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First Cobalt Corp.
Specialty Minerals and Metals
Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX)The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and allthe companies and securities that are the subject of this report discussed herein.
Canadian Equity Research18 September 2018
SPECULATIVE BUYPRICE TARGET C$0.70Price (17-Sep)Ticker
C$0.35 ; A$0.38FCC-TSX
52-Week Range (C$): 0.26 - 1.65Avg Daily Vol (M) : 0.5Enterprise Value (C$M): 86.8Cash (C$M): 19.8Long-Term Debt (C$M): 0.0NAV /Shr (C$): 0.67NAV /Shr (5%) (C$): 1.30P/NAV (x) (C$): 0.52Working Capital (C$M): 18.3
FYE Dec 2017A 2018E 2019EEBITDA (C$M) (10.1) (21.9) (22.1)Net Debt (Cash) (C$M) (29) (32) (9)
QuarterlyEBITDA
Q1 Q2 Q3 Q4
2017A (1.5) (1.6) (2.1) (4.9)2018E (3.2)A (5.8)A (6.4) (6.4)2019E (5.5) (5.5) (5.6) (5.7)
Quarterly NetDebt (Cash)
Q1 Q2 Q3 Q4
2017A (5) (4) (3) (29)2018E (25)A (19)A (13) (32)2019E (26) (21) (15) (9)
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
Oct
-17
No
v-1
7
De
c-1
7
Jan
-18
Feb
-18
Ma
r-1
8
Ap
r-1
8
Ma
y-1
8
Jun
-18
Jul-
18
Au
g-1
8
Se
p-1
8
FCCGlobal X Lithium & Bat tery Tech ETF (rebased)
Source: FactSet
Priced as of close of business 17 September 2018
Eric Zaunscherb, CFA | Analyst | Canaccord Genuity Corp. (Canada) | [email protected] | 1.416.869.7299Reg Spencer | Analyst | Canaccord Genuity (Australia) Ltd. | [email protected] | +61.2.9263.2701Allison Carson | Associate | Canaccord Genuity Corp. (Canada) | [email protected] | 1.416.869.7285
Initiation of Coverage
Seeking the Holy GrailInvestment recommendationWe are initiating coverage of First Cobalt with a conservative C$0.70 target price. The80% projected return justifies a SPECULATIVE BUY rating reflecting the company’sreliance on capital markets to advance as an exploration and development company. Weconsider finding primary cobalt production outside of the high-risk Democratic Republicof Congo, with upcoming elections and rising export taxes, one of the Holy Grails of thelithium ion battery supply chain. First Cobalt may garner positive market attention as itsexploration and development projects in Ontario and Idaho are advanced and de-risked.
Investment highlightsCobalt (-8%) and cobalt equities (-31% on an EV/t basis) have pulled back strongly thisyear on bearish sentiment related to changes in Chinese electric vehicle incentivesand increased supply from the Democratic Republic of Congo (DRC), exacerbated bya thin spot market. This, in our view, may be an important investment opportunity. Wemaintain a constructive outlook on cobalt, focusing on 2025e 14% electric vehicle salespenetration with strong support from energy storage systems growth. Increased batterymanufacture capacity and battery materials supply growth are required. The industry’sreliance on cobalt supplies from the DRC makes it vulnerable.First Cobalt has built an excellent project portfolio through the 2017 and 2018 roll-upof several cobalt explorers. This portfolio includes 1) almost one-half of the area of thevenerable Cobalt, Ontario mining camp, 2) a fully-permitted cobalt refinery in that camp,and 3) the highly prospective Iron Creek cobalt exploration project in the Idaho CobaltBelt. In our view, all three projects offer the potential to grow significantly in value as theyare advanced while also subject to re-rating as they are de-risked.Potential share price catalysts include an initial resource estimate and metallurgicalstudies for Iron Creek, a recommissioning study for the Cobalt refinery, and ongoing drillresults from both. Sources of risk include cobalt pricing and technical assumptions inadvance of the company’s delivery of technical reports.We believe First Cobalt has the experienced management and board of directorsnecessary to advance the company’s projects, as well as the financial means to takethese projects through 2019. We have modeled a $25 million raise at a discount tomarket ($0.35/sh) in order to fund the company’s needs beyond 2019. At current levels,First Cobalt’s share price implies a US$15/lb cobalt price, as compared to the currentUS$28/lb spot price and our long-term deck at US$49/lb. This highlights the valuationproposition inherent in the recent cobalt and battery materials theme pullback.
ValuationWe value First Cobalt’s assets on a spot cobalt basis, currently US$28/lb. Our valuationyields a project NAV of $251 million or $0.59/sh. We add net corporate adjustments of$34 million or $0.08/sh with 422 million shares outstanding. We apply a 1.0x multipleto the corporate NAVPS of $0.67 to yield our target NAVPS of $0.67, which supports arounded target price of C$0.70.
For important information, please see the Important Disclosures beginning on page 36 of this document.
2
Table of Contents
Table of Contents ....................................................................................................... 2
Seeking the Holy Grail ................................................................................................ 4
Investment thesis ............................................................................................................ 4
The company ................................................................................................................... 6
Iron Creek emerges as First Cobalt’s marquee project ................................................ 6
The Cobalt, Ontario, exploration proposition ...............................................................10
The cobalt production pathway in Ontario ..................................................................15
Model and valuation ..................................................................................................... 16
Potential catalysts and risks to our target price .......................................................... 20
Scenario analysis .......................................................................................................... 21
Corporate structure ....................................................................................................... 23
Appendix A – Directors and key management.......................................................... 24
Appendix B – The cobalt market .............................................................................. 26
What is cobalt? .............................................................................................................. 26
Global supply – DRC dominates supply ....................................................................... 26
A precarious balance .................................................................................................... 27
Appendix C – Cobalt, Ontario .................................................................................... 30
History ............................................................................................................................ 30
Geologic Setting ............................................................................................................ 32
Appendix D – The Idaho Cobalt Belt, Idaho .............................................................. 34
History ............................................................................................................................ 34
Geologic Setting ............................................................................................................ 34
First Cobalt Corp.Initiation of Coverage
Speculative Buy Target Price C$0.70 | 18 September 2018 Specialty Minerals and Metals 2
3
Figure 1: First Cobalt Corp. - Investment summary
Source: FactSet, Company Reports, Canaccord Genuity estimates
Rated: SPEC BUY Target Price: $0.70
Current Price: $0.35 Projected Return: 100.0%
52-Wk Range: $1.65/$0.26 Basic Shares (M): 339.2
ADV (30-day): 530,663 Market Cap (C$M): $118.7
Ent. Value (C$M): $86.8
Eric Zaunscherb, CFA | Analyst
[email protected] 416.869.7299
Reg Spencer | Analyst
[email protected] +61.2.9263.2701
Allison Carson | Associate
[email protected] 416.869.7285
Company Summary Major Shareholders
Jason Bontempo 0.6%
Robert Cross 0.5%
Paloduro Investments 0.5%
Trent Mell (CEO) 0.5%
Paul Matysek 0.4%
Source: FactSet
Financial Summary
(Year Ended 31 December) 2017A 2018E 2019E
Balance Statement (C$M)
Working Capital $27.8 $31.6 $9.7
Conceptual Resource Summary Net Debt (Cash) -$29.0 -$31.9 -$9.5
Enterprise Value $89.7 $86.8 $109.2
Mass Grade Contained Income Statement
(Mt) Co (%) Co (t) Exploration & Evaluation $1.7 $12.0 $12.0
Cobalt, Ontario 32.9 0.14% 45,492 EPS -$0.20 -$0.07 -$0.05
Iron Creek, Idaho 8.7 0.30% 26,100 EV / EBITDA -8.9x -4.0x -4.9x
Total Conceptual 41.6 0.17% 71,592 Cash F low Statement
Cash Flow, Operating -$8.3 -$23.6 -$22.4
Cash Flow, Investing -$0.2 -$0.2 $0.0
FCC Peers D Cash Flow, Financing $37.8 $26.5 $0.0
EV/t Co (Global, $) $1,212 $2,964 -59% Equity FCF $29.9 $5.2 -$22.4
Equity FCF / share $0.14 $0.01 -$0.05
P/CF 2.6x 27.9x -6.5x
Target NAVPS Sensitivities NAV & Target Generation
Project NAV (C$M) (C$/sh)
Cobalt conceptual vein resources $134.8 $0.32
Cobalt processing facility $65.1 $0.15
Iron Creek project $50.5 $0.12
Project NAV $251 $0.59
Corporate Adjustments:
Equity Raised (@ $0.32/sh) $25.0 $0.06
Working Capital $18.3 $0.04
G&A -$9.5 -$0.02
Long-term Liabilities -$0.8 $0.00
ITM Warrants & Options $1.3 $0.00
Corporate Adjustments $34.3 $0.08
Corporate NAV $285 $0.67
Shares (M, Fully Funded) 422
Target Generation:
Corporate NAVPS $0.67
Multiple 1.0x
Target NAVPS $0.67
Target Price (Rounded) $0.70
Projected Return 100.0%
Implied Spot Cobalt Price at Current Share Price $15.27
First Cobalt Corp. (FCC : TSX) September 17, 2018
First Cobalt is an exploration company with a dominant land position in the historic Cobalt Ontario
mining camp. Early mining was focused on prolific high grade silver veins, which were often
associated with high-grade cobalt mineralization. During 2017 First Cobalt completed a 3 way
merger with Cobalt One and CobalTech to achieve camp dominance. Historically, silver and cobalt
rich veins were found at surface and mined out to a maximum depth of ~150m. The company is
looking to test for the potential of low-grade, broad scale mineralization or "disseminated" cobalt
beyond the previously mined high-grade veins. During 2018, First Cobalt also acquired US Cobalt
and its prospective Iron Creek cobat project in Idaho.Active drilling is expanding known
mineralization and we await an initial resource estimate.
$14.23 $21.35 $28.46 $35.58 $42.69
62.4 $0.41 $0.63 $0.84 $1.05 $1.25
52.0 $0.37 $0.57 $0.76 $0.95 $1.14
41.6 $0.32 $0.51 $0.67 $0.84 $1.01
31.2 $0.27 $0.44 $0.58 $0.72 $0.87
20.8 $0.23 $0.36 $0.48 $0.59 $0.71
Cobalt (US$/lb)
Co
ncep
tual
(Mt
Co
)
$14.23 $21.35 $28.46 $35.58 $42.69
$0.53 $0.34 $0.54 $0.72 $0.90 $1.08
$0.44 $0.34 $0.53 $0.70 $0.87 $1.05
$0.35 $0.32 $0.51 $0.67 $0.84 $1.01
$0.26 $0.30 $0.48 $0.63 $0.79 $0.95
$0.18 $0.27 $0.43 $0.57 $0.71 $0.85
Cobalt (US$/lb)
Issu
e P
rice
(C$/s
h)
First Cobalt Corp.Initiation of Coverage
Speculative Buy Target Price C$0.70 | 18 September 2018 Specialty Minerals and Metals 3
4
Seeking the Holy Grail
Investment thesis
We are initiating coverage of First Cobalt with a conservative C$0.70 rounded target
price. The 100% projected return justifies a SPECULATIVE BUY rating, which also
reflects the company’s reliance on capital markets to advance as an exploration and
development company. From our perspective, finding a profitable primary producer of
cobalt (97% of production is secondary) situated in a low sovereign risk jurisdiction is
one of the Holy Grails of the lithium ion battery supply chain. The cobalt supply chain
is dominated by the Democratic Republic of Congo (DRC), which is particularly
vulnerable with upcoming presidential elections and a postulated export tax.
