The company is hoping to benefit from the much-discussed and much-distressed EV revolution by producing raw battery materials. COVID-19 appears to have put a real spanner in the works of the EV thematic, though Crocker suggests the US government is viewing cobalt as a strategic commodity, and Jervois Mining could benefit.
Crocker paints a "profoundly negative" picture of the impact of COVID-19 on EV global supply chains. COVID-19 hasn't just compressed cobalt demand, "it has DECIMATED it". China was down c.80% in Q1/20 and the West is down 40%-50% in Q2/20. Some companies are losing as much as "US$100M per day." There is no positive scenario near-term. Crocker expects a massive "dislocation" of the supply chain across 2020, and says people aren't expecting it.
How does Jervois Mining plan on taking advantage? Do its hopes lie in the hands of the US government? Government subsidies for EV manufacturers are starting to flow back in, but they have been crushed because their export markets are off; this is particularly true of China. It's also very difficult to be bullish when it comes to aerospace right now. Who knows when the airline industry could recover? There is a lot of uncertainty right now.
Crocker claims cobalt is a unique commodity, with 75% of cobalt coming out of the unstable Democratic Republic of Congo. The supply chain looks incredibly fragile as it is, and COVID-19 has worsened problems. The major mines in the DRC are still operating. Some borders are still open, but the border with South Africa is closed, and the border with Zambia is an "unmitigated disaster," with queues stretching as far as the eye can see. The cobalt mines are stockpiling aggressively, and a lot of the highly-technical major projects are being canceled because of key minds being repatriated. The outlook for cobalt is very binary as to what is going to happen in the DRC. Crocker expects to see COVID-19 peak in the region in the first few weeks of June. Cobalt investors will need to keep their eyes peeled. The impact could be "profound." COVID-19 is going nowhere in the short term, and the DRC already has logistical issues: the cost of trucking copper and cobalt out of the country is US$300/t.
Crocker is actually very happy with Jervois Mining's own position in a stable jurisdiction with a "half-built" cobalt project. He has always claimed the US is the most strategic market in the world for cobalt, and claims the country is fast catching up China. The US has no domestic cobalt mines, and Crocker thinks it is timely for Jervois to be at the forefront of this.
Cobalt has always been of geopolitical importance to the US, and now it is even more so. Crocker expects green mining to prevail as the US government tries to create jobs in 2020. Crocker remains coy on the government's plans for possible nationalisation, but claims cobalt is "up there" because of its importance to aerospace and critical industries.
Crocker expects the BFS by the end of the year. It's nearly finished, there are just a few things to sort on the offtake side (metallurgical test work). Travel restrictions have caused delays. Jervois Mining has c. US$7M cash to see the company to midway through 2021. Away from Jervois Mining's core Idaho assets, Jervois has been clear it wants a partner to form a JV for the Nico Young nickel-cobalt project in Australia. The rest of the projects will have their day in the sun, but right now there is an emphasis on keeping a tight balance sheet. This seems sensible. A Tanzanian acquisition is also on the cards.
CLICK HERE to watch the full interview.
Matthew Gordon: Hey Bryce, how are you doing, Sir?
Bryce Crocker: Matthew,I’m well. How are you?
Matthew Gordon: Not too bad. Not too bad. Surviving. What’s that bike in back? I meant to ask you. What’s that bike in the background? You look like a serious road bike kind of a guy.
Bryce Crocker: That bike is a specialised brand; a bit of free advertising, but it is a lot more technically advanced and capable than its jockey.
Matthew Gordon: Blimey. That seat looks terrifying. That’s the thing I would say to you, not sure I could cope. Right, why don’t we kick off with a one-minute overview of Jervois mining then I will pick it up from there?
Bryce Crocker: Yes, thanks. We are ASX-listed and we are excited to be a creating battery raw materials company, a producing battery raw materials company. We are focused on security of supply chains, supporting the rest of the industry which has clearly become more topical in recent weeks and months with the unfortunate arrival of COVID and the impact on global supply chains.
So, we are a group of executives who came from larger mining companies, and I guess, what I wanted to cover today is that we don’t typically talk about the commodity; but I did want to talk about Cobalt because it is very interesting, and if you look across all of investor presentations, you will see nothing in Cobalt and nothing in any of our statements, but it is an area where collectively as a team, we do have a lot of background. We do look at what we have as a competitive advantage, and it is. It is fascinating what has happened.
