Big company mentality is sometimes the death knell of a junior, but not in this case. Crocker is camped out in Washington DC and banging on doors to ensure that the people who need to know, are aware of the Jervois Mining and its Idaho ICO Cobalt project.
It's been a journey of discovery for Crocker, who came in the junior space from Glencore. Their Nico Young Project is a large Nickel play and the Kilembe Cobalt project are both solid projects but for a larger company. Crocker has parked them up to return when the ICO Cobalt project in Idaho is cash flowing it seems. Not bad logic. Add to that the acquisition of the SMP refinery in Brazil, and you start to see what Crocker is envisaging. Sometimes big company mentality can't be ignored.
Matthew Gordon: Give us a 1-minute overview and I'll pick up on some of those cues you just gave me.
Bryce Crocker: We're about creating an operating company. We are a group of executives, largely from Glencore. I was part of the founding management team, Xstrata IPO in 2001, and stayed until we sold to Glencore in 2013. There's a group of executives who've come from a large company background and we're coming down to this end of the market. Peter Johnson and Brian Kennedy founded Silver Lake, they IPO’d that for USD$30M. Silver Lake is now worth USD$2.5Bn. Brian Kennedy founded Reliance Mining, which was sold to Consolidated Minerals for USD$300M after an IPO at USD$30M, so it's not the first time that some of the principals involved have done this, but this is the first time that I'm at this end of the market, and learning, 3-years in.
We're creating an operating company. That's really about how do we aggregate assets that are going to become operations? Not just promote, but actually start generating cash flow. How do we create a business with industrial logic, focused on battery raw materials? We've got strong backgrounds in Nickel and Cobalt. We believe in the commodity. My view is, we tend not to talk about the commodity, and if you look through our investor presentations, you won't see a single slide over the last 3-years on either commodity. We do believe that we bring to this end of the market is proprietary. I'm not in the business of disseminating that, that's the value of what we believe that we have, through our trading backgrounds and networks. Where it works, we want to keep it for our Jervois shareholders, including ourselves.
We're trying to bring a different model to the market. We own 4%, about 14% on a diluted basis. We put in just under AUD$3M to the last raise. We will continue to stand in our corner. We see ourselves as co-investors. My wife happily tells me that I could double or triple my salary if I went to a different company tomorrow, as could many of our Executives, but equally, because we own the equity upside, at the end of the day, if I go to a large mining company, I'm not going to make the economic outsized returns that if we can take Jervois and turn it into what we expect, we will do well and shareholders will do disproportionately well. It's really about creating an operating company, and that's been underlying the basis of a number of acquisitions. This culminated in some announcements this week of a bankable Feasibility Study for Idaho and the acquisition of the refinery to take that product to market in Brazil.
Matthew Gordon: Tell me about why Idaho was a big moment for you in terms of understanding where you fit in the mix.
Bryce Crocker: The plan hasn't changed significantly. I came to Jervois in September 2017 and within 10-days we put forward a bid on Kilembe and I'd approach the FCO of E-Cobalt who owned this asset. This was an asset that we had identified. We had a short-list and Idaho was up there at the top, because we traded Cobalt, we know Cobalt, we know the United States, we know what the United States thinks about Cobalt and the United States has no Cobalt mines. This is the only deposit of relevance and scale that has the potential to become a mine.
I presented at the US Cross Executive subcommittee in December 2019, chaired by the White House and the DOE. One item that is not sensitive or confidential is, I said, look, I hope I'm wrong; as an Australian, we're doing this for economic reasons, but it is also geopolitical. I believe in what we're doing: creating a supply chain that excludes China and protects Western industry. I articulated that I hope I'm wrong; I hope that in the United States, in 10-years’ time you've got 3 Cobalt mines, but I don't see that. Everything else out. There is moose pasture. No disrespect to my North American peers, but once you take out the large sites in Canada: Ragland, Sudbury, Voisey's Bay, there's nothing in the United States that's going to become a mine on the Cobalt side, except Idaho.
That really underpinned why we did our dance with E-Cobalt. They were capped at 5x us when I made the initial approach, so it took time, but eventually, the markets moved in our favour. Their shareholder base moved in our favour, and we were able to consummate what we call a merger, but it was a premium takeover.
