An article I received this morning re other Cameroon projects -
Geovic Mining’s Flexibility Preserves Value By James West MidasLetter.com Monday, March 9, 2009 Among the hundreds of companies exhibiting at the Prospectors and Developers Convention (PDAC), finding quality near-term production scenarios in the precious metals sector dominated delegate interest. What captured my interest was a mining company quietly preparing to build one of the world’s primary cobalt mines.
Geovic Mining (TSX.: GMC, OTCBB: GVCM), through its 60%-owned subsidiary Geovic Cameroon plc (“GeoCam”), owns a 60% interest in the Nkamouna cobalt-nickel-manganese project in Cameroon, Africa. The project has been advanced to the feasibility stage, and then further refined in a “Feasibility Optimization Study” (FOS) completed in September 2008.
The result is a project that can easily scale in either direction rapidly, targeting to initiate production at a rate of 4,000 tonnes of cobalt, 3,000 tonnes of nickel, and 45,000 tonnes of manganese carbonate per year. With annual consumption of roughly 60,000 tonnes per year, the Nkamouna project promises to become a significant global source of cobalt, a particularly significant amount given that Cameroon is a far more stable country than the DRC, where the majority of incremental cobalt supply is projected to emanate.
Geovic has temporarily delayed construction of the Nkamouna mine due to global economic conditions, but is using the “waiting time” to focus on further improvements to the project’s economics through a series of pilot tests aimed at increasing investment returns and reducing processing risks.
With complete production costs weighing in at ~$8 per pound of cobalt (at today’s nickel and manganese prices), and cobalt prices relatively stable at US $12 - $15 per pound, the Joint Venture (Geovic, 60%, Cameroonian government and investors, 40%) could immediately realize pre-tax earnings of US$ 48 million, or roughly $0.28 per Geovic share upon production.
With a current cash position of approximately US$65 million and recent share price of CA$0.61, Geovic trades at a 20% discount to its cash position. That despite its advanced project status and large proven/probable reserves, which should increase further due to completion of a 54,900 meter drilling program in 2008 (an updated 43-101 report is targeted for September 2009).
Other outcomes of note to investors from the FOS include:
Improved cobalt grade as a result of preprocess ore concentration, which the Company aims to increase further via the aforementioned pilot tests; Less expensive and more efficient leaching process technology, which the Company believes it can further simplify; Initial capital disbursements reduced from $397 million to $379 million despite the inclusion of an $11 million circuit to recover manganese, which the Company aims to reduce further via a combination of simpler process technology and the general downtrend in engineering and consumables prices; After-tax, undiscounted cash flow estimated at $2.6 billion on revenues of $6.6 billion during the initial 17 years of production; Cash operating costs reduced from US$3.12 to US$2.02 per pound of cobalt, net of byproduct credits from nickel, manganese and scandium, which have risen closer to US$8.00/lb in the current nickel/manganese pricing environment, but remain economic at current cobalt prices. Nearly all electrical and thermal energy required by the project will be supplied from a combined heat and power plant fueled with local biomass (trees), thereby minimizing the consumption of much higher cost petroleum-based fuels. This energy system is also expected to earn carbon credits under the Kyoto Protocol.
The cobalt market is dynamic but small in comparison with other base metals. Consumers purchase cobalt through negotiated agreements, bids, and open markets from producers, traders and to a lesser degree, government stockpiles and private inventories. Approximately 48% of the world’s 2007 cobalt mined was a byproduct of nickel from sulfide and laterite deposits. An additional 37% was produced as a byproduct of copper operations, mainly in the Democratic Republic of the Congo (DRC) and Zambia. The remaining 15% of cobalt mining came from primary producers, but none of the primary cobalt producers compare in size to what Nkamouna is projected to be.
Several new projects were deemed to be sufficiently advanced and financed to produce significant quantities of cobalt in 2009-10 (nearly all as a byproduct of primary copper and nickel mines), however nearly all of those projects have been either delayed or cancelled. Roughly 70% of the projected incremental cobalt supply was to emanate from new copper mines in the DRC, but a combination of low copper prices and increasing DRC political instability has greatly clouded the intermediate-term supply outlook.
Moreover, until that time the cobalt supply/demand balance could remain in deficit due to limited new production and the absence of stockpiles.
Roskill Consulting, an international group that researches mineral industry information, estimates growth in demand by 2011 in a most likely case to be 72,500 tonnes(3). There may be some degree of slowing in that forecast due to the global economic crisis, but irrespective it is likely that cobalt demand will continue to grow as it has for the past two decades, particularly due to ongoing growth in demand for batteries for hybrid vehicles and new demand from emerging markets such as China and India.
The Toyota Prius HEV was named 2004 Motor Trend Car of the Year and 2005 European Car of the Year. The one millionth unit was sold in April 2008, and Toyota estimates sales of one million hybrid vehicles annually "as early as possible in the 2010s". In the next few years, the Company plans to offer all Toyota and Lexus models as hybrids.
General Motors, Ford, Daimler-Chrysler, Mercedes, and others are attempting to catch up with Toyota’s hybrid success. Nearly all current HEVs use nickel-metal hydride batteries that contain about 22 pounds of nickel and 3 to 5 pounds of cobalt. Lithium-ion batteries containing 5 to 7 pounds of cobalt and little or no nickel are expected to dominate future HEV markets because they charge in minutes rather than hours and offer many other economic and technical advantages.
Global production of HEV’s in 2007 was about 400,000-500,000 units, and is estimated to increase to 8 million units by 2015(2), thereby increasing annual cobalt demand by nearly 22,000 tonnes/year. In 2006, the world produced 69 million conventional cars and light trucks, and is expected to produce over 80 million units by 2015.