Matthew Gordon: I think we both want to talk about the same thing actually, because we talked to you previously about the company and where you are at, and we will get on to that but I wanted to talk to you specifically about what you think is happening, because of COVID-19, how you think it is going to affect buying behaviour, investment in the EV thematic, which obviously you play into with your Cobalt. What do you think the impact is going to be on all of that?
Bryce Crocker: Profoundly negative. Profoundly negative. Anyone who gets up and says otherwise doesn’t understand the physical dynamics of what is happening in the market and hasn’t really thought around what the implications are. I think Cobalt, it is interesting for a couple of reasons; I mean demand, it is not weakening – it is getting crushed. Completely decimated. I’ve never seen anything like it. You have got China orders, probably down 80% in Q1/20. All of the Western order makers: 40, 50% in Q2/20. Most of the big oil producers losing USD$100M per day, per day. And so you have had, from a supply chain perspective, you have had this massive disruption and we are just really at the start. And I think this is where this is interesting, if you look at what is going to play out over the next 3 to 6-months. We are really at the start of this process because COVID-19 from a supply perspective has really just started. We have got customers who aren’t buying or can’t buy because they are locked in their homes. Manufacturing facilities that are shut. So, if I am a steel mill, and I am getting ferronickel, ferrochrome, ferro cobalt - all of these deliveries, I don’t want that. That’s getting pushed back to the traders who are pushing back to the producers, and this shock is getting pushed through the system and is going to take time to flow through.
But if you look at what is happening to end demand on Cobalt, I mean, electric vehicles, there’s no positive scenario in the near term as to what is happening for EVs, clearly. Orders are being crushed. But as you look forwards, I do think that the Chinese are trying to come back on. Their biggest challenge, from what I understand, is that really their export markets are off. They are trying to turn their economy back on, get those order flows to try to start again. They are obviously, again, it is the incentivisations, the government prioritisations for electric vehicles, that’s flooding back in.
But any way you look at it, electric vehicles, the numbers are fluid but it is going to be a significant, significant reduction. Even over last year, and we are talking growth rates that have gone. So that’s the bad news on EVs. But is that a structural, permanent shift? I can’t talk about that. I don’t believe so, but it is going to create a massive dislocation in the supply chain across 2020 that people weren’t expecting.
So that’s on the electric vehicle side, which is obviously Cobalt Chemicals, Cobalt metals - aerospace: it’s pretty hard to be positive on aerospace right now. I would suggest that this is 30% to 40% down. Oil and gas – it is pretty difficult to be positive on oil and gas type exploration drilling, so cobalt gasses etc.
So, demand is bad, but I think, taking away from that, Cobalt is kind of unique because you have three quarters coming out of one country that is highly unstable so, we all hope that Africa, including the Congo, gets through COVID. We are sitting in a part of the world where we are relatively very fortunate. There are some other parts of the world that don’t have the health infrastructure. The majority have immunocompromised complications because of HIV which don’t have the efficiency of the governance, perhaps, that we are able to rely on in the West. We are all hoping that Africa holds together as a continent, particularly the DRC because there is no safety net in the DRC if something goes wrong. But clearly, with three quarters of the Cobalt coming out of the DRC, for context, it is twice the size of OPEC on the oil market, so, it kind of matters.
In terms of what we are seeing and hearing on the DRC, the major mines are still operating. Some of the smaller ones: KiPOI*, Isoko, Kisavari are shut. But the big mines, the Katanga’s, TENKE’s etc, they are continuing to operate. The border currently is back open, obviously you have two borders to get the product out of the DRC: you have got to get through Zambia then you have got to get across from Zambia to South Africa. South Africa is shut, so the port of Durban is shut. There is material coming out to the east, through Dar es Salaam, material is coming out from Mombasa, traders are using alternate exit routes.
For the trucking, I mean, if you have ever been to the DRC, the border with Zambia is an unmitigated disaster at the best of times: just queues stretching as far as the eye can see and a lot further. So that is obviously there now. You do have Sulphur and Lime and consumables coming across. The mines in the DRC are stockpiling aggressively on the expectation that there could be some disruptions. Expats are gone. In a simplistic and broad statement, but a lot of expats with their families in South Africa, they didn’t want to be sitting in the DRC, so a lot of the critical technical expertise, major projects are being cancelled.