Nico Young was the cornerstone asset that we identified, so when we decided we wanted to create this vehicle in the public company space as opposed to working with private equity, where many of us were after Xstrata Glencore. Nico Young was mis-priced. We saw a pathway to production that was lower capital, lower technical risk. That's really how Jervois became the vehicle. We still have Nico Young, the acquisition in Brazil takes AUD$200M off the CAPEX because we can now take an intermediate across. But equally, I like to think that I am building reputation. I don't make statements that aren't correct: Nico Young is not going to be in production in 2022 when we turn on the refinery. Nico Young has value. On the Tesla Battery Day last week, obviously, there was a huge amount of press and when you back solve the numbers on the Nickel side that Elon ostensibly needs, it's mind-boggling. We are bullish on Nickel, bullish on Cobalt.
Cobalt was easy to substitute; it would have been done a long time ago if the DRC didn't turn into an unpleasant jurisdiction in the last 6-months. It's been that way since the Belgians left.
There is an industrial logic to what we're looking to do. We're still in Africa, I've been negotiating with African governments on Bombo in Tanzania and Kilembe in Uganda for 2-years – it is frustratingly slow, but we are there, we are credible, we've got a seat at the table. Their options are certainly not reflected in our share price, and they are low-cost options as well. The focus now is building an operating business, and ICO is the cornerstone. We've essentially unlocked a really exciting key in Brazil in the São Miguel Paulista refinery.
Matthew Gordon: Tell me how you're going to bring together ICO and your plans for SMP and build out that story. How do you deliver this industrial logic?
Bryce Crocker: We are pulling together a slide for an investor presentation next week in Australia. Every publicly listed group across Australia, TSX, ASX, that's got Nickel-Cobalt exposure specific for batteries, so excluding Ferronickel, there's 2 on that list that deal in refined product: one is Cuban and essentially owned by the bondholders. It is listed in Toronto but essentially has Cuban assets and is in default. The other is us. Of all the companies out there, nobody is actually sitting down with OEMs and battery makers and dealing with them with a product in the form that they want. Yes, they're exposed to the battery space, but actually, you're selling an intermediate product to someone else who is then dealing with companies that are dealing with the battery space. We understand this; we came from a trading background where, ‘he who holds the product is King. He who controls the product is King.’ We were negotiating with OEMs and battery makers outside of China: the Japanese, Koreans, obviously Europeans, Americans, but obviously, Idaho produces a concentrate intermediate product. None of these consumers can actually use it. They need to come back to us or one of the major trading groups to convert or toll that into a form they can use for their physical flow sheets.
Sao Miguel provides a mechanism to take the product to market in a form that it wants. It's within our control. We control it. I'm not trying to negotiate with other groups that control refining capacity and coax capacity out of them on attractive terms. We own the refinery; we control what's going on. Certain groups will make a big deal out of being committed to certain trading groups, as though that's an advantage. We work for those groups, and I can tell you - exclusivity doesn't equal enhancement of economic terms for the junior.
We spent our whole career nailing juniors to the wall. If you look across the asset base of many of these trading groups, many of the assets, because we screwed juniors into a corner, and they defaulted and then we took the keys. That's the business model. The fact that we've got a Refinery asset, we control what's going in, we control what's going out, so we also understand our limitations; we're not a multi-billion-dollar trading group. I don't have credit lines of hundreds of millions of dollars. But we do have the organisational know-how. We also understand what we do and don't have, and we've got a degree of credibility with potential finance providers to do pretty interesting things in terms of how that refinery can restart.
Matthew Gordon: Is this a new way pf thinking, that new economics is important to you in terms of setting up an operation? Or do you think mining is mining and it doesn't need to change?
Bryce Crocker: Mining will need to change. A topical recent example of this is, we undertook a Scoping Study to build a Cobalt refinery in the United States, but I knew the answer to that before we even started. I knew it was going to be uneconomic. I wanted that study because I'm sitting here in Washington and I wanted to demonstrate and have serious conversations with policymakers about we're not in the business of wasting Jervois’s money. We've got credibility here in DC is because we don't like wasting taxpayer’s money, so if something doesn't make sense, I'm not going to ask the government to fund it. The Scoping Study for 2,500t Cobalt refinery in Idaho came out of just shy of USD$200M, and we're purchasing a 2000t Cobalt refinery in Brazil that's got a 25,000t Nickel refinery with it for USD$22M. The economics of that are pretty clear. Cobalt and Nickel are high-value products. We're taking a high-value product and it travels, it doesn't travel indefinitely, if we cast our minds back to the Nickel pig iron industry in China, for example, back before they induced the facilities to be constructed in Indonesia, all of that ore was getting shipped to China. Nickel ore was at best 2%, so that was economic. The Chinese are making money. They didn't build Ferronickel facilities in Indonesia because they weren't making money, they built them in Indonesia because the government said we're not going to let you export ore.