Unfortunately, the pipeline of primary cobalt producers outside of the high-risk DRC is
very, very narrow. Consequently, we assert that First Cobalt deserves investment
consideration as it advances and de-risks its strong portfolio of exploration and
development cobalt projects. We base this assertion on the following points:
Positive cobalt outlook – There has been a powerful correction in battery materials
and related equities through 2017. This correction was related to weakening theme
sentiment on misunderstood changes to Chinese electric vehicle (EV) subsidies and
over-exaggerated over-supply concerns, all exacerbated by an equity market focus on
thin, largely unrepresentative metal indices. Despite the correction, Canaccord
Genuity maintains a very constructive outlook. We focus on 2025e 14% electric
vehicle sales penetration with strong support from energy storage systems growth,
both demanding increased battery manufacture capacity and growth in battery
materials supplies including cobalt. The forecast EV sales penetration corresponds to
a 25% CAGR of cobalt use in battery chemicals, taking overall cobalt demand growth
from 112kt in 2017 to a 2025f of 215kt. The industry’s reliance on cobalt supplies
from the high-risk Democratic Republic of Congo is increasing, not decreasing, with
negative implications for supply chain and reputational risk.
Exposure to value accretion through advancement and de-risking – First Cobalt owns
three strong projects in the form of a highly prospective cobalt exploration project in
the Idaho Cobalt Belt, vein resources in the Cobalt mining camp in Ontario, and a fully
permitted cobalt refinery in the same camp. In our view, all three projects offer the
potential to grow significantly in scale from our current combined conceptual estimate
of 72kt cobalt contained and value as they are advanced, while also being subject to
re-rating as they are de-risked. Conceptual resources estimated on drilling to date,
based on estimated volumes and weighted average grades, are open-ended in scale
to date. Our scenario analysis suggests the potential for a bull case target NAVPS of
C$1.25, 258% above the current share price level.
Ability to tread water – At 30 June 2018, First Cobalt had $18 million in working
capital and no debt. This is sufficient to fund its programs through 2019. We have
modeled an opportunistic $25 million raise at $0.32/sh (a discount to market) over
the next few months to fund advanced programs beyond 2019. Valuation is sensitive
to issue price: a 25% reduction in issue price reduces target NAVPS to $0.63 while a
25% increase in issue price increases target NAVPS to $0.70 (Figure 1).
We are initiating coverage of First
Cobalt with a conservative C$0.70
rounded target price. The 80%
projected return justifies a
SPECULATIVE BUY rating.
First Cobalt Corp.Initiation of Coverage
Speculative Buy Target Price C$0.70 | 18 September 2018 Specialty Minerals and Metals 4
5
Attractive valuation – The recent pullback in battery material prices and sentiment
has created an excellent opportunity for gaining or regaining exposure. Since the
beginning of the year, cobalt has pulled back 8% while the mean enterprise value per
tonne cobalt (global in situ) of equities we follow has pulled back 31%. At present,
First Cobalt is trading at US$1,212/t Co in situ as compared to the US$2,964/t mean
of peers, a 59% discount. The current share price also implies valuation at a
US$15/lb cobalt spot price as compared to the current US$28/lb spot price and our
long-term deck at US$49/lb.
Experienced management and board – First Cobalt’s CEO, Trent Mell, is an
experienced mining industry executive with broad experience in both mining
management and capital markets. At Barrick Gold (ABX:TSX: $13.50 | Rated HOLD by
Carey MacRury) he served as Corporate Counsel and at Sherritt International (S:TSX:
$0.82 | Not rated) he served as an Associate General Counsel and Assistant
Secretary. He is strongly supported by his adept management team and practiced
board of directors. Chairman of the Board is Paul Matysek, who has made a career of
successfully building and selling companies. Matysek was recently Chairman of
Lithium X Energy, which was sold to Nextview New Energy Lion Hong Kong for $265
million. He was President and CEO of Goldrock Mines which sold to Fortuna Silver
Mines (FVI:TSX: $5.74 | Rated BUY by Dalton Baretto) for $178 million in July 2016.
He also served as CEO of Potash One, which was acquired by K+S Ag for $434 million
in a friendly takeover in 2011. Mr. Matysek was also the founder and CEO of Energy
Metals Corporation, a uranium company that grew from a market capitalization of $10
million to approximately $1.8 billion when sold in 2007.
Upcoming catalysts – Near term, First Cobalt expects to deliver on several milestones
that could be significantly catalytic to its share price. These include an initial resource
estimate and metallurgical studies for Iron Creek, a recommissioning study for the
Cobalt refinery, and ongoing drill results from the Cobalt camp and Iron Creek.
Potential risks – Aside from the usual risks associated with early-stage exploration
and development, we highlight the volatility of the cobalt market, the reliance on
capital markets and associated equity dilution, and the project assumptions made in
the absence of technical studies in our valuations. Our bear case scenarios target
NAVPS valuation of $0.21, or 39% down from the current share price level.
First Cobalt Corp.Initiation of Coverage
Speculative Buy Target Price C$0.70 | 18 September 2018 Specialty Minerals and Metals 5
6
The company
First Cobalt owns a prospective exploration project in the Idaho Cobalt Belt in Idaho,
controls 11,700ha of exploration lands in the Cobalt, Ontario camp, and a fully
permitted refinery capable of producing cobalt material amenable to battery
production in the same camp. It emerged as a roll-up of several companies through
2017 (e.g. CobalTech Mining Inc. and Cobalt One Limited) and 2018 (US Cobalt Inc.),
with the goal to become the premier exploration and development vehicle globally for
exposure to cobalt. The focus on low-risk jurisdictions, Ontario and Idaho, was a key
attribute from conception.
We believe that the management team assembled around President and CEO Trent
Mell, and the Board of Directors overseeing that team, are highly experienced
(Appendix A) and more than capable of advancing First Cobalt’s mission and
maximizing shareholder value. They have been very successful in building the
company’s project portfolio and rapidly moving the company toward delivery of several
key milestones that may be catalytic to its share price. With $18 million in working
capital and no debt, the company is well-positioned to advance its projects to key
decision points, while its champions have the experience to tap capital markets
opportunistically over the next six to twelve months for future needs. We have
modeled a $25 million raise at a discount to market ($0.32/sh) to capture this next
level of dilution.
As outlined in Don’t feel too blue about cobalt (5 September) cobalt and cobalt
equities have suffered a significant correction through 2018 reflecting overall weak
risk-off markets, a relatively smooth expansion of production in the Democratic
Republic of Congo, and a softening in sentiment related to the battery theme, all
exacerbated by thin markets. We summarize our constructive view on the cobalt
market in Appendix B but highlight recent H1/18 electric vehicle sales figures for
China and Europe, which provide confirmation that EV sales penetration is growing
strongly. We forecast EV sales penetration of 14% globally by 2025, including global
EV sales of ~1.9 million units in 2018. This level of EV sales growth corresponds to a
25% CAGR of cobalt use in battery chemicals, taking overall cobalt demand growth
from 112kt in 2017 to a 2025f of 215kt. We expect a resumption in upward
momentum in the battery theme in general and cobalt specifically towards year-end
as one-time incentive plan shifts in China and global battery manufacturing
expansions with attendant stock builds are digested.
First Cobalt is an excellent representative for investment exposure at the exploration
and development end of the cobalt equity spectrum. It is listed on the TSX Venture
Exchange (FCC: TSXV), on the Australian Stock Exchange (FCC: ASX) and on the OTCQB
(FTSSF); trading on the TSX Venture is dominant at this time (Figure 2).
Iron Creek emerges as First Cobalt’s marquee project
Since the acquisition of US Cobalt in early 2018, Iron Creek has emerged as First
Cobalt’s marquee cobalt project. The project is situated on the Idaho Cobalt Belt
(Figure 3) as described in Appendix D and in the initiation of coverage report for
eCobalt Solutions (ECS: TSX: $0.79 | rated SPECULATIVE BUY), Cobalt: Out of the
shadows and into the spotlight, published 25 May 2017. eCobalt is advancing its
Idaho Cobalt Project also located on the Idaho Cobalt Belt.
In 2017, US Cobalt commenced a 40-hole drill program designed to validate and
expand upon a historic (1980) resource estimate amounting to 1.2Mt grading 0.59%
cobalt and 0.3% copper. The program covered a 460m strike length and generated
results that form the basis for an initial NI 43-101-compliant mineral resource
estimate expected by October this year.
We highlight recent H1/18 electric
vehicle sales figures for China and
Europe, which provide confirmation
that EV sales penetration is growing
strongly, and forecast EV sales
penetration of 14% globally by 2025.
Figure 2: Trading based on 30-day average
daily volume.
Source: FactSet, at 12 September 2018
First Cobalt Corp.Initiation of Coverage
Speculative Buy Target Price C$0.70 | 18 September 2018 Specialty Minerals and Metals 6
7
Figure 3: Idaho Cobalt Belt geology
Source: Company Reports
Figure 4: Underground drill hole traces in plan view showing bedrock geology, and the No Name
and Waite zones.
Source: Company Reports
First Cobalt Corp.Initiation of Coverage
Speculative Buy Target Price C$0.70 | 18 September 2018 Specialty Minerals and Metals 7
8
Figure 5: Recent results and cross-section showing underground drill intersections in the No Name and Waite zones.
Source: Company Reports
First Cobalt recently acquired 100% ownership of Iron Creek for US$1.07 million,
which was previously leased, and eliminated the outstanding 4% royalty on the
project. The company intends to drill 30,000m in a $9 million, 3-rig, 90-hole program
at Iron Creek by Q4/18, which is designed to test extension of known mineralization
along strike, including broader intercepts of lower grade mineralization that were not
included in the historic resource estimate. Results of drilling to date, as shown in
Figure 4 and Figure 5, have extended the total mineralized strike length to 520
metres along the No Name and Waite zones. It is expected that the current drill
program will expand upon and upgrade the inferred resource estimate expected near-
term with the next resource estimate expected in early 2019.
Drilling to date, aided by underground access via three historic adits, is tracing the
roughly parallel No Name and Waite zones over 250m dip extensions. The zones dip
at approximately 75º to the north, which is a good orientation for underground mining.
True widths vary between 10 to 30m for each zone.
Drilling to date has extended the total
mineralized strike length to 520 metres
along the No Name and Waite zones
and further drilling will expand upon
and upgrade the inferred resource
estimate expected near-term.
First Cobalt Corp.Initiation of Coverage
Speculative Buy Target Price C$0.70 | 18 September 2018 Specialty Minerals and Metals 8
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Figure 6: Coloured backscatter images from electron microscopy show low Co pyrite in blue, high
Co pyrite in green, and Linnaeite (CoS) in red.
Source: Company Reports
Most of the mineralization found on the Idaho Cobalt belt is cobalt-arsenic. At Iron
Creek, however, cobalt mineralization is found associated with pyrite, along with
chalcopyrite (a copper sulphide). Historic metallurgical studies for Iron Creek found
multiple phases of pyrite mineralization, only some of which also included cobalt.
Recent electron microscopy clearly shows two populations of pyrite, one with low
cobalt and one with high cobalt (). The metallurgical implications are unclear but
should be addressed in a report on metallurgical studies expected shortly.
We are following First Cobalt’s progress at Iron Creek closely. Based on results to date
(e.g. as included in Figure 5), we estimate a conceptual resource of ~8.7Mt grading
0.3% Co (26,100t Co contained) and 0.15% Cu. We crudely estimated the volume and
mass of the two known zones based on intercepted dimensions and applied the
weighted average grades of intersections to date. The conceptual grade exceeds the
0.22% average grade of cobalt deposits in our database by 36%. We do not expect the
upcoming initial resource estimate to measure up to our conceptual resource, given
that it is based on a snapshot of drill results several months old. We do, however,
expect the updated resource expected in early 2019 to closely approximate our
conceptual resource pending further results from the ongoing drill program.
Based on results to date, we estimate a
conceptual resource of ~8.7Mt grading
0.3% Co (26,100t Co contained) and
0.15% Cu.
First Cobalt Corp.Initiation of Coverage
Speculative Buy Target Price C$0.70 | 18 September 2018 Specialty Minerals and Metals 9
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Figure 7: First Cobalt land exposure in the Cobalt District, Ontario
Source: Company Reports
The Cobalt, Ontario, exploration proposition
Over 2016 and 2017 First Cobalt, its predecessors and competitors built their
property portfolios in the prolific Cobalt, Ontario mining camp. As outlined in Appendix
C, mineralization including cobalt was first discovered in the region in 1884. The first
mine in the camp commenced operations in 1904 and produced mainly silver, almost
continuously, until 1989. Between 1909 and 1989 there were approximately 140
silver-cobalt mines in the camp. Over this period, official production amounted to
553,168,278 oz Ag, 24,685,219 lb Co, 3,624,546 lb Ni, and 2,625,714 lb Cu,
although actual production was likely higher.
First Cobalt’s land position covers ~45% of the Cobalt mining camp, incorporating
~11,700ha and 50 past producing mines, as depicted in Figure 7. Mining in the past
focused on narrow, high-grade silver veins typically mined from shallow open pits
(Figure 8, left) or underground mines less than 200m deep. Cobalt had little value
during this period and was viewed as waste. As a result, little exploration focused on
understanding controls on cobalt mineralization and many waste piles in the district
(Figure 8, right) could contain significant amounts of cobalt.
First Cobalt’s land position covers
~45% of the Cobalt mining camp,
incorporating ~11,700ha and 50 past
producing mines.
First Cobalt Corp.Initiation of Coverage
Speculative Buy Target Price C$0.70 | 18 September 2018 Specialty Minerals and Metals 10
11
Figure 8: The past: historic open pit on narrow, high-grade silver vein (left), and waste or muck stockpile, likely containing cobalt (right).
Source: Canaccord Genuity
Figure 9: The future? Stockwork of cobalt-bearing mineralization.
Source: Canaccord Genuity
First Cobalt Corp.Initiation of Coverage
Speculative Buy Target Price C$0.70 | 18 September 2018 Specialty Minerals and Metals 11
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First Cobalt’s first goal was to assemble the best portfolio of exploration lands in the
Cobalt camp and mount a sophisticated campaign of exploration to understand the
controls on cobalt mineralization. Although high-grade vein style mineralization was
the most obvious target, it was also believed that lower-grade style(s) of cobalt
mineralization could be identified, either as disseminated or stockwork mineralization
(Figure 9), that may be amenable to bulk mining methods. In addition, the company
set out to quantify the amount and grade of material, or muck, stockpiled around its
holdings with a view to early cashflow. Voluntary remediation programs for historic
mine areas are also ongoing.
First Cobalt commenced its exploration program in 2017, including regional mapping
and sampling with a view to understanding structures and deformation in the camp,
and how they might control mineralization. This work progressed to detailed mapping
and channel sampling, as well as geophysical and other surveying techniques.
Ultimately, First Cobalt drilled 61 shallow diamond drill holes in 2017 totalling
6,361.62m. Highlight intersections included:
Results from the Frontier mine included an intersection of 0.83% Co and 30
g/t Ag over 0.48 metres and 0.57% Co and 1.40% Ni over 0.40m in a new
cobalt-nickel vein found between the Woods and Watson veins.
Drilling in the Keeley South Zone intercepted cobalt in the Woods Vein as well
as two additional cobalt intercepts, the KeeleyCo#1 vein and the KeeleyCo#2
vein, indicating that several veins exist in this area. Assays included 15.7m of
0.12% Co, including 6.2m at 0.21% Co and 0.68% Co over 0.34m in the
Woods Vein and 1.15% Co over 0.42m in the KeeleyCo#1 vein and 0.60% Co
over 0.38m in the KeeleyCo#2 vein.
0.78% Co and 0.83% Ni over 2.0m, including 1.1m of 1.35% Co and 1.47%
Ni along the Bellellen Vein system.
In 2018, First Cobalt has budgeted for a $7 million exploration program focused on
near-surface cobalt mineralization potentially amenable to open pit mining. The
exploration model generated by First Cobalt’s geological team recognizes the camp’s
complexities with influences from the contact between two different ages and
competences of the host rock packages, the younger Nipissing diabase which
intruded both, and several episodes of structural deformation. The result is different
styles of mineralization at different sites throughout the camp (Figure 10).
Recent exploration has focused on the Kerr area, part of the Cobalt North package
(Figure 7 and Figure 11). First Cobalt has identified several mineralized horizons near
the historic Kerr Lake and Drummond Mines featuring multiple, closely-spaced cobalt-
silver veins hosted in sedimentary rocks. Highlight intersections include 6.5m grading
0.33% Co and 133 g/t Ag and 10.7m of 0.14% Co and 13.9 g/t Ag, including 6.9m of
0.21% Co and 12.5g/t Ag. Additional assays are pending, but it appears that two
parallel zones are being defined as outlined in Figure 12 separated by ~400m, one
hosting the former Kerr Lake and Drummond Mines and the more southerly hosting
the former Kerr #2 mine. Although continuity of cobalt mineralization has not been
demonstrated yet, the apparent strike lengths of the zones amount to 500m and
350m, respectively.
It is important to note that the Kerr area in Cobalt North contains several historic silver
mines, including Crown Reserve, Kerr Lake, Lawson, Drummond, Conisil and
Hargrave. The Kerr Lake Mine consisted of thirteen separate shafts with over 20km of
underground development. The Kerr Lake, Crown Reserve and Drummond Mines were
initially mined individually and later connected by underground workings for silver
exploration and drilling. This area produced over 50 million ounces silver and
900,000 pounds of cobalt, mainly between 1905 to 1950.
The exploration model generated by
First Cobalt’s geological team
recognizes the camp’s complexities
with multiple controlling influences on
mineralization.
First Cobalt Corp.Initiation of Coverage
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Figure 10: Different styles of cobalt mineralization encountered to date in the Cobalt camp.
Source: Company Reports
Figure 11: Bedrock geology and drill hole locations, Kerr Lake and Drummond area.
Source: Company Reports
First Cobalt Corp.Initiation of Coverage
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Figure 12: Geological block diagram of the Kerr Lake area and interpretation of cobalt-silver
mineralization distribution based on drilling and bedrock mapping.
Source: Company Reports
Figure 13: Canaccord Genuity estimates of conceptual resources.
Source: Company Reports, Canaccord Genuity estimates
Although drilling by First Cobalt to date may not have delivered the “homerun”
intersections in the Cobalt camp sought by an impatient market, the fact that First
Cobalt’s exploration model is now delivering solid base hits is highly encouraging. It
must be stressed that the controls on mineralization in the camp are complex. We are
confident that First Cobalt will be able to identify and expand upon mineralization
potentially amenable to open pit mining. This confidence is based on the extent of the
mineral endowment in the Cobalt camp and historic operations that remain
undefined, as well as indications from geochemical surveying, prospecting and
surface sampling that have identified targets that remain to be fully tested.
In Figure 13 we summarize our estimates of conceptual resources (not NI 43-101) on
the project, amounting to over 45,000t of contained cobalt mineralization. We with
Mass Co Ag Cont'd
Deposit Category (Mt) (%) (g/t) Co (t)
Kerr-Drummond Conceptual 9.71 0.16% 42.2 15,097
Bellellen Conceptual 3.03 0.57% 23.7 17,232
Keeley-Frontier Conceptual 19.15 0.05% 18.9 9,787
Silver Banner Conceptual 1.01 0.33% 31.0 3,375
Total Conceptual 32.90 0.14% 30.9 45,492
Although drilling by First Cobalt to date
may not have delivered the “homerun”
intersections in the Cobalt camp sought
by an impatient market, First Cobalt’s
exploration model is now delivering
solid base hits.
First Cobalt Corp.Initiation of Coverage
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15
Iron Creek, we crudely estimated the volume and mass of several known zones based
on intercepted dimensions and applied the weighted average grades of intersections
to date. While the overall conceptual grade does not exceed the 0.22% average grade
of cobalt deposits in our database, grades from individual zones do. We expect that
First Cobalt will focus on expanding those higher-grade targets, thereby bringing the
average grade up. We will monitor drill results as they are released in anticipation of
initial resource estimate(s), likely towards the end of 2019.
The cobalt production pathway in Ontario
Along with consolidation of a dominant land position in the Cobalt camp, First Cobalt
acquired two hard assets, the former Canadaka 100t/d mill, which is slated for
dismantling and sale for scrap, and a fully permitted cobalt-silver-nickel refinery
(Figure 14). The refinery is a key strategic asset. The hydrometallurgical facility was
commissioned in 1996, operated intermittently (and uneconomically) on a batch
basis, and has been on care and maintenance since 2015 (Figure 15). The facility sits
on a 16ha site expandable to ~50ha. It has been independently assigned (Hatch
2012) a replacement value of ~US$78 million before real estate, tailings
impoundment, permits and licences.
Figure 14: First Cobalt refinery exterior.
Source: Canaccord Genuity
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Figure 15: The refinery has been on care and maintenance since 2015 and appears to be in good
shape.
Source: Company Reports
Bench-scale metallurgical studies have been ongoing, as has a recommissioning study
for the refinery, with results expected in October. First Cobalt has several options
ranging from restart at the current 24t/d capacity with minimal capex, to expansion to
accommodate larger flows of ore. Aside from its own studies of muckpile material, the
company announced in May a joint effort with Cobalt Power Group Inc. (TSX-V: CPO |
Not rated) as that company assessed its own muckpile inventory. In addition, First
Cobalt is evaluating third-party mine feed and battery material from recycling
companies. In sum, there are several opportunities for early cash flow, but the
upcoming recommissioning study should provide key details in assessing the value of
the refinery.
Model and valuation
We have focused on three primary assets in the valuation of First Cobalt, namely the
conceptual vein resources in the Cobalt camp, the Cobalt processing facility, and the
Iron Creek project in Idaho. We include nil value for potential muckpile processing or
the Canadaka mill.
As stated earlier, we are comfortable with a conceptual resource of 45,492t of
contained cobalt in several of the more advanced vein systems identified in First
Cobalt’s projects in the Cobalt camp. We anticipate initial resource estimate(s) later in
2019, as well as considerable growth potential beyond this. We track several
companies and how the market values their resources on an enterprise value per
tonne cobalt in situ basis (Figure 16). Global resources are currently valued at
US$2,275/t, although this figure varies considerably with the price of cobalt.
