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Friday, September 29, 2017 Derek Macpherson

eCobalt De-Risks ICP with Feasibility Study


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eCobalt Solutions (TSX:ECS) reported results from the feasibility study completed for its fully-permitted Idaho Cobalt Project (ICP) in Idaho. The 800 tpd project is estimated to produce 31.8 million lbs of cobalt, 2.4 million lbs annually, over 12.5-year mine life, with an after-tax NPV of $135.8 million, IRR of 21.3%. The project remained essentially unchanged from the 2015 PEA, with the exception of lower head grades which resulted in lower metal production. This was offset by updated cobalt prices to better reflect current market conditions, resulting in project economics being essentially unchanged. As well, the pre-production capex has increased, primarily driven by a higher cost estimate for the Cobalt Processing Facility. In our view, the study materially de-risks the project allowing the company to advance the ICP project into detailed engineering, financing and eventually into construction. As well, there appears to be some opportunities for project improvements both with respect to the mine plan and capital costs. Next material catalysts likely include a project financing to support construction in 2018 and ultimately production in 2020. We continue to believe eCobalt is well-positioned to take advantage of rising cobalt prices.


Feasibility benefits from higher cobalt prices. The feasibility study for ICP outlines an 800 tpd production rate, producing (LOM) 31.8 million lbs Co, 39,241 oz Au and 42.8 million lbs over a 12.5-year mine life, averaging annually, 2.4 million lbs of Co, 3.3 million lbs of Cu and 3,000 oz Au. LOM production decreased for all metals, as a result of lower head grades. Importantly, since the PEA was completed cobalt prices have risen significantly, from $19.50/lb to $26.65/lb. Using a 7.5% discount (8.5% used in PEA), after-tax NPV was estimated to be $135.8 million with an IRR of 21.3%, showing an increase in after-tax NPV by 8% and a decreased in IRR by 12% from the PEA. The estimated costs of total LOM capital and reclamation is $288.1 million, initial capital costs increased by 27% to $186.7 million, with average LOM net cash production increasing slightly to $5.05/lbs. It appears that lower per tonne costs have offset lower head grades resulting in relatively unchanged per lb costs. (Figure 1)


Focus shifts to financing, construction, and production. The company previously announced that pre-construction activities have been fast-tracked for the fall, in advance of 2018 construction. Upcoming milestones for the company remain project financing (H1 2018), construction (H2 2018) and production (2020). The company notes opportunities exist to expand resources and optimize mining operations to further improve project economics. We note that the company’s Ram deposit comprised of only 7% of the company’s total land position, which remains open at depth and along strike.

Well-positioned to meet growing cobalt demand. We continue to believe eCobalt is well-positioned in the improving cobalt market to take advantage of rising prices, as the demand for electric vehicles and lithium-ion batteries grows. The project’s location in the U.S., places it in a mining friendly jurisdiction with low political risks. We view eCobalt as one of the few companies positioned to meet the near-term increase in cobalt demand, taking advantage of the current upswing in metal prices.

 
Derek Macpherson | VP Mining Analysis
Victoria Ellis Hayes | Associate
 
Red Cloud Klondike Strike Inc.
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eCobalt Solutions Inc. - TSX:ECS - 1,2,3,4

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