tpd) feasibility study on the proposed expansion to the First Cobalt Refinery (the "Refinery"). Field work is expected to commence in September and will culminate in the delivery of a definitive feasibility study (DFS) in Q1 2020.


Upon completion of a positive DFS for a refinery expansion in Q1 2020 and subject to certain other terms and conditions, Glencore is prepared to advance an additional US$40 million to recommission and expand the Refinery.

The Company has issued incentive grants to directors and officers to purchase an aggregate of 3,830,000 common shares of First Cobalt exercisable at yesterdays closing price of $0.14 for a period of five years.

Sep. 6 - Host Investor Call - Monday, September 9 at 8:00am EDT to discuss its plans for the Refinery.


Sep. 12 - Present at Benchmark Minerals Conferences in Australia.


Oct. 2 - Announces Board Changes and Annual Meeting Results.


Oct. 10 - Restores Power at the Refinery and Commences Field Program. To temporarily restoring power to the Refinery to inspect and test all installed equipment and systems to gain a better understanding of their condition. This phase of work will identify components that require upgrading or replacement prior to recommissioning the Refinery.


Oct. 30 - Samples High Grade Cobalt more than 1 km from Iron Creek. Sampling along 146 metres of the exposure returned several high-grade values, such as 10.7m of 0.24% Co, including 1.5m of 0.48% Co and 7.6m of 0.26% Co.

The newly named Ruby Zone is geologically similar to mineralization at Iron Creek and may be a structural offset to Iron Creek or a separate stratigraphic unit. Ruby Zone is untested beyond surface sampling thus drilling and geophysical surveys will determine size and grade resource potential.


Nov. 13 - Present at the Benchmark Minerals Cathodes Conference


Dec. 4 - Provides Update on Refinery Feasibility Study. On schedule for Q1 2020 completion of a prefeasibility study for a 12 tonnes per day (tpd) restart and a second definitive feasibility study for a 55 tpd expansion scenario. Field program to assess the condition of equipment and systems currently installed was completed by Ausenco Engineering.


Jan. 1 - Announces Director DSU Grant. Issued 326,657 Deferred Share Units (DSUs) to directors.


Jan. 15 - Reports 49% Upgrade in Cobalt Resource from Inferred to Indicated at Idaho Project. First Cobalt completed an infill drill program focused on converting Inferred Resources to Indicated Resources, resulting in a 49% conversion to the Indicated category and a 12% increase in contained cobalt metal while maintaining the average grade.


Indicated Resource of 2.2 million tonnes at 0.32% cobalt equivalent (0.26% cobalt and 0.61% copper) for 12.3 million pounds of contained cobalt and Inferred Resource of 2.7 million tonnes at 0.28% cobalt equivalent (0.22% cobalt and 0.68% copper) for an additional 12.7 million pounds of contained cobalt.

In 2020, our primary focus will be to recommission the Refinery in Ontario, where we expect to complete two feasibility studies before the end of the quarter. Pending the results, we will then work towards recommissioning by Q4 2020.


Jan. 22 - Announces Private Placement. A non-brokered private placement of up to 10,715,000 units of the Company at a price of $0.14 per Unit (Warrant $0.21 cents) for gross proceeds of up to $1,500,000. The Company has received a commitment from a strategic investor to subscribe for $750,000 of the Units in the Offering. Proceeds will be used by the Company to fund the advancement of the First Cobalt Refinery as well as for general corporate purposes.


Jan. 31 - Upsizes Private Placement: The offering has increased to 14,300,000 units (the "Units") of the Company at a price of $0.14 per Unit for gross proceeds of approximately $2,000,000. Expects to close the Offering on February 5, 2020.


Feb. 6 - Completes $2.1 Million Private Placement - In connection with closing, the Company has issued 15,093,074 units (the “Units”) at a price of $0.14 per Unit (Warrant 0.21 cents). The Offering included participation by Ausenco Engineering Canada Inc. in the amount of 5,357,143 Units, representing approximately 1.4% of the outstanding share capital of the Company. Insiders of the Company subscribed for an aggregate of 2,208,000 Units under the Offering.


Feb. 27 - To Deliver Keynote Presentations at PDAC.



Summary

In the past ten months, FCC.V has been trading sideways. Valuation appears to be in line with Cobalt Prices. Cobalt spiked in 2017 - 2018 and returned to moderate levels since. Trade Economics forecast slightly higher prices in 2021.



Adjusting to this environment, FCC.V shifted its emphasis in 2019 from exploration to its refinery. Upon announcing initial support from Glencore for this effort (May 2019, August 2019), the company has been working on a "prefeasibility study for a 12 tonnes per day (tpd) restart and a second definitive feasibility study for a 55 tpd expansion scenario". The results of these studies are expected in Q1 2020. Positive results could impact valuation. However, FCC.V will need to access funds from Glencore to be fully operational by late 2020. With Ausenco Engineering Canada Inc. engaged in the studies, a recent participation in the last financing (1/3 of the available unit) projects optimism.


FCC.V also updated the market on its activities at Iron Creek. On October 30 2019, the company reported a: "newly named Ruby Zone is geologically similar to mineralization at Iron Creek". FCC.V reported positive results with high-grades samples: "10.7m of 0.24% Co, including 1.5m of 0.48% Co and 7.6m of 0.26% Co". Recently (Jan 15, 2020), it announced the completion of an infill drill program focused on converting Inferred to Indicated Resources, resulting in a 49% conversion upgrade to the Indicated category and a 12% increase in contained cobalt metal with the similar grade.


The plan to generate cash flow from the refinery will be key in allowing FCC.V to fund its exploration activities. However, looking ahead the challenge for FCC.V will be to limit dilution as it enters capital intensive activities.

As of last MD&A, the share count was 387M, with the last financing alone the company will have 400M shares.


Admittedly current valuation is not reflective of the progress to date but the resources needed to move the refinery ahead along with Iron Creek are a factor. The longer the commodity prices remain at this level, the higher the likelihood for financing at lower valuation. The last private placement is evidence that Glencore's funding may not be enough to meet FCC.V's general corporate needs despite its concerted efforts to specifically address this issue.


Nonetheless, closing today at $0.13 cents FCC.V's refinery and Iron Creek potentials are currently undervalued.


DISCLAIMER: The work included in this article is based on current events, technical charts, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The content of rally is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions - rally cannot take responsibility for your investment decisions.


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