So, I think it really depends. So, the outlook for Cobalt is very, very binary to the situation in the DRC. They are behind us. The advise that I have seen is that the COVID-19 peak is coming; you are looking at June, week 1 June, week 2 June, in terms of when it is likely to genuinely flow through. Clearly, the potential market impact is profound. Cobalt, Metal Bulletin SG grade is trading at about, I think, around USD$14/lbs, USD$15/lbs, so that is inconsistent with demand getting completely destroyed. If you look at what has happened in the oil market, obviously, that shows what happens when demand disappears, which illustrates with the Cobalt market, there is this uncertainty there about what is going to happen in the DRC.
The Chinese refineries have inventory for now, but that inventory is not going to last multiple months. There’s material obviously sitting in Durban, which is waiting to get out, as and when the ports open again. But COVID-19 is also not going to go away. One of the greatest challenges of the DRC is logistics. It is one of the most painful places to get consumables in and to get a product out anywhere in the world. It will probably cost you USD$300/pt to get it out on the back of a truck; whether it is Copper, Cobalt hydroxide.
Zambia has installed a 14-day quarantine period, so if you are a truck driver, you come in from South Africa, you get a 14-day quarantine period upon entry to Zambia, you go into the DRC, you come back, you get another 14-day quarantine period. Trucking delays are probably up only 2 to 3-days currently. There is no shortage of guys wanting to drive the trucks, for now.
If South Africa, Zambia and particularly the DRC, they are different, there is potential for social unrest in the event of these big mine closures, clearly, to use the artisanal supplies as an example, people aren’t mining, you don’t get women and children mining artisanal Cobalt because they choose to do that versus open a corner stall selling clothes, they are doing that because it gives them the option to put food on the table. Many people are working at the big mines; they are big employers. The social implications of these sites shutting is profound. I don’t profess to have a crystal ball. I don’t know which way it is going to go but the potential market dislocation is obviously enormous.
What is highlighted in our conversations with other ERMs and other end-users, clearly the DRC has been there and people have been uncomfortable with certain aspects of the DRC, whether that is governance, whether that is the artisanal mining, for a long time, but now they are looking at the security of supply chains and realising that this really is a profound risk to their business. Being reliant on a critical component for electric vehicles, or for steel production from a part of Africa which is obviously a long, long way from you having the confidence that you are going to get the product that you need on time.
Matthew Gordon: Okay. That’s a fairly devastating picture you are painting with regards to, obviously, demand, which, as you say, you are not quite sure when that kind of comes back on because it is a kind of slightly dislocated logistic supply chain at the moment. So, if the Chinese come on earlier than the rest of the world, we are sort of playing catch up there. I know that you were talking about Cobalt in the DRC because Cobalt is a big part of the DRC economy. Can I just ask, before we get onto you, what do you think it is going to mean for the other battery commodities: the Nickels of this world, the Lithium, the graphites, et cetera. Are they as disrupted as Cobalt?
Bryce Crocker: No commodity has 3/4 of supply coming from one country. Clearly, Indonesia is incredibly important for the Nickel market, and clearly other countries are important for Lithium. I don’t pretend to know as much about the Lithium market, but from what I see, there was an expectation that Lithium was in over-supply before this began, so that kind of implies that Lithium is in for some challenges.
Lithium ion batteries, the components are subject to discrete market forces. Nickel is going to be a core component of the battery, moving forward. Everyone wants a car that is going to go a long way and gets there quickly. That’s obviously a big part in what is going in with the success of electric vehicles because everyone wants to get there quickly and get there fast and gets there safely, hence the significance of Cobalt. If Cobalt was easy to engineer out, we wouldn’t be having this discussion. There have been a lot of smarter people than I am, looking at this for a long time, but as of today, it hasn’t been possible to engineer out in a way that provides the same performance et cetera, as an 8.11 or one of the high-Nickel NCA chemistries, Panasonic, Tesla’s…
Matthew Gordon: Okay. Well, I guess the whole EV market is going to be dependent on the lowest common denominator coming through, and you are suggesting that is Cobalt, because of the dynamics in the DRC. So, let’s get back to you; what are you going to do about that? How is that going to affect your business? Because we have been reading about your and talking about your Idaho business. There has been lots of conversations about conversations that you have been having in the US with US funders. Is that your route out of this?
