Cobalt Blockchain tries new business model in DRC

Cobalt Blockchain (TSXV: COBC) is trying something new. The company wants to “ethically source” artisanally mined cobalt from the Democratic Republic of the Congo (DRC) and at the same time implement a blockchain-based technology that would track the metal as it moves through the supply chain.

In March the company acquired two copper-cobalt properties in the DRC via two joint-venture (JV) agreements with what it calls “local private partners.” It has a 70% interest in the Alpha Cobalt SAS JV, which consists of two contiguous concessions totalling 40.8 sq. km, 50 km east of Kolwezi; and an 80% interest in the Cobalt SAS JV, which consists of two more contiguous concessions totalling 7.7 sq. km, 50 km from Lubumbashi. The company has also applied for a cobalt-copper trading and export licence.

The company has also just signed a letter of intent to establish a JV with DLT Labs, creator of a supply chain and logistics management product called DL Asset Track. The two companies will work to develop a new blockchain-based platform for tracking base and precious metal supply chains. Cobalt Blockchain plans to pilot the product on its newly acquired properties.

High-grade cobalt-copper ore from an artisanal mine site outside Kolwezi, DRC. Artisanal and small-scale mines in the DRC account for more than 12% of global cobalt supply. Credit: Cobalt Blockchain.

“Blockchain is a buzzword,” Cobalt Blockchain president and chief operating officer Lance Hooper said during an interview with The Northern Miner in Toronto’s Hilton hotel, on the sidelines of the 2018 PDAC convention. “But think about the fundamental value of blockchain in this application. There are flaws with the existing system. This can take it a step further, make it a bit more bulletproof.”

Hooper has 10 years of experience in mining exploration, but for the past three years has run a private company sourcing minerals in the DRC. The company was called Belair African Metals, and it was acquired by Peat Resources, a former peat promoter, on March 13. Soon after, Peat changed its name to Cobalt Blockchain. Before the acquisition, shares of Peat traded at 3¢, and had been since 2012. However, as the acquisition approached, the stock price climbed, shooting as high as 40¢ on March 23, the day after the company announced its property joint ventures.

Because of Belair, Cobalt Blockchain has a licence to conduct business in the DRC and export tin, tantalum and tungsten. So far it has largely focused on tin. Over the next six months, Hooper hopes to add tantalum and tungsten to the mix, and eventually layer in cobalt, too.

“We want to demonstrate to the world that you can produce ethically sourced cobalt from artisanal mines in the Congo,” he said. “That’s a milestone we’d like to hit sooner rather than later.”

Artisanal workers extracting cobalt and copper ore. Credit: Cobalt Blockchain.

Hooper has worked with ITSCI over the past three years via Belair. ITSCI is a group that works with mineral supply chains in Burundi, the DRC, Rwanda and Uganda to carry out due diligence on mineral supplies in accordance with the standards of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. ITSCI audits mines for things like basic safety and child labour. It then orchestrates a bagging and tagging system, giving each sack of minerals a barcode. Details like the miner’s name and the weight of the sack go in a paper logbook. Traxys, which buys tin from Belair, requires ITSCI paperwork for visibility into the supply chain.

“With the growing demand for it, we said we can apply the same model to cobalt,” Hooper said.

According to Hooper, one flaw with the existing system is there are too many loopholes. Someone at an unqualified site could buy a barcode and sneak in material that wasn’t ethically sourced, for example.

He wants to close those loopholes using a blockchain ledger that streamlines the process while protecting it from tampering. He says traditional, centralized databases can be vulnerable to hackers — and especially administrators — who want to manipulate the data. Blockchain defends against this.

“We met with a consulting group in Cape Town that’s working with the government,” Hooper said. “The government’s problem is that a lot of minerals slide out of the country untaxed, and they like what we’re doing. It’s a way for them to essentially create an audit trail for all commodities originating out of the country.”

Hooper then wants to take that data and use it to attract companies at the other end of the supply chain. He points to technology companies like Apple who have been criticized by groups — for example, non-governmental organization Amnesty International — for having hidden supply chains, and would have a vested interest in showing they use conflict-free materials.   

Cobalt Blockchain and local mining cooperative management teams at an artisanal cobalt-copper mine site in Lualaba province, DRC. Credit: Cobalt Blockchain.

“The model is to flip it around and make them pay for this rich data,” Hooper said. “So in addition to selling cobalt, we’re selling data that’s essentially a certification that it’s clean material — it’s been ethically sourced. We’re trying to monetize good behaviour.”

He adds that he’d like to bring in a large industrial miner such as a gold producer, noting that some of them will adhere to high ethical and environmental standards, but get paid the same by smelters as those who don’t. He likens the concept to Bullfrog Power, a company that offsets its customer’s electricity use with green energy. Every time a Bullfrog customer uses electricity, Bullfrog puts electricity from a renewable source back into the customer’s power grid.

“I like the idea of paying a little bit of a premium so I can get clean energy,” he said.

The company intends to build a perimeter around its properties and organize local miners to make sure they’re legal and have proper uniforms, and basic safety equipment, like boots. It would also pay the miners a bit of a premium for taking part in its system.

“How do you get people to buy in?” Hooper asks. “You incentivize them to participate in your network or you impose regulations. So think of an African country imposing regulations and saying that every mine in the country has to be part of this platform, and if you don’t, you’re going to pay extra taxes.”

Cobalt Blockchain wants to release a resource estimate by year-end. Its shares are valued at 30¢ within a 52-week range of 27¢ to 40¢. The company has a $45-million market capitalization.

“With too many of these exploration-development projects you’re raising money and spending money and raising money, and that can happen for 10 to 15 years before you see anything back,” Hooper explained. “It’s a long-term process to put a mine in place. In the meantime, let’s make this a real business with cash flow and profitability, and not have to continue to go the market to fund exploration.”