There are several opportunities for
early cash flow, but the upcoming
recommissioning study should provide
key details in assessing the value of the
refinery.
First Cobalt Corp.Initiation of Coverage
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Figure 16: Mean cobalt in situ values on an enterprise value per tonne basis
Assuming 45,492t Co contained and the mean EV/t global of US$2,275 generates a
$135 million valuation for First Cobalt’s conceptual vein resources in the Cobalt
camp. This represents 54% of project NAV or 47% of our corporate NAV, as shown in
Figure 17.
The cobalt processing facility, or refinery, in the Cobalt camp has been valued at
~US$78 million replacement value before real estate, tailings impoundment, permits
and licences. Given the importance of permitted tailings impoundments and the
investments in time and funds to replicate them, we increase the replacement value
to US$100M. We expect publication of the recommissioning report near-term,
however, and do not know the extent of additional investment required to make it a
viable asset. For this reason, we apply a 0.5x factor to address financial and technical
risk to the restart to derive a weighted valuation of $65 million or 26% of project NAV
or 23% of corporate NAV.
The valuation of the Iron Creek project is more challenging, with neither resource nor
technical study to rely upon. We note that the Thackaringa project of Cobalt Blue
Holdings (COB: ASX: A$0.45 | Not rated) has metallurgical similarities to Iron Creek
and has been the subject of a pre-feasibility study released July 2018. The
Thackaringa flow sheet uses gravity separation to produce a pyrite concentrate,
pyrolysis (thermal decomposition) and magnetic separation to produce pyrrhotite,
leaching of the pyrrhotite to produce a solution containing cobalt, which is
subsequently precipitated as cobalt sulphate heptahydrate. We would add differential
flotation after gravity separation to isolate chalcopyrite and a circuit to recover a high-
grade copper concentrate. The key parameters of the Thackaringa and Iron Creek
projects are summarized in Figure 18. Capital and operating costs are adjusted to
reflect other comparable operations including eCobalt’s nearby Ram project, subject
of several feasibility studies. Note as well that Iron Creek has already been opened by
three historic adits, thereby reducing expected initial capex.
Assuming 45,492t Co contained and
the mean EV/t global of US$2,275
generates a $135 million valuation for
First Cobalt’s conceptual vein resources
in the Cobalt camp.
First Cobalt Corp.Initiation of Coverage
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Figure 17: NAV and target generation
Source: Canaccord Genuity estimates
Our assumed development and production scenario is based on commencement
of production at Iron Creek at 1,000t/d in 2024, which reflects the stage of the
project and time to produce advanced studies and permits. The project is located on
patented ground, which aids permitting timelines. The throughput rate is generous
given potential constraints on flat space in the project area available to accommodate
the plant. At spot prices (see Don’t feel too blue about cobalt published 5 September)
of US$28/lb Co and US$2.65/lb Cu, we generate an after-tax NPV(15%) of $51
million (20% of project NAV and 18% of corporate NAV) and a 32% IRR. Note that on
our price deck featuring long-term US$49/lb Co and US$3.00/lb Cu, the NPV(15%)
rises to $152 million, while de-risking takes the valuation further to a NPV(10%) of
$316 million – very strong leverage to cobalt pricing and project advancement.
To our project NAV of $251 million or $0.59/sh we add net corporate adjustments of
$34 million or $0.08/sh including $25 million raised at $0.32/sh to fund First Cobalt
into 2020 with 422 million shares outstanding. We apply a 1.0x multiple to the
corporate NAVPS of $0.67 to yield our target NAVPS of $0.67, which supports a
rounded target price of C$0.70. The 100% projected return supports a SPECULATIVE
BUY rating, reflective of the lack of cash flow and consequent reliance on capital
markets to advance.
C$M C$/sh C$M C$/sh
Project NAV
Cobalt conceptual vein resources (3) $135 $0.32 $316 $0.93
Cobalt processing facility (4) $65 $0.15 $65 $0.19
Iron Creek project (5) $51 $0.12 $51 $0.15
Total Project NAV $251 $0.59 $432 $0.93
Corporate Adjusments
Equity Raised (@ $0.32/sh) (6) $25 $0.06
Working Capital $18 $0.04 $18 $0.05
G&A -$10 -$0.02 -$10 -$0.03
Long-term Liabilities -$1 $0.00 -$1 $0.00
ITM Warrants & Options $1 $0.00 $1 $0.00
Corporate Adjustments $34 $0.08 $9 $0.03
Corporate NAV $285 $0.67 $441 $1.30
Shares (Basic + ITM, M) 339
Shares (Funded, M) 422
Target Generation
Corporate NAVPS $0.67
Project NAVPS $0.93
Multiple 1.0x 0.7x
Corporate Adjustments $0.03
Target NAV $0.67 $0.67
Target Price (Rounded) $0.70 $0.70
Projected Return 100.0% 100.0%
Implied P/NAV(5%) at Current Share Price 0.27x
Notes: 1. Variable discount rate (WACC), P/NAV approaches 1.0x
2. Fixed 5% discount rate, variable P/NAV multiple
3. Peer EV/oz method
4. Independently assessed replacement value
5. Discounted cash flow analysis
6. Equity raised to partially fund drilling $0.32/sh
EV/oz Method (1) P/NAV Method (2)
Note that on our price deck featuring
long-term US$49/lb Co and US$3.00/lb
Cu, the NPV(15%) rises to $151 million,
while de-risking takes the valuation
further to a NPV(10%) of $316 million.
First Cobalt Corp.Initiation of Coverage
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Figure 18: Key parameters for a conceptual Iron Creek operation
Source: Company Reports, Canaccord Genuity estimates
Thackaringa PFS Iron CreekJuly 2018 CG Model
INPUTS Long Term
Cobalt Price (LME) US$/lb $33.80 $28.01
Premium 0% 0%
CoSO4•7H2O US$/lb $33.80 $28.01
Sulphur US$/t $145.00
Copper Price (LME) US$/lb $2.65
Exchange Rate
CDNUSD 0.77
AUSUSD 0.75
OPERATING METRICS
Total Ore to Process Mt 58.70 8.70
Strip Ratio 3.69x
Average Head Grades:
Cobalt 0.08% 0.30%
Copper 0.15%
Sulphur 8.7%
Mill Design Throughput t/d 14,384 1,000
Overall Recovery Rates:
Cobalt 85.5% 88.0%
Copper 95.0%
Sulphur 65.0%
Average Annual Production
Cobalt in CoSO4•7H2O t 3,558 883
Copper in Concentrate t 477
Sulphur Kt 291
Mine Life Years 12.8 26.0
COSTS
Initial Capital Costs US$M $413 $53
Sustaining Capital Cost US$M $113 $131
/t US$/t $1.92 $15.00
Operating Costs (LOM):
Mining (Open Pit) US$/t mined $2
Mining (Underground) US$/t mined $60
Processing US$/t milled $14 $15
G&A Cost US$/t milled $3 $5
Co Cash Costs, Net US$/lb $13 $10
All in cash costs (1) US$/lb $13
ECONOMICS @7.5% @15.0%
After tax NPV US$M 408 38
After tax IRR % 22.0% 31.6%
Payback Years 4.0 2.0
Notes:
(1) Cash costs plus sustaining capex
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Our valuation is conducted on a partially funded basis targeting a 1.0x P/NAV
multiple. Alternatively, we present an unfunded valuation in Figure 17 whereby we
apply a 0.7x multiple to project NAVPS, reflective of exploration upside, and add net
corporate adjustments to arrive at the same target NAVPS.
At current price levels, First Cobalt is trading at 0.27x P/NAV(5%), which compares to
the 0.32x mean for covered exploration and development companies. This valuation
is based on spot cobalt whereas other non-cobalt companies are valued on the
Canaccord Genuity price deck. If valued on the price deck, First Cobalt would be
trading at an even more attractive 0.12x and feature a $0.91 target NAVPS. We also
note that First Cobalt is trading at an implied US$15/lb cobalt price as compared to
the current US$28/lb spot price and our long-term deck at US$49/lb.
Three key variables to which our target NAVPS is sensitive include the cobalt price, the
size of the conceptual resource modeled, and the issue price used in equity dilution.
The impacts of these variables are further explored in Figure 19.
Figure 19: Target NAVPS sensitivities to cobalt price, conceptual resource size, and issue price.
Source: Canaccord Genuity estimates
Potential catalysts and risks to our target price
Key potential share price catalysts looking forward include:
Iron Creek initial resource estimate late September.
Cobalt refinery recommissioning study results late September/early October.
Iron Creek metallurgical study results Q4/18.
Ongoing drill results from the Cobalt camp and Iron Creek.
Updated Iron Creek resource in early 2019.
Iron Creek preliminary economic assessment in 2019.
Initial resource estimate(s) from the Cobalt camp by year-end 2019.
$14.23 $21.35 $28.46 $35.58 $42.69
62.4 $0.41 $0.63 $0.84 $1.05 $1.25
52.0 $0.37 $0.57 $0.76 $0.95 $1.14
41.6 $0.32 $0.51 $0.67 $0.84 $1.01
31.2 $0.27 $0.44 $0.58 $0.72 $0.87
20.8 $0.23 $0.36 $0.48 $0.59 $0.71
$14.23 $21.35 $28.46 $35.58 $42.69
$0.53 $0.34 $0.54 $0.72 $0.90 $1.08
$0.44 $0.34 $0.53 $0.70 $0.87 $1.05
$0.35 $0.32 $0.51 $0.67 $0.84 $1.01
$0.26 $0.30 $0.48 $0.63 $0.79 $0.95
$0.18 $0.27 $0.43 $0.57 $0.71 $0.85
Cobalt (US$/lb)
Co
ncep
tual
(Mt
Co
)
Cobalt (US$/lb)
Issu
e P
rice
(C$/s
h)
We note that First Cobalt is trading at
an implied US$15/lb cobalt price as
compared to the current US$28/lb spot
price and our long-term deck at
US$49/lb.
First Cobalt Corp.Initiation of Coverage
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21
Aside from the usual risks associated with early stage exploration, we highlight the
following:
The price of cobalt has been particularly volatile as have the prices of cobalt
equities. Aside from the impact on valuation, this has an impact on the ability
of the company to tap equity markets to advance its projects. Although First
Cobalt had $18 million in working capital at mid-year 2018, we include an
equity raise of $25 million at $0.32/sh over the next few quarters to fund the
company’s next steps. Valuation is somewhat sensitive to the issue price
used, a significant source of risk in itself.
The historic Cobalt mining camp features a significant number of
environmental and safety legacy issues including open stopes, waste piles,
and abandoned buildings and mining equipment, which may impact First
Cobalt’s risk profile going forward.
We have used publicly available drill hole data to generate conceptual
resource estimates that are not NI 43-101 compliant. Compliant resource
estimates to follow may vary considerably from our estimates, with significant
impact on our valuations.
We have relied on replacement value as a basis for valuing the Cobalt
refinery. An upcoming recommissioning plan will detail First Cobalt’s options
and their financial implications.
We have used the Cobalt Blue Thackaringa pre-feasibility study as a template
for valuing First Cobalt’s Iron Creek project. After the results of technical
studies on Iron Creek are released, this comparison may not be valid with
significant potential impacts on our valuation.
Scenario analysis
We use scenario analysis to gauge the impact of various changes to our assumptions
in valuing First Cobalt (Figure 20). These scenarios include:
A. We have assumed a total of ~72kt of cobalt contained in our conceptual
resource estimates for Iron Creek and the Cobalt camp. Reducing that
resource by 50% lowers the target NAVPS by $0.20 or 29%.
B. Applying a spot cobalt price 25% lower than current (US$28/lb) reduces
target NAVPS by $0.17 or 25%.
C. Increasing initial capex at Iron Creek by 50% reduces target NAVPS by $0.05
or 7%.
D. Increasing operating costs at Iron Creek by 25% reduces target NAVPS by
$0.04 or 6%.
E. At present we use a 15% discount rate in valuing Iron Creek. With further
advancement we can expect de-risking. Reducing the discount rate to 12%
increases our target by 12% or $0.08.
F. We currently apply a 0.5x risking multiple to the US$100 million replacement
value estimate for the Cobalt refinery. Increasing this multiple to 1.0x
increases target NAVPS by $0.16 or 23%.
G. Increasing our 72kt conceptual resource base by 50% takes our target NAVPS
up by $0.17 or 25%.
H. Applying a spot cobalt price 50% higher than current (US$28/lb) increases
target NAVPS by $0.17 or 25%.
First Cobalt Corp.Initiation of Coverage
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Combining our negative scenarios (A-D) results in a bear case target NAVPS valuation
of $0.22 or 43% down from the current share price level. Conversely, combining our
positive scenarios (E-H) results in a bull case target NAVPS valuation of $1.26 or
224% up from the current share price level. This suggests a risk-reward balance
skewed well to the upside, supporting our SPECULATIVE BUY rating.
Figure 20: Scenario analysis
Source: Canaccord Genuity estimates
A Smaller resource (-50%) -$0.20
B Lower Co price (-25%) -$0.17
C Initial capex (+50%) -$0.05
D -$0.04
E $0.08
F Refinery at full replacement value $0.16
G Larger resource (+50%) $0.17
H $0.17Higher Co price (+25%)
Iron Creek de-risked (12% discount rate)
Operating costs (+25%)
$0.21
$0.67
$1.25
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
Bear A B C D Base E F G H Bull
$0.35
$0.21
$0.67
$1.25
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
Current
Price
1-Year
Target
NAVPS
Our scenario analysis suggests a risk-
reward balance skewed well to the
upside, supporting our SPECULATIVE
BUY rating.
First Cobalt Corp.Initiation of Coverage
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Corporate structure
First Cobalt currently has 339 million shares outstanding with $18 million in working
capital and no debt at 30 June 2018. The warrants and options outstanding at 30
June 2018 are summarized in Figure 21. We note the contribution to NAV of $1.9
million from in-the-money warrants and options and take into account a $25 million
equity raise at $0.35/sh to fund next steps.
Figure 21: Warrants and options outstanding at 30 June 2018
Source: FactSet, Company Reports, Canaccord Genuity estimates
Expiry Exercise Price Number ITM? Number ITM Value ITM
Warrants
31-May-21 $0.06 200,000 Y 200,000 $12,000
16-Jan-20 $1.50 13,017,682 N 0 $0
13,217,682 200,000 $324,999
Options
13-Dec-21 $0.35 350,000 N 0 $0
21-Dec-21 $0.38 300,000 N 0 $0
28-Feb-22 $0.66 1,975,000 N 0 $0
30-May-22 $0.69 1,565,000 N 0 $0
25-Jun-23 $1.43 1,683,482 N 0 $0
25-Jun-23 $0.49 2,273,333 N 0 $0
3-Sep-18 $0.29 3,281,250 Y 3,281,250 $964,688
10-Feb-22 $0.29 187,500 Y 187,500 $55,125
3-Sep-18 $0.36 393,750 N 0 $0
16-May-21 $0.36 562,500 N 0 $0
3-Sep-18 $0.42 1,200,000 N 0 $0
31-Jul-22 $0.42 225,000 N 0 $0
3-Sep-18 $0.51 2,250,000 N 0 $0
15-Jan-23 $0.51 810,000 N 0 $0
30-Jan-23 $0.52 450,000 N 0 $0
$0.06 17,506,815 3,468,750 $1,019,813
Fully Diluted 369,925,486
Basic + ITM 342,869,739 $1,344,812
Equity Required $25,000,000
Working Capital Applied 0%
Equity Raise Modeled $25,000,000
Raise at $0.32
Issued 79,365,079
Partially Funded 422,234,818
First Cobalt Corp.Initiation of Coverage
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Appendix A – Directors and key management
Trent Mell - President & CEO, Director
Mr. Mell, President, Chief Executive Officer and Director is a mining executive and
capital markets professional. He has been involved in over 200 transactions including
several financings totalling over $2.6 billion. He has experience working for both
global producers and junior miners as a Bay Street lawyer, and recently built a
securities team, which became the largest provider of flow-through capital in Canada.
Previously, he served as President & Head of Mining at Peartree Securities and as
President & CEO of Falco Resources.
Paul Matysek– Chairman
Mr. Matysek is a corporate entrepreneur, professional geochemist and geologist with
over 30 years of experience in the mining industry. He has made a career of
successfully building and selling companies. Mr. Matysek was recently Chairman of
Lithium X Energy, which was sold to Nextview New Energy Lion Hong Kong for $265
million. He was President and CEO of Goldrock Mines which sold to Fortuna Silver
Mines (FVI:TSX: $5.74 | Rated BUY by Dalton Baretto) for $178 million in July 2016.
He also served as CEO of Potash One, which was acquired by K+S Ag for $434 million
in a friendly takeover in 2011. Mr. Matysek was also the founder and CEO of Energy
Metals Corporation, a uranium company that grew from a market capitalization of $10
million to approximately $1.8 billion when sold in 2007.
Garrett Macdonald– Director
Mr. Macdonald is a mining engineer with over 22 years of experience in project
development and mine operations. He has managed large technical programs through
the concept, feasibility and into construction stages and has senior management and
board level experience with several public companies. He led JDS Energy & Mining’s
Eastern Canadian business operations as Vice President of Project Development. He
also held roles in mine operations and engineering with senior Canadian mining firms
Teck Corporation, Placer Dome and Suncor Energy, as well as the Vice President of
Operations for Rainy River Resources prior to $310M sale of Rainy River to New Gold
Inc. in 2013. He is currently the President & CEO of Tower Resources. He holds a
Master of Business Administration degree from Western University’s Ivey Business
School and a Bachelor of Engineering (Mining) from Laurentian University.
John Pollesel – Director
Mr. Pollesel has 26 years’ experience in the mining industry and is currently Senior
Vice President, Mining at Finning Canada. Previously, Mr. Pollesel has served as CEO
and Director of Base Metals Operations for Vale SA’s North Atlantic Operations, as
well as VP and General Manager for Vale’s Ontario Operations. Previously, Mr. Pollesel
served as the CFO for Compania Minera Antamina in Peru, a large copper/zinc mining
and milling operation.
Jeff Swinoga– Director
Mr. Swinoga is a Senior Executive with over 24 years’ experience in the mining and
public finance industries. Previously, he served as CEO of First Mining Gold, and CFO
of Torex Gold. His experience also includes roles as VP, Finance and CFO at Golden
Star Resources, North American Palladium, and Hudbay Minerals. Mr. Swinoga served
as Director, Treasury Finance of Barrick Gold Corp. for seven years.
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Kevin Ma - CFO
Mr. Ma is a senior financial professional specializing in corporate financing, public
company reporting and regulatory compliance in Canada and the United States. He
also specializes in strategic planning, financial management, and capital markets.
Kevin previously served as CFO for Gatekeeper Systems Inc., where he raised
significant amount of growth capital, and as Director of Finance for Alexco Resource
Corp.
Dr. Frank Santaguida – Vice President, Exploration
Dr. Santaguida is a geoscientist with over 25 years of experience working around the
world in base and precious metals exploration. His experience working in world-class
base metal mining camps includes Kidd Creek, Mt. Isa, the Central Laplan Greenstone
Belt and, the African Copperbelt. Previously, Dr. Santaguida worked for First Quantum
Minerals Ltd. as Principal Geologist, where he was responsible for cobalt, copper,
nickel and PGE properties.
Peter Campbell – Vice President, Business Development
Mr. Campbell is a Professional Engineer with 35 years of experience in mining
operations, mineral exploration and capital markets. His experience includes senior
engineering roles and Exploration Manager at Falconbridge (now Glencore) where he
was responsible for global exploration activities as well as prospect valuation and risk
management. Peter previously served as the Chairman of Jennings Capital, an
independent Canadian broker-dealer. During his career as an analyst, he was first to
initiate coverage on Probe Mines, Integra Gold and Trelawney Mines.
Jason Rickard – Exploration Manager, Greater Cobalt Project
Mr. Rickard is a Geoscientist with more than 15 years’ experience working throughout
Canada. Previously, as Senior Geologist for Goldcorp Inc., Mr. Rickard managed the
Borden drill program, as well as planning and leading the regional exploration
program. He also served as Senior Geologist for Vale Exploration Canada where he
was heavily involved in exploration management as well as permitting and community
consultation.
Heather Smiles – Investor Relations
Ms. Smiles is a Certified Professional in Investor Relations with more than six years
experience in the mining sector and over a decade in communications. Previously, she
was with Investor Relations for Golden Star Resources, a gold producing company with
operations in West Africa. Heather also worked at North American Palladium Ltd.
First Cobalt Corp.Initiation of Coverage
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Appendix B – The cobalt market
The following excerpts have been pulled from Cobalt: Out of the shadows and into the
spotlight (25 May 2017), Battery Materials Update (26 June 2017), and Cobalt -
Tangled up in blue (15 March 2018) written primarily by Reg Spencer and Larry Hill,
our research colleagues based in our Australian offices.
What is cobalt?
Cobalt (“Co”) is a hard, lustrous metal that possesses many of the same physical
attributes (melting point, density, extraction methods) as nickel. However, it is cobalt’s
high energy density, low thermal conductivity, ability to alloy, and ferromagnetism that
sees it used in diverse commercial, industrial, and military applications. On a global
basis, the leading use of cobalt is in rechargeable battery electrodes (within the
cathode of certain Li-batteries), with other primary uses including use in high
temperature, corrosion and wear resistant alloys (e.g., super alloys used in gas turbine
engines, aerospace), ceramics, catalysts and magnets. Unlike other Li-battery (Li-B)
input materials such as lithium (CGe ~42% 2017 global lithium market share) and
graphite (CGe ~9% 2017 global graphite market share), feedstock to produce cobalt
battery chemicals is by far the largest use of cobalt products, with a market share of
~50% in 2017 and growing (Figure 22).
Global supply – DRC dominates supply
Cobalt is rarely found as a primary metal in nature, with ~97% of global mined
production being recovered as a by-product of copper and nickel operations.
Production methods typically include mining and processing ore into concentrate or a
semi-refined product. These materials are then further refined into various forms
including cobalt metal products and specialty chemicals and compounds.7
Figure 22: CGe of cobalt demand 2018 - 2025
Source: Company Reports, Canaccord Genuity estimates
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Figure 23: Cobalt supply is constrained geographically (left) with the Democratic Republic of Congo dominating, and by producer (right) with the
majors dominating.
Source: Company Reports, USGS, Darton Consulting, Canaccord Genuity estimates
The USGS estimates (2016) global cobalt reserves at 7.0 Mt, with the Democratic
Republic of Congo (DRC) hosting a clear majority of known reserves at 49% of the
global total. The DRC is the world’s largest producer of mined cobalt at over 56% of
global output in 2016, followed by other major copper/nickel producing nations such
as Australia, Canada, and the Philippines. In addition to geographic constraints (Figure
23), cobalt supply is also constrained by producer, dominated by several majors.
Global cobalt supply (incorporating mined production and refined cobalt products) has
increased by a 6% CAGR since 2009, with estimated global mine supply in 2016 of
106kt, excluding difficult-to-estimate supply from artisanal/informal sources in the
DRC, which could constitute ~10-15% of the global supply.
A precarious balance
We expect overall annual refined cobalt demand to grow at ~9% CAGR to 213kt by
2025 as per Figure 22. This reflects our view of the key growth segment of Li-Bs for
EV/Storage applications based on overall penetration of 14% of global passenger
vehicle sales by 2025 (Figure 24).
Aside from considering the impacts of various incentive programs, one must also
predict the pace of the transition from high cobalt battery cathode chemistries like
LCO and NMC 111 to lower cobalt cathode chemistries like NMC 662 and NMC 811
(Figure 25). In our view, extensive quality and safety testing will slow acceptance of
the latter chemistries, which will then allow them to dominate new vehicle sales.
With an estimated 97% of current mined cobalt supply derived as a by-product of
nickel and copper production, the unhealthy reliance on DRC operations is unlikely to
dissipate in the near term. In fact, we believe that the dependence on the DRC is likely
to increase going forward as outlined in Figure 26, exacerbated by a very thin non-DRC
pipeline of projects.
Putting it all together (Figure 27), we expect that the market will remain tight until
2020. Even then, small supply excesses could easily be vulnerable to supply
disruptions due to political upheaval or even strife within the DRC. We expect that the
cobalt price will remain elevated, further motivating battery precursor manufactures to
thrift within NMC cathode formulations. This is anticipated to have the effect of
bringing the market into balance before unspecified new supply is required to avoid
deficits of >7%. Our price deck features a long-term (+2025) forecast of US$49/lb.
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Figure 24: CGe forecast of EV sales penetration 2017 - 2025.
Source: Company Reports, Canaccord Genuity estimates
Figure 25: CGe of cobalt distribution in cathodes
Source: Company Reports, Canaccord Genuity estimates
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Figure 26: CG mined cobalt supply forecasts dominated by the DRC
Source: Company Reports, Canaccord Genuity estimates
Figure 27: CGe of cobalt market balance 2018-2025
Source: Company Reports, Canaccord Genuity estimates
Key influences on our near-term supply projections include the ramp-up of large
projects such as the whole of ore leach project at Kamoto (toward 31kt) along with the
nearby Sicomines operation (towards 12kt). We also expect consolidation in refined
cobalt operations will reduce the impact of process loss; however, this could be offset
by a lack of capacity to provide adequate supply of refined chemical products.
Overall demand is expected to continue to grow at 8% CAGR to 2025 with industrial
applications such as super alloys assumed to only grow at 0.5% p.a. as end users are
expected to reduce cobalt content in with chromium alloys. Within the key EV and
storage battery segment, demand is expected to equate to a CAGR of 26% until 2025.
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Appendix C – Cobalt, Ontario
History
Cobalt is located ~500km north of Toronto, in northeastern Ontario and was named
during the construction of the Temiskaming and Northern Ontario Railway for one of
the elements found in the arsenide minerals within the veins found at surface. In
1884 Sir William Logan discovered a vein bearing cobalt at what would become the
Agaunico mine, 1km south of the town of Haileybury. The first mine in the Cobalt camp
commenced operations in 1904 and produced mainly silver, almost continuously until
1989. Between 1909 and 1989 there were approximately 140 silver-cobalt properties
in the Cobalt Embayment. Official production during these times, although possibly
under-reported, was 553,168,278 oz Ag, 24,685,219 lb Co, 3,624,546 lb Ni, and
2,625,714 lb Cu.
The camp is broken into two main mining areas, Cobalt and Silver Center. The Cobalt
mining camp is located to the north of Silver Center and featured the Silverfield Mine,
the Kerr Lake deposit (Kerr, Hargrave and Consil mines), the Lawson Mine, and the
Ophir mine.
The Silverfield Mine operated from 1903 until it was eventually shut down by
Teck in 1983. Although cobalt production is uncertain, grades reported vary
from 0.25-1%.
The Kerr Lake deposit was discovered in 1904, commercial production began
in 1905 and the mine operated intermittently until 1964. A total of eight
shafts were sunk on the Kerr Lake claims, along with one adit that was driven
south from the shoreline of Kerr Lake. These underground workings were
connected to Hargrave, Conisil, and Lawson Mines.
The Lawson deposit was discovered in 1905 and production at the Lawson
Mine commenced in 1909. From 1922 to 1944 the Lawson Mine was
operated pursuant to several leases. The mine re-opened in 1953 and
remained in operation until 1960 by Silver Miller Mines Ltd. No record of
silver production came during this period, as the ore was mixed with other
Silver Miller ores from surrounding mines.
In 1977 St. Joseph Exploration constructed the Canadaka Mill, which was
designed to process up to 500 tons per day; however, it was estimated to
only have processed 350 tons per day. The mill was closed in 1980 when the
company’s mines ceased operations. Sulpetro Minerals Ltd. bought the mill in
1983 and modified it to process tailings being mined at the Chambers-
Ferland tailings containment area. Milling rates averaged 450 to 500 short
tons per day. The mill was later sold to Trio during the acquisition of the
Property. In 2012 Trio completed diamond drill holes, one of which
intersected mineralization consisting of cobaltite +/- silver veinlets up to
several millimeters wide. The diamond drilling, however, was not conducted
to industry standards as outlined by CIM Best Practice Guidelines.
The Ophir Mine reported production of 2.2Kg silver in 1921 and 2,282
tonnes of cobalt mineralization extracted in 1954. Cobalt mineralization was
generally restricted to the vein proper, so the width of the stope was kept
small. Minor silver and bismuth were reported in the stoped material. Total
production is uncertain, and further complicated by the fact that the claim
was also accessed via shafts and underground development from the
adjacent Mayfair and Silver Banner mines.
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The Silver Center mining camp is in the southern part of the district and was host to
the Lang-Caswell, Keeley, Frontier, and Bellellen mines.
Lang-Caswell is the furthest north of the afore mentioned mines and reported
minor production of 46.8kg Ag and 2,237kg Co in 1936.
Further south in the Keeley-Frontier area, silver mineralization was first
discovered in 1907 and led to the development of the Keeley mine. The
claims where the silver was discovered traded hands several times. The
“Farmers Bank” owned the claims briefly, but were never owners of the mine.
Liquidators gained possession of the Keeley mine after the Farmers Bank
failed. Keeley Mine Limited became the operators of the property and kept it
in good standing. In 1913 The Association of Gold Mines of Western Australia
acquired the option on the property and in 1919 the property and majority of
the stock in Keeley Mine Limited was transferred to Associated Gold. In 1933
Keeley Mines Ltd. and the property were acquired by Anglo-Huronian.
Along with the Keeley mine, the other key mine in the area is the Frontier
mine. It was in the south half of the Haileybury Silver Mining Company’s claim
and the claim was purchased by Henry Newburger in 1912. Newburger
formed the Haileybury Frontier Company and sank two shafts into the
property. After Newburger’s death in 1914 his brother bought into the
property. The mine remained closed until 1920 when Joseph Newburger had
the mine dewatered and examined by several silver-mining companies.
Horace Strong purchased the property in 1920 and secured a one-year lease
option to purchase the Frontier Mine. Strong discovered high-grade silver on
the south half of the claim in 1921 immediately north of the Keeley claim.
In 1921 the Mining Corporation of Canada amalgamated several companies
and claims, including the Haileybury Silver Mines and Frontier Mine
properties, the former Compton, Little Keeley, and the Keeley Extension
properties into Frontier Silver Mines Limited. The intermittent production at
Keeley Mine, operated by the Keeley Silver Mines Ltd., from 1908 to 1942
totalled 12,154,353 oz Ag and 1,617,684 lbs Co. The Frontier mine was
operated by the Mining Corporation of Canada from 1921 to 1943 and
produced 6,695,415 oz Ag, 1,683,769 lb Co and 12,158 lb Ni.
In 1961 Keeley-Frontier Mines Limited purchased and consolidated the 13
patented claims that now form the core Keeley-Frontier patent claim group. It
was subsequently re-organized as Canadian Keeley Mines Ltd. in 1964 and
then became Keeley Frontier Resources Inc. in 1980. Work on the property
from 1961-1962 included dewatering and rehabilitating the mines. The two
mines were connected at three points. The Woods vein had been mined out
by this time and the 1963-1965 Keeley-Frontier mine produced 347,645 oz
Ag & 9,003 lb Co & 14,358 lb Ni, which came primarily from the Keeley Mine
and reprocessed tailings. Agnico Eagle optioned the property circa 1969 to
1972 and completed an underground drilling program.
The property changed hands from Keeley Frontier Resources to M&M
Porcupine Gold Mines in 1984, and to 155433 Canada Limited, a subsidiary
of LaChib Development Corporation, in 1987.
In 1994 Transway Capital Inc. acquired the property and sold 10,000 tons of
muck to Cobatec Ltd.
1695255 Ontario Inc. acquired the property in 2007 and then changed its
name to Silver Centre Resources. They subsequently changed their name to
Canadian Silver Hunter Inc. in 2010 and completed a six-hole diamond
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drilling program. In 2012 they completed bedrock stripping, channel
sampling, geological mapping, and mechanical stripping.
The last mine in the Silver Center camp, the Bellellen mine, operated
intermittently from 1910 to 1943 and produced 1,182,772 oz Ag, 28,481 lb
Co and 13,404 lb Ni.
Geologic Setting
The Cobalt, Ontario district is host to the two Cobalt-Gowganda silver-cobalt mining
camps. They are found within the Cobalt Embayment and are hosts to silver-cobalt
“vein style” mineralization. Economic grade deposits in the Cobalt and Gowganda
mining camps are hosted within or adjacent to diabase sills, located proximally to the
Huronian-Archean unconformity. Silver-cobalt vein deposits have been discovered
along the north and northeastern margins of the Cobalt Embayment where the
Proterozoic vein systems typically occur in proximity to the pre-Huronian faults that
were reactivated during emplacement of the Nipissing Diabase.
The Cobalt Embayment represents the northeastern part of the Southern geological
province, close to the boundary of the Superior and Grenville provinces and is a
continental rift system that is a large, 120km across, circular domain of flat-lying,
gently undulating succession of dominantly siliciclastic sedimentary rocks belonging to
the Huronian Supergroup. The embayment is bounded in most directions by Archean
rocks, except to the south, where it is truncated by the Grenville Front tectonic zone.
The Archean basement is exposed as isolated inliers in the north and northeast
margin of the Cobalt Embayment. The basement consists of metavolcanic rocks and
associated interflow sedimentary rocks of the Abitibi Subprovince, one of the world’s
largest, best preserved, and most economically productive greenstone belts. The
Cobalt Project properties cover the main eastern Cobalt Embayment portion of the
Nipissing sill complex and most of the exposed Archean-Proterozoic unconformity.