If your long-term Cobalt price is 5x what your long-term Nickel price is, that 2% ore is the equivalent of 0.4% Cobalt ore. In terms of economics, the concentrate we move from Idaho to Brazil is 10%, so it's like you're moving something that inherently is 10 to 15x as valuable on a weight basis- the economics make sense.
It's also about securing supply chains: we're taking something from Idaho to Brazil. We land at Santos port and again, I don't want to tell people and pretend it's not in Brazil, but I lived in Brazil for 5-years and I can tell you there's a massive difference between landing a product at Santos Port in the state of Sao Paulo, which has a population of 40 million people and a GDP only behind Mexico in terms of Latin America. Driving a truck 100km along a divided highway to a plant in Sao Paulo City that's 5km from Guarulhos, what must be the busiest international airport in Latin America. Driving it back to Santos Port and re-exporting the product. It is still Brazil, but it's different. We're not going to Para State, we are not going into Amazonas. You don't have those issues you have in other parts of Brazil. We control that, so that's very important.
I'm hopeful when I'm talking with politicians here in DC and in Idaho, because obviously, we have the Idaho delegation there. They would love a US refinery and they would love it to be in their State. I get that. But the reason I knew the study was going to be uneconomic - a 2000t Cobalt refinery is not competitive. If you look at the facilities that we've been involved with previously: Nickel, - 5,000, Murin Murin would have been the smallest and that was 3,500t, but obviously attached to a 40,000t Nickel refinery. You need scale. There's no point building a facility that's not competitive, that's just going to come cyclically in and out of the market and result in social instability in the area that it operates.
Matthew Gordon: When does that actually complete and close?
Bryce Crocker: The acquisition is concluded. It is a tiered entry, so we pay a deposit, R$50M. In current exchange rates that is about USD$2.7M, we pay by the end of the year. We then have until September where we undertake a Feasibility Study, talk to third-party suppliers, define the business plan. Then if we choose to close, which is a strong expectation, we pay the remainder based on a number of tranches on production and closing until June 2023.
Matthew Gordon: The Nickel component: what are your plans with that?
Bryce Crocker: There are 3 production scenarios that we articulated. We undertook due diligence, including test work, which we articulated in our investor presentation. 1 - we run a 2000t Cobalt Refinery and run the ICO concentrate through that. 2 - we convert Nickel capacity to Cobalt. We said, let's not try and shoot the lights out or take out 6000, because we know that there are significant amounts of Cobalt hydroxides out there. Let's take the refinery up to 8,000t Cobalt. If we did that it would be, after Kokkola, the second largest Cobalt refinery in the world.
Matthew Gordon: What's your outlook for the market at the moment?
Bryce Crocker: Despite what Elon says, there's a disconnect between what he says and the purchasing behaviour of his commercial department. Tesla is the largest Cobalt consumer globally and will be that way for as long as we're working. They've done an exceptional job at substituting Cobalt. Their NCA chemistry is probably down at 3% Cobalt - fantastic job, but if Cobalt was easy to substitute, we wouldn't be having this discussion. It would be gone. It is there for a reason: it provides thermal stability, prevents thermal run away. It's not easy to substitute. Will Tesla get to a zero-Cobalt battery with high Nickel? I wouldn't bet against Elon. Will they get there commercially, on an industrial scale in the next decade? No way. That's my personal view. I think the level of risk associated with taking that last bit of Cobalt out of an NCA chemistry versus the implications on safety and the marginal benefit on performance in terms of speed and range, the maths doesn't add up.
The sensitivity on Cobalt is not around price. My take is that downstream users, and we're dealing with them all, they don't really care if Cobalt is USD$50 or USD$15. They don't want their Cobalt mined by children who are dying underground in Africa. Simplistically, that's the greater concern around Cobalt and that's why the substitution pressures have been so strong. I see it as more driven by ESG than economics. The actual amount of Cobalt in the vehicle now is not going to swing the dial.
Matthew Gordon: In terms of the macro, what are the supply-demand drivers over and above Tesla?
Bryce Crocker: Aerospace is obviously crushed. Batteries are growing. Batteries are growing strongly. I'm bullish on EV. We're talking to all the OEMs, all the battery makers. We've got access to internal forecasts. There's no ambiguity about the chemistry; that's really being locked in outside of China. Its high Nickel. It is high-Nