Cape Lambert Resources landmark deal opens door to cobalt mining...

Cape Lambert Resources landmark deal opens door to cobalt mining in six months



09:00 21 Feb 2017
This deal can transform Cape Lambert into a near-term cobalt producer.
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The deal is expected to act as a catalyst for the share price
Cape Lambert Resources (ASX:CFE) has entered into a binding heads of agreement to form a 50:50 joint venture to develop advanced cobalt and copper projects in the Democratic Republic of Congo.
The proposed joint venture (JV) with Paragon Mining SARL will initially include the Kipushi Cobalt Tailings Project and Kasombo Copper-Cobalt Project.
The Kipushi cobalt tailings will be processed by the fully constructed and commissioned Kipushi processing plant under the JV.
The JV is aiming to commence mining activities and tailings retreatment within 6 month at Kipushi. Cobalt is a valuable commodity currently priced at over US$41,000 per tonne.
Cape Lambert is aiming to complete its legal, technical and financial due diligence by 31 March 2017.
Tony Sage, managing director, commented: “This Agreement paves the way for a JV that will benefit from advanced, highly attractive and prospective cobalt and copper projects and that will be supported by a well-credentialed joint in-country and Australian based technical and operation team that includes geologists, mining engineers, process engineers, local logistics, government and community relations professionals.”

Cobalt a new-world commodity
Due to its use in lithium-ion batteries, cobalt is well positioned for future growth, with increasing demand as well as expected declines in market supply.
According to a report by Darton Commodities Ltd, in 2015 cobalt demand growth of 5.4% outpaced supply growth of 2.4%.
Recent price increases to over US$41,000 per tonne and 5-year highs in February 2017 suggest the supply gap has continued to affect market evaluations.
Despite the increased demand for cobalt in lithium-ion batteries, there are very few and no significant new cobalt mining projects expected to come into production before 2018-19.

Near-production cobalt projects
Both the Kipushi and Kasombo projects are located on granted mining licenses in the Katanga Copper Belt, the location of some of the world’s largest and highest grade copper and cobalt mines.
Kipushi and Kasombo are located on granted mining licenses and the Kipushi processing plant is located 8 kilometres by road from Kipushi.
The plant was commissioned in 2016 and comprises a 1+ million tonne per annum flotation plant designed to produce 4,000 tonnes per annum of cobalt, 10,000 tonnes per annum copper and 2,000 tonnes per annum of zinc in concentrate from Kipushi.

Joint venture details
Cape Lambert has executed the agreement with Paragon to establish a new 50:50 joint venture company (JVCo), with the following objectives:
- To commence mining activities at Kipushi within 6 months;
- To immediately commence exploration activities on Kasombo;
- To complete a Feasibility Study on Kasombo within 18 months;
- To commence mining activities at Kasombo within 24 months; and
- To identify and secure other copper, tin, zinc, and cobalt projects in the DRC and Zambia to advance towards commercial production.
Paragon will transfer the rights to Kipushi and the Kasombo to JVCo and provide the Kipushi processing plant and equipment to JVCo to process product from all the projects.
Settlement of the transaction is conditional upon a number of condition including completion of legal, technical and financial due diligence by Cape Lambert and Paragon on or before 31 March 2017.

Consideration
Cape Lambert will pay consideration of:
- US$50,000 on execution of a binding heads of agreement;
- US$100,000 and issue 90,000,000 shares within five business days of executing the JV agreement;
- US$150,000 and issue 50,000,000 shares within five business days of achieving first production at any of the projects; and
- Grant a 1.00% royalty on all of the company’s attributable revenue from the projects to Pelesa and Associates.

Analysis
This joint venture provides shareholders with a near term cobalt production asset, three highly prospective hard rock copper-cobalt projects at a time when cobalt prices exceed US$41,000 per tonne and major mining companies are aggressively acquiring cobalt projects.
With the Kipushi plant designed to produce 4,000 tonnes of cobalt annually, this equates to US$164 million in revenue per year at US$41,000 per tonne, not including copper credits.
Not only does this deal give Cape Lambert access to near-term production assets but to the US$20 million Kipushi processing plant and a mining fleet including trucks and heavy equipment already on site.
Off-take discussions for the sale of cobalt, copper and zinc concentrates already underway.
The joint venture will have established in-country management team already supported by Cape Lambert’s significant African operating experience in South Africa, Republic of Congo, Sierra Leone, Cote d’Ivoire and Guinea.
Cobalt, as a commodity, has a bright future and with this transaction and the proposed joint venture, Cape Lambert is well placed to benefit from significant forecast demand and price increases in this commodity sector.
The projects are located in the world’s major cobalt mining region, with some of the highest-grade cobalt mines in the world that account for ~50% of the world's cobalt reserves and ~60% of global cobalt supply.
Given this location, investors are leveraged to both the near-production assets and exploration upside potential.
Cape Lambert shares are already up 45% year to date and this deal is expected to be a significant catalyst for the company.