The Cobalt Group is relatively undeformed Huronian Supergroup rocks. Within the
Cobalt Group, the Coleman member, a basal conglomerate above the steeply dipping
and folded Archean volcanic rocks, is the most important member as it is the
sediment host to the silver-cobalt vein deposits. It is composed of conglomerate,
greywacke, quartzite and laminated siltstone, and has a maximum thickness of 180m.
The Nipissing Diabase is interpreted as a thick undulating sheet intruding the Cobalt
Group sediments at or immediately above the Archean unconformity. Intrusions that
are closer in proximity to the steeply dipping Archean basement volcanic rocks, is
where more vigorous fracture generation occurs relative to the flat-lying Huronian
sequence. The Nipissing diabase and regional high heat flow/geothermal gradient
served as a heat source to mobilize metals from the Huronian and Archean rocks and
advect hypersaline formation brines. Both mineralizing solutions and magmas may
have utilized the periodically reactivated, deep regional fault systems to access the
upper levels of the crust. Deposition occurs where oxidized basin fluids reacted with
localized reductants and possibly structural traps where boiling may augment
deposition.
Mineralization occurs as Ag-Co-Ni-Bi-arsenides, predominantly hosted in veins and
stockworks known as the Five-Element Vein Type deposits. The silver dominated
veins, with subordinate cobalt, nickel, copper and zinc content, are mostly located in
the northern part of the embayment. The cobalt dominant veins, however, are found
mainly in the eastern margin of the embayment in the Cobalt and Silver Center mining
camps. Deposits in the Cobalt mining camp are extremely rich, polymetallic, small and
narrow, sharp-walled and fracture-infilled veins. Although the ore is localized, the vein
systems themselves can be quite extensive, in some instances they completely
transect the Nipissing sills, and often continue for significant distances into
surrounding country rocks. Their extent can be as much as 1000m horizontally and
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120m vertically. Silver-cobalt ore is found almost exclusively within the steeply dipping
veins but has a restricted vertical extent, and in flat-laying veins it is only present at
intersections with steep veins. The ore veins are characterized by a complex ore
mineralogy composed of arsenides and sulpharsenides of Co, Ni, Fe together with
native silver and bismuth, with minor antimonides, and sulphides of Pb, Sn, and Cu.
Silver grades are highest in the Ni-bearing assemblages, and intersections of flat and
ore vein are commonly preferred sites for ore deposition.
The Silver Centre area is different than the Cobalt mining camp. Production veins are
predominantly found in the Archean metavolcanics rocks adjacent to the first 60m
upper contact of the diabase sill. Ore shoots range in length up to 30m and width from
15cm to 1m. Most of the veins are localized in steeply dipping fault zones.
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Appendix D – The Idaho Cobalt Belt, Idaho
History
First Cobalt’s Iron Creek property is in the Idaho Cobalt Belt approximately 29km
southwest from Salmon, Idaho. The Property has had substantial historical work
completed including approximately 1,500 feet of underground workings, several
copper and cobalt targets identified by three different companies, and a non-NI 43-
101 compliant historic resource. The name of the property originates from 1946 when
it drew attention for iron prospecting. In 1967, during the construction of a logging
road, 14 claims were staked on copper stains in the No Name Zone.
In 1970 the claims were leased to Sachem Prospects Corporation. Sachem completed
an exploration program that included staking, geologic mapping, aerial photography,
induced polarization, self potential, magnetic and geochemical surveys over the No
Name Zone. They also drilled eleven diamond drill holes and drove three drifts. They
optioned the property in 1972 to Costal Mining Co. and Idaho Mining Co, wholly
owned subsidiaries of Hanna Mining (Hanna), Hanna then went on to acquire the
property a year later through a lawsuit.
By 1967, Hanna had spent a total of $536,000 on exploration activities on the
property including a PEA, reconnaissance of four additional zones, and diamond
drilled a total of 13,250 feet, mainly on the No Name Zone. In 1979 Noranda
Exploration Inc. earned a 75% interest in the property when it optioned the nearby
Blackbird Mine property from Hanna. Noranda conducted $132,000 of exploration
work by 1983. In 1985 Inspiration and Noranda released the property and Hanna
rehabilitated the workings and drove a new portal into the 6500 Level adit around the
caved original portal. The Property also hosts a historical estimate of 4.57 million tons
grading 1.84% copper. This historical estimate is from the Noranda Report that notes
that, in the west zone of the No Name Zone, there is the presence of 4.57 million tons
grading 1.84% copper "possible reserves" or similar.
The property was acquired from Hanna in 1988 by Centurion Gold whose objective
was to find additional gold mineralization. Through their work, Centurion found copper-
cobalt mineralized intersections of up to 25ft grading 5.54% copper and 0.19%
cobalt, three additional copper-cobalt targets, and a location within a belt of rocks that
contains similar copper-cobalt mines and showings.
The property was then leased to Cominco American Resources Inc. in 1991. Cominco
was looking to upgrade and enlarge the area of copper-cobalt mineralization, however,
after two years of exploration work geologists were not able to identify good potential
for substantially increasing reserves and grade of the Iron Creek deposit.
In 2016 Scientific Metals (STM) entered into a letter agreement with a private
company providing STM with exclusive rights to enter into a lease agreement with an
option to acquire a 100% interest in the Iron Creek Cobalt Property. STM changed
their name to US Cobalt in May 2017. Since 2016, US Cobalt has completed
approximately 35,000ft. of core drilling from surface, rehabilitated two of the three
adits, and commenced underground core drilling. US Cobalt announced a friendly
acquisition of the company by First Cobalt in an all share transaction on March 14,
2018.
Geologic Setting
The Iron Creek Project lies within the Blackbird copper-cobalt district, the most prolific
trend of cobalt mineralization in the Idaho Cobalt Belt. The Idaho Cobalt Belt is similar
in formation to the world class Copper Belt located between Zambia and the
Democratic Republic of Congo. Large tabular mineralized lenses lay within fine
grained sedimentary and metasedimentary strataform horizons. This style of
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mineralization differs greatly from the Ag-Co “vein style” mineralization found in
Northern Ontario and may be more amenable to larger scale commercial production.
The rock that hosts the Iron Creek mineralization is part of the upper Middle
Proterozoic Yellowjacket Formation, which is the oldest unit within a 50,000-ft thick
sedimentary section. The mineralization occurs within the Middle Member of the
Formation and is associated with tuffaceous and exhalative deposits in a sequence of
argillite, phyllite and lesser quartzite. Bedding and foliation are prominent, and both
generally strike northwest and dip 60º to 80 º northeast. The rocks at the Iron Creek
Property have undergone intense penetrative deformation. Small recumbent, isoclinal
drag folds are common among the strata and compose fields of unique orientation
and drag sense that can imply only the presences of much larger isoclinal folds.
The main mineralized zone on the Property is the No Name Zone, typified by steeply
dipping, tabular zone containing a “swarm” of en-echelon layers and lenses composed
of copper, iron, and cobalt sulphides, and magnetite. This Zone and it’s massive-
sulphide components are concordant primarily with the flanking metasedimentary
rocks, implying a syngenetic origin where cross cutting veins have also been
identified.
Dominant minerals in the No Name Zone include pyrite (FeS2), magnetite (Fe3O4),
chalcopyrite (CuFeS2), native copper (Cu) and pyrrhotite (Fe1-xS). Oxidation and
weathering have formed gossans of quartz, jarosite, goethite and hematite with
malachite staining and some remnant sygenetic mineralization. Cobalt occurs almost
entirely within pyrite. Two varieties of pyrite have been identified on the property, a
cobalt-rich variety containing 2.5%-4.5% Co and a cobalt-free pyrite. There appear to
be three stages of pyrite deposition, chalcopyrite probably is coincident with the last
pyrite stage while marcasite and the rare cobaltite are later than the chalcopyrite.
There are three other Zones on the property, Jackass, Footwall No Name, and
Sulphate. The Jackass Zone is located 2000 ft. southeast of the No Name Zone.
Outcrop mapping indicates the presence of zoning like the No Name Zone, where
magnetite and pyrite are confined to the footwall of the zone. Pyrite increases, and
magnetite decreases in abundance in the stratigraphic sequence. Unlike the No Name
Zone, there is an upper magnetite zone in the hanging wall which outcrops along the
road. The Footwall No Name Zone is a copper-cobalt zone that occurs stratigraphically
below the No Name Zone possibly along strike with the Jackass Zone. It’s 2000-foot
strike length is at least partly covered by Tertiary Challis Volcanics. The Sulphate Zone
is another stratabound, magnetite-rich mineralized area that exhibits conformable,
narrow zones of magnetite and pyrite, resembling the No Name and Jackass Zones.
Malachite stains chloritic rocks in the area. No distinct mineralogical zoning is evident
within the Sulphate Zone.
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Appendix: Important DisclosuresAnalyst CertificationEach authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) therecommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent andobjective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoringanalyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related to thespecific recommendations or views expressed by the authoring analyst in the research.Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated persons ofCanaccord Genuity LLC and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communicationswith a subject company, public appearances and trading securities held by a research analyst account.Sector CoverageIndividuals identified as “Sector Coverage” cover a subject company’s industry in the identified jurisdiction, but are not authoringanalysts of the report.
Investment RecommendationDate and time of first dissemination: September 18, 2018, 06:49 ETDate and time of production: September 18, 2018, 06:49 ETTarget Price / Valuation Methodology:First Cobalt Corp. - FCCWe value First Cobalt’s assets on a spot cobalt basis, currently US$28/lb. Our valuation yields a project NAV of $251 million or $0.59/sh.We add net corporate adjustments of $34 million or $0.08/sh including $25 million raised at $0.32/sh to fund First Cobalt into 2020with 422 million shares outstanding. We apply a 1.0x multiple to the corporate NAVPS of $0.67 to yield our target NAVPS of $0.67, whichsupports a rounded target price of C$0.70.Risks to achieving Target Price / Valuation:First Cobalt Corp. - FCCAside from the usual risks associated with exploration and development, risks centre on cobalt pricing, the technical assumptions wehave made in our project valuations in advance of the company’s delivery of technical reports, and potential risks from environmentaland safety legacies in the Cobalt mining camp in Ontario.
Distribution of Ratings:Global Stock Ratings (as of 09/18/18)Rating Coverage Universe IB Clients
# % %Buy 558 63.19% 44.98%Hold 212 24.01% 29.72%Sell 11 1.25% 27.27%Speculative Buy 102 11.55% 65.69%
883* 100.0%*Total includes stocks that are Under Review
Canaccord Genuity Ratings SystemBUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months.
HOLD: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months.
SELL: The stock is expected to generate negative risk-adjusted returns during the next 12 months.
NOT RATED: Canaccord Genuity does not provide research coverage of the relevant issuer.“Risk-adjusted return” refers to the expected return in relation to the amount of risk associated with the designated investment or therelevant issuer.Risk QualifierSPECULATIVE: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in thestock may result in material loss.
