Fundamentals - 2019

Hi guys, it’s been a while since someone discussed the fundamentals of the project in detail. There’s definitely been a bit of tension around the threads of late with the price of cobalt falling. So I decided to put together something for the holders and potential holders to see why CLA is in such a good position to capitalize on a reversal of current market conditions – which as you’ll see from some of the experts seems in the not too distant future…

 

Cobalt Price

 

Ok, so lets address the elephant in the room straight away.
The price of cobalt has been hammered over the last few months and thus has had a knock on effect to all the up and coming cobalt producers like CLA.

Across the board we’ve seen SP’s drop faster than the Aussie cricket teams winning record after sandpaper gate…

But with all the doom and gloom around town you have to ask yourself - “Are these prices sustainable for a commodity that is essential going into a phase of demand like we’ve never seen in our lifetime?”

The answer in short is no.

Cobalt is essential moving into the age of electrification. EV’s will have taken over and not in the distant future but in the next few years. If you believe Tony Seba (the foremost expert on the EV disruption) then the tipping point for EV’s to take over ICE as amore economical option will come in less than 2 years!

He predicts oil will crash in2020 as EV’s disrupt the market big time and ALL new vehicles to be EV’s by2025!

https://www.youtube.com/watch?v=TRcx-btcle4

 

As with all commodities with growing demand the price run moves in cycles. Cobalt miners are not going to start mining for free, so the price will not keep falling. That would be an impossibility!

Commodities move in cycles. They have their ups and downs but the important ones tend to keep adding value – as you can see from the table below…

Even Goldman Sachs has spelt it out for the guys who want to do the research. Yet everyone seems to think they’ve found a unicorn and even though prices of commodities have never fallen to zero before – this could be it… Lol



Come on guys, think clearly.
You are probably reading this on a smart phone or tablet – how do you think that’s powered?
Pretty soon you’ll be driving down the street in an EV as the old petrol number you’ve got now will just not add up.
If you don’t believe me then think of this. Petrol vehicles have 2000 moving parts and EV’s have around 20! It’s really not hard to deduce which will be cheaper to run and keep running… 

The average EV car battery has between 5-10kg of cobalt in it.There was talk last year of a ton of money going into producing batteries without cobalt (as pricing for the material was way over cooked).Call it fate or call it a masterstroke but cobalt prices all of a sudden started to tumble and EV manufacturers had to make a decision on what batteries they would use to take their cars to market.Cobalt included batteries were already tried and tested, ready to go and now are very economical.
So guess what happened?
All those funds for developing cobalt-less batteries got pulled and cobalt-included batteries got signed off, making the material a staple to all the manufacturers – thus making CLA a very tasty looking acquisition with a market cap of under $50 mil. 

China has seen the writing on the wall for a while now – it was pretty easy as they couldn’t see much else over there with all that smog over there…
They realised where the transport industry would be heading for a while now and have done their best to capture the biggest market share.You only need to look at what’s happening in China to see how the EV revolution is pressing forward. 

Currently there are over 200 EV companies in China, all wanting a piece of the action.
Sales over there are expected to go past 250,000 per month by the end of 2019!!! 


Even Ivan Glasenburg has called a bottom to the market and considering he’s responsible for selling more cobalt to the world, I think he knows what he’s talking about.
"Cobalt prices are close to a bottom and set to rise as battery makers look to secure long-term supplies to meet rising demand for electric cars", according to Ivan Glasenberg, the chief executive of Glencore.
The price of cobalt has fallen by 40 per cent over the past three months, following a surge of supply of the metal from the Congo and a pause in buying by battery makers.
But Mr Glasenberg said the market could be short of supply again after 2020 due to increased sales of EVs and re-stocking by battery makers. “It seems like it’s bottoming out,” Mr Glasenberg said. “People are destocking in China and they will have to come back into the market and start re-stocking. By 2020 we believe the demand will be there due to more electric vehicles.”Full article https://www.ft.com/content/54e6165a-34f3-11e9-bd3a-8b2a211d90d5
   