Bryce Crocker: Well, if you gave me a choice of, in this type of environment, what mining project would you like to have? I would take a Cobalt project in the United States with moderate capital, that is half-built. That is, as opposed to other alternatives that I could have on my plate, that is not bad. I think that I’ve always said that the United States is the most strategic market in the world for Cobalt, period. Because of the importance to aerospace, because of the importance to the steel industry and increasingly, because of the importance of electrification. The US automakers have been behind those in China but they are catching up fast, or they are planning to catch up quickly. I think that being in the United States, the United States has no domestic Cobalt mining, it is all imported, so, for us to be at the forefront of that is obviously, it’s timely and I think it does provide an opportunity.
If you look, Cobalt was always geopolitically important to the United States, now you are in a situation where anything you can do to create economic growth and jobs in the second half of 2020 and into 2021 in the US is going to be enormously important. I mean, we are all seeing the news out of the States. We are all seeing the levels of unemployment rising at quite terrifying rates.
We are already getting traction with what we want to do. Now, I think there is an opportunity to really have a profound impact and build a mine during a period when the US and Idaho is looking to create economic growth once we come out of this situation.
Matthew Gordon: It sounds logical, but it is also enhanced, I guess, by this wave of nationalism which is spreading across the US; US first. We have also read about the support that you are getting for this. You say that this is timely. This is absolutely timely for you. You have recently submitted some RPFs, is that right?
Bryce Crocker: So, this is in terms of our debt financing process. We are working the site pool with potential lenders. We will be finalising the bankable Feasibility Study for Idaho shortly to provide that to the banks on an NDA level, so they get an updated financial model. We did provide indicative term sheets in January. We have made a decision at that time not to make a final appointment. We want to progress the PFS and get to the position where we can really differentiate between the options that are available.
This is an asset which, there has obviously been USD$100M which has been spent so it is a part-way constructed mine in a great jurisdiction. Clearly, I mean, the capital markets, I spoke a little about what has happened in terms of industry on the supply chains. Capital markets, again, they have lots of volatility, but equally, lots of liquidity getting pumped into the system, I guess. USD$10Tn between fiscal injections in the US and monetary easing, certainly that is having an impact in terms of debt capital markets remaining open and banks willing to lend. And clearly you will have seen an impact in terms of what’s happened to the Dow in terms of the last 30 days or so,
So, I think as we move forward, we have moderated the timeframe because we didn’t think it was the right time to be pushing someone to go through credit right now, just given the uncertainty. I mean, we are optimistic on the future. I am in transparent in that I think demand right now is crushed but I don’t expect that to last indefinitely. I do expect there are also going to be pushes that come out of this, if you like, like COVID-19, that are difficult to judge now. I think everyone in the city is getting to like having clean air with oil use being down by 30M to 40M barrels per day. People are going to Venice and seeing jellyfish – it is things like that. But I think that it is difficult to judge what the environmental flow-through will be in our governments when they come back on and revitalise the industry, are they really going to want to revitalise industry and reallocate their capital towards ICEE production rather than taking the opportunity to use it as, essentially, a step change on the EV side.
Matthew Gordon: Right, just tell me a little about the types of institutions that were submitting bids? Because if you look at people like BlackRock, I mean, that’s the one that people are talking about, they are segueing away from coal, they are segueing away from oil, and they are moving into and investing into cleaner and greener opportunities. So, are you seeing more of that? Or is it just the usual players?
Bryce Crocker: No, I think that ESG is a big deal. I mean, I know there is a debate between you and the companies you speak with. What does COVID-19 mean for ESG? Is it on the backseat for a period? My personal view is that I don’t think it will. I think that ESG is here; it is an important part of investing. It is in the matrix of any decision-making. Also, the electrification of vehicles is something that is fundamentally important, and I think that it is going to be a criterion, if we had a coal mine up in this part Idaho, we would be having very different discussions. We would be having discussions with many of the lenders, the commercial banks aren’t in the business of funding coal mines, and equally on the equities side, a lot of investors are also, I think looking at ESG. If you want to invest in Cobalt, you have either got to go to the DRC, which is very difficult within an ESG type framework, or a lot of the other projects are large capital, long lead time, high technical risk in varied jurisdictions, not without exception, but as a general rule, some of the better projects are located in more challenging jurisdictions than the developed world.
So, again, this is where Idaho is nice; I mean, it is small. You know, I like small, I like low-risk. It’s a good way to start a business.
Company Website: https://jervoismining.com.au/
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Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.