12-Month Recommendation History (as of date same as the Global Stock Ratings table)
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A list of all the recommendations on any issuer under coverage that was disseminated during the preceding 12-month periodmay be obtained at the following website (provided as a hyperlink if this report is being read electronically) http://disclosures-mar.canaccordgenuity.com/EN/Pages/default.aspx
Required Company-Specific Disclosures (as of date of this publication)First Cobalt Corp. currently is, or in the past 12 months was, a client of Canaccord Genuity or its affiliated companies. During this period,Canaccord Genuity or its affiliated companies provided investment banking services to First Cobalt Corp..In the past 12 months, Canaccord Genuity or its affiliated companies have received compensation for Investment Banking services fromFirst Cobalt Corp. .In the past 12 months, Canaccord Genuity or any of its affiliated companies have been lead manager, co-lead manager or co-managerof a public offering of securities of First Cobalt Corp. or any publicly disclosed offer of securities of First Cobalt Corp. or in any relatedderivatives.Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Investment Bankingservices from First Cobalt Corp. in the next three months.The primary analyst, a member of primary analyst's household, or any individual directly involved in the preparation of this research, hasa long position in the shares or derivatives, or has any other financial interest in First Cobalt Corp., the value of which increases as thevalue of the underlying equity increases.
First Cobalt Corp. Rating History as of 09/17/2018C$1.60C$1.40C$1.20C$1.00C$0.80C$0.60C$0.40C$0.20C$0.00
Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18
Closing Price Price Target
Buy (B); Speculative Buy (SB); Sell (S); Hold (H); Suspended (SU); Under Review (UR); Restricted (RE); Not Rated (NR)
Past performanceIn line with Article 44(4)(b), MiFID II Delegated Regulation, we disclose price performance for the preceding five years or the whole periodfor which the financial instrument has been offered or investment service provided where less than five years. Please note price historyrefers to actual past performance, and that past performance is not a reliable indicator of future price and/or performance.
Online DisclosuresUp-to-date disclosures may be obtained at the following website (provided as a hyperlink if this report is being read electronically)http://disclosures.canaccordgenuity.com/EN/Pages/default.aspx; or by sending a request to Canaccord Genuity Corp. Research, Attn:Disclosures, P.O. Box 10337 Pacific Centre, 2200-609 Granville Street, Vancouver, BC, Canada V7Y 1H2; or by sending a requestby email to [email protected]. The reader may also obtain a copy of Canaccord Genuity’s policies and proceduresregarding the dissemination of research by following the steps outlined above.General DisclaimersSee “Required Company-Specific Disclosures” above for any of the following disclosures required as to companies referred to in thisreport: manager or co-manager roles; 1% or other ownership; compensation for certain services; types of client relationships; researchanalyst conflicts; managed/co-managed public offerings in prior periods; directorships; market making in equity securities and relatedderivatives. For reports identified above as compendium reports, the foregoing required company-specific disclosures can be found ina hyperlink located in the section labeled, “Compendium Reports.” “Canaccord Genuity” is the business name used by certain whollyowned subsidiaries of Canaccord Genuity Group Inc., including Canaccord Genuity LLC, Canaccord Genuity Limited, Canaccord GenuityCorp., and Canaccord Genuity (Australia) Limited, an affiliated company that is 50%-owned by Canaccord Genuity Group Inc.The authoring analysts who are responsible for the preparation of this research are employed by Canaccord Genuity Corp. a Canadianbroker-dealer with principal offices located in Vancouver, Calgary, Toronto, Montreal, or Canaccord Genuity LLC, a US broker-dealerwith principal offices located in New York, Boston, San Francisco and Houston, or Canaccord Genuity Limited., a UK broker-dealer withprincipal offices located in London (UK) and Dublin (Ireland), or Canaccord Genuity (Australia) Limited, an Australian broker-dealer withprincipal offices located in Sydney and Melbourne.The authoring analysts who are responsible for the preparation of this research have received (or will receive) compensation based upon(among other factors) the Investment Banking revenues and general profits of Canaccord Genuity. However, such authoring analysts
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have not received, and will not receive, compensation that is directly based upon or linked to one or more specific Investment Bankingactivities, or to recommendations contained in the research.Some regulators require that a firm must establish, implement and make available a policy for managing conflicts of interest arising asa result of publication or distribution of research. This research has been prepared in accordance with Canaccord Genuity’s policy onmanaging conflicts of interest, and information barriers or firewalls have been used where appropriate. Canaccord Genuity’s policy isavailable upon request.The information contained in this research has been compiled by Canaccord Genuity from sources believed to be reliable, but (with theexception of the information about Canaccord Genuity) no representation or warranty, express or implied, is made by Canaccord Genuity,its affiliated companies or any other person as to its fairness, accuracy, completeness or correctness. Canaccord Genuity has notindependently verified the facts, assumptions, and estimates contained herein. All estimates, opinions and other information containedin this research constitute Canaccord Genuity’s judgement as of the date of this research, are subject to change without notice and areprovided in good faith but without legal responsibility or liability.From time to time, Canaccord Genuity salespeople, traders, and other professionals provide oral or written market commentary ortrading strategies to our clients and our principal trading desk that reflect opinions that are contrary to the opinions expressed in thisresearch. Canaccord Genuity’s affiliates, principal trading desk, and investing businesses also from time to time make investmentdecisions that are inconsistent with the recommendations or views expressed in this research.This research is provided for information purposes only and does not constitute an offer or solicitation to buy or sell any designatedinvestments discussed herein in any jurisdiction where such offer or solicitation would be prohibited. As a result, the designatedinvestments discussed in this research may not be eligible for sale in some jurisdictions. This research is not, and under nocircumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or companythat is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. This material is prepared forgeneral circulation to clients and does not have regard to the investment objectives, financial situation or particular needs of anyparticular person. Investors should obtain advice based on their own individual circumstances before making an investment decision.To the fullest extent permitted by law, none of Canaccord Genuity, its affiliated companies or any other person accepts any liabilitywhatsoever for any direct or consequential loss arising from or relating to any use of the information contained in this research.Research Distribution PolicyCanaccord Genuity research is posted on the Canaccord Genuity Research Portal and will be available simultaneously for access by allof Canaccord Genuity’s customers who are entitled to receive the firm's research. In addition research may be distributed by the firm’ssales and trading personnel via email, instant message or other electronic means. Customers entitled to receive research may alsoreceive it via third party vendors. Until such time as research is made available to Canaccord Genuity’s customers as described above,Authoring Analysts will not discuss the contents of their research with Sales and Trading or Investment Banking employees without priorcompliance consent.For further information about the proprietary model(s) associated with the covered issuer(s) in this research report, clients shouldcontact their local sales representative.Short-Term Trade IdeasResearch Analysts may, from time to time, discuss “short-term trade ideas” in research reports. A short-term trade idea offers a near-term view on how a security may trade, based on market and trading events or catalysts, and the resulting trading opportunity that maybe available. Any such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks. Ashort-term trade idea may differ from the price targets and recommendations in our published research reports that reflect the researchanalyst's views of the longer-term (i.e. one-year or greater) prospects of the subject company, as a result of the differing time horizons,methodologies and/or other factors. It is possible, for example, that a subject company's common equity that is considered a long-term ‘Hold' or 'Sell' might present a short-term buying opportunity as a result of temporary selling pressure in the market or for otherreasons described in the research report; conversely, a subject company's stock rated a long-term 'Buy' or “Speculative Buy’ could beconsidered susceptible to a downward price correction, or other factors may exist that lead the research analyst to suggest a sale overthe short-term. Short-term trade ideas are not ratings, nor are they part of any ratings system, and the firm does not intend, and does notundertake any obligation, to maintain or update short-term trade ideas. Short-term trade ideas are not suitable for all investors and arenot tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regardingany securities or strategies discussed herein. Please contact your salesperson for more information regarding Canaccord Genuity’sresearch.For Canadian Residents:This research has been approved by Canaccord Genuity Corp., which accepts sole responsibility for this research and its disseminationin Canada. Canaccord Genuity Corp. is registered and regulated by the Investment Industry Regulatory Organization of Canada (IIROC)and is a Member of the Canadian Investor Protection Fund. Canadian clients wishing to effect transactions in any designated investmentdiscussed should do so through a qualified salesperson of Canaccord Genuity Corp. in their particular province or territory.For United States Persons:Canaccord Genuity LLC, a US registered broker-dealer, accepts responsibility for this research and its dissemination in the United States.This research is intended for distribution in the United States only to certain US institutional investors. US clients wishing to effecttransactions in any designated investment discussed should do so through a qualified salesperson of Canaccord Genuity LLC. Analysts
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employed outside the US, as specifically indicated elsewhere in this report, are not registered as research analysts with FINRA. Theseanalysts may not be associated persons of Canaccord Genuity LLC and therefore may not be subject to the FINRA Rule 2241 and NYSERule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analystaccount.For United Kingdom and European Residents:This research is distributed in the United Kingdom and elsewhere Europe, as third party research by Canaccord Genuity Limited,which is authorized and regulated by the Financial Conduct Authority. This research is for distribution only to persons who are EligibleCounterparties or Professional Clients only and is exempt from the general restrictions in section 21 of the Financial Services andMarkets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is beingdistributed in the United Kingdom only to persons of a kind described in Article 19(5) (Investment Professionals) and 49(2) (High NetWorth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005(as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. This material is not fordistribution in the United Kingdom or elsewhere in Europe to retail clients, as defined under the rules of the Financial Conduct Authority.For Jersey, Guernsey and Isle of Man Residents:This research is sent to you by Canaccord Genuity Wealth (International) Limited (CGWI) for information purposes and is not to beconstrued as a solicitation or an offer to purchase or sell investments or related financial instruments. This research has been producedby an affiliate of CGWI for circulation to its institutional clients and also CGWI. Its contents have been approved by CGWI and we areproviding it to you on the basis that we believe it to be of interest to you. This statement should be read in conjunction with your clientagreement, CGWI's current terms of business and the other disclosures and disclaimers contained within this research. If you are in anydoubt, you should consult your financial adviser.CGWI is licensed and regulated by the Guernsey Financial Services Commission, the Jersey Financial Services Commission and the Isleof Man Financial Supervision Commission. CGWI is registered in Guernsey and is a wholly owned subsidiary of Canaccord Genuity GroupInc.For Australian Residents:This research is distributed in Australia by Canaccord Genuity (Australia) Limited ABN 19 075 071 466 holder of AFS Licence No234666. To the extent that this research contains any advice, this is limited to general advice only. Recipients should take into accounttheir own personal circumstances before making an investment decision. Clients wishing to effect any transactions in any financialproducts discussed in the research should do so through a qualified representative of Canaccord Genuity (Australia) Limited. CanaccordGenuity Wealth Management is a division of Canaccord Genuity (Australia) Limited.For Hong Kong Residents:This research is distributed in Hong Kong by Canaccord Genuity (Hong Kong) Limited which is licensed by the Securities and FuturesCommission. This research is only intended for persons who fall within the definition of professional investor as defined in the Securitiesand Futures Ordinance. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. Recipients ofthis report can contact Canaccord Genuity (Hong Kong) Limited. (Contact Tel: +852 3919 2561) in respect of any matters arising from, orin connection with, this research.Additional information is available on request.Copyright © Canaccord Genuity Corp. 2018 – Member IIROC/Canadian Investor Protection Fund
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All rights reserved. All material presented in this document, unless specifically indicated otherwise, is under copyright to CanaccordGenuity Corp., Canaccord Genuity Limited, Canaccord Genuity LLC or Canaccord Genuity Group Inc. None of the material, nor itscontent, nor any copy of it, may be altered in any way, or transmitted to or distributed to any other party, without the prior express writtenpermission of the entities listed above.None of the material, nor its content, nor any copy of it, may be altered in any way, reproduced, or distributed to any other partyincluding by way of any form of social media, without the prior express written permission of the entities listed above.
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