Australian Mines boss Benjamin Bell has also endorsed the bottom of the market and has told that all major financing options are factoring a much higher cobalt price when looking at funding projects.
Australian Mines boss Benjamin Bell told * that no one is looking at today’s pricing when it comes to mine financing.“Every bank that you talk to have their own forward forecasts for nickel pricing, cobalt pricing, EV demand, the AU-US dollar exchange rate – all these things.”
These numbers are not dissimilar when you talk amongst the different lenders, Mr Bell says.
Full article https://unauthorised investment advice/resources/supply-disruptions-are-piling-up-so-why-are-cobalt-prices-so-depressed/ 

Potential Upside
I don’t think any TA guys are going to be getting too worked up over the CLA chart of late but there are a few positives to take out of it.We are currently sitting just above the 12 month low of 4.7c.
This area not only proved strong support last time it was hit but provided a very quick spring board back upwards to pretty much double in a the space of a week or two in December 2018.
As PG put it, I like to think of CLA as an out-of-the-money option.
As an old option trader myself these are never stocks that are screaming out – buy me!
In fact they are quite the opposite and take a lot of courage, conviction and foresight to obtain the big pay days.

“Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it – even though others may hesitate or differ.You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.Similarly, in a world of securities, courage becomes the supreme virtue after adequate knowledge and tested judgment are at hand.” Benjamin Graham

CLA is out of favour now and for that reason is as cheap as you will see. If you believe in the EV and battery revolution then it seems a no brainer that cobalt will continue to become more and more in demand (what do you think that will do to price?). 

Buying CLA (a company poised to become the largest cobalt resource in a politically stable country) is like taking a leveraged position on cobalt itself.
I personally believe there is a huge amount of upside to the current price of cobalt. Factor in an untapped resource the size and quality of CLA and you have a massive leveraged play at the technological tidal wave that is the EV revolution.
It’s certainly not without risk but putting your money in the markets is never completely safe – hell, even the staple blue chips like the banks don’t have a record of linear gains. So I wouldn’t be remortgaging the house on CLA but I personally like the odds and potential upside.

The Resource

You will notice there is a significant resource for copper and zinc found at Opuwo also. And unlike the falling the cobalt price, this year has seen some consistent and solid gains for both of these commodities of between 12-17% YTD (referencing EFT only here). 

The resource upgrade is due in a matter of weeks and is expected to be pretty decent. The extended tonnage is looking at between 34-51 MT.
That being said I’m pretty sure our initial JORC was supposed to be in the 30MT range and they surprised the market with a massive increase with 112MT!!!
I’m not suggesting to get your hopes up but am merely reciting the facts and history of announcements from the company. So I’d be extremely happy with between 34-51MT but would not be surprised if it were released a little north of those figures.



ASX PEER COMPARISON (Before upgraded resource is released in coming weeks) see below.



After the ann is dropped I’m expecting some helium to be pumped into that big orange ball so it’s looking significantly bigger and much more enticing to battery makers around the globe… 

Scoping Study
There was a bit of drama around the postponed release late last year and the SP suffered. 

I believe it’s in all of our best interests that this was delayed. As Brendan has always maintained -we have one shot at releasing these numbers.I don’t know about you but I’d much rather see them released into a market on the up instead of free falling.
As we can see by the current SP. People don’t have much imagination or foresight so you really want to be releasing this when people can compare numbers to what’s currently happening. 

Competition 

The 2 biggest companies by a country mile are Glencore and China Molybdenum both of which run mines in the DRC.
DRC has dealt cobalt miners a heavy blow very recently by adding a new royalties tax of 10% and super profits tax of 50% (that’s not very conducive to lower pricing by companies paying this).
Add to this a trade war spooking the entire market, brexit with punters not knowing what to do and the complete list of multinational companies all scrambling for battery metal materials and you had the perfect storm to suppress cobalt prices.
As far as Glencore are concerned they have their own issues and seem to be finding themselves deeper and deeper in trouble with authorities. They’ve been faced with money laundering charges, had to cut workers from DRC mines and also had one of the flagship mines taken offline to deal with uranium found present in samples. They’ve had their issues with human rights groups and workplace safety has never seemed to be high on the agenda either. Add to this a truck collision last Friday that took 20 lives and its not a good look for the worlds number 1 cobalt producer.
 
Yet even with the allegations, the taxes, the job cuts and the reduced output we’ve seen cobalt prices fall.
Some things just don’t add up do they? 

DRC has also just had a long over due (suppressed) election which it seems have now appointed a losing candidate!!!
It’s caused a decent amount of unrest in the DRC itself but even the big guys have taken offence to it with the US banning DRC officials from travelling to the United States for corruption in the recent elections.
https://zambiareports.com/2019/02/23/us-imposes-travel-sanctions-top-drc-officials-corruption/   

The chances of civil war breaking out are very real and if the supply chain is interrupted to the cobalt producers in the DRC then the price of any decent mines outside this country will increase tenfold overnight.
This may be a ‘black swan’ type event but one that has a decent chance of eventuating leading me to believe those ‘out-of-the-money options’ are looking even better. 

Buyer Targets
This leads me to the next point. The company made it public in their Quarterly Activity Statement that they are already in ‘high-level discussions with prospective off take partners’. 

As we saw before no one will be valuing CLA with the current cobalt price in mind.
As Benjamin Bell said “they will all have their own forward forecasts”.
With Brendan being a geo I wouldn’t discount the fact that we may be looking for a T/O or J/V but one thing is for sure, there will be a lot of interest in the biggest cobalt resource in a politically stable country with ethically sourced cobalt. 

Summary
It’s pretty simple really. You either believe the EV revolution story or you don’t. 

If you do you will see the demand for cobalt is not going away anytime soon.
In fact, it is going up in multiples over the coming years.
Commodities run in cycles and always have. We a currently experiencing a trough due to what I believe are a number of factors…
  1. Cementing cobalt as a staple for battery making moving forward
  2. Currently it’s a battery arms race for all the multi nationals to get set so its in all our long term interests for prices to be suppressed while they do. Cause once they are in, they will look to recoup their investments and prices will increase again.
 3. The market was way overcooked last year and needed reverse to make it a sustainable one.
 4. The macro environment hasn’t been very conducive to many gains with trade wars, brexit, recession talks and volatility across all markets.
 5. DRC miners have been slapped with some heavy taxes so I’m guessing they are trying to hurt the government by cutting some jobs and output targets in the short term. 

CLA is an enormous resource with decent grades (that seem to keep getting better with each update) in a politically stable nation and ethically sourced cobalt.
The SP may currently look pretty ordinary if you’ve entered in the last year but for all others I personally believe it represents a huge opportunity to get in at ground level and ride the EV wave over the coming years.
My personal opinion is that cobalt is looking like a very, very good investment for those with a medium to long-term outlook. 

Do I think there are multiple bags on the table here?
Personally, I do. 

Is it a safe play?
Definitely not.   

Cobalt has all the markings of a very valuable resource that should do nothing but increase in value in the not too distant future but it’s currently not very sexy when you look at its recent charts.
Add in the ‘black swan’ type events such as DRC imploding, Glencore getting done for any number of things or one (or more) of the big DRC mines to have major issues (such as the one that has just hit Glencore, making it pull its cobalt output for the rest of 2019) and I think CLA is a pretty decent stock to speculate on. 

Last time we hit sub 5 cent levels the stock bounced and doubled within a couple of weeks and as we did all I read on the forums were “Geez I wish I picked up some at 4.7 cents” 

Hindsight is a wonderful thing but unfortunately never makes you any money. 

Foresight is the thing that does that. 

So make your own decision on the research you choose to do. The research I’ve done is all here and all in my opinions only so DYOR and good luck to those with the courage to follow their own convictions, whatever they may be. 

Now I’m off to the beach for a swim and will be coming back to some slow cooked mastery I’ve had simmering for 8 hours or so. 
Enjoy your weekends and GLTAH! 

PS There seemed to be a pretty decent jump in cobalt price on LME to finish the week on Friday!
Could this be the start of the reversal?
Exciting times ahead….