First Cobalt secures five-year cobalt sulphate offtake contract

As First Cobalt (TSXV: FCC; US-OTC: FTSSF) readies for a restart of its Ontario refinery next year, the company has announced a five-year offtake agreement with London-based metals trader Stratton Metals for the sale of cobalt sulphate from the Temiskaming Shores hydrometallurgical facility.

The contract allows First Cobalt to sell up to 100% of the cobalt sulphate generated in a year to Stratton – the exact quantity would need to be determined by the company before the year start and includes a minimum. The sale prices would be based on the market prices at the time of the shipment. Stratton would also be paid a fee on the cobalt sulphate sales made under the agreement.

The Toronto-based company retains the flexibility to enter into offtake contracts with original equipment manufacturers (OEMs).

“Stratton Metals are among the most knowledgeable cobalt traders in the world, with a network of relationships in every major market,” Trent Mell, First Cobalt’s president and CEO, said in a news release. “This sales arrangement is a key milestone for the company as firming up commercial arrangements supports the financing process for the refinery expansion.”

Mell added that the start-up of the refinery is on track for October 2022.

The five-year term of the latest contract matches the five-year term of the supply agreements with Glencore (LSE: GLEN) and IXM (a subsidiary of China Molybdenum Company) that were announced in January and provide for 4,500 tonnes of contained cobalt a year. The cobalt hydroxide feed would be sourced from the two companies’ mines in the Democratic Republic of Congo.

First Cobalt is also in the process of negotiating a five-year project debt facility. The latest announcement is expected to allow the company to enter the cobalt sulphate market and qualify its product with cathode and battery cell manufacturers.

The cobalt company aims to market a premium cobalt brand, with one of the lowest greenhouse gas emissions in the industry. Once operational, the refinery would be the only refinery in North America producing cobalt for the electric vehicle market.

According to a May 2020 feasibility study, the facility could produce 5,000 tonnes of cobalt annually (25,000 tonnes of cobalt sulphate) at an initial capital investment of US$56 million.

The facility operated between 1996 and 2015, to produce cobalt, nickel and silver. First Cobalt is expanding and modifying the prior flowsheet for cobalt hydroxide refining.

Matthew O’Keefe of Cantor Fitzgerald noted that the deal with Stratton Metals “reduces risk to FCC by securing a buyer for up to 100% of its cobalt sulfate production to an established metals trader” and it also “provides a degree of flexibility by allowing the company to enter into secondary offtake agreements, allowing First Cobalt to potentially sell to OEMs and their suppliers.”

O’Keefe has a buy rating on the company and a price target of 60¢ per share.

At presstime in Toronto First Cobalt was trading at 36.5¢ per share within a 52-week trading range of 9.5¢ and 46¢ per share. The junior has about 469 million common shares outstanding for a market cap of $171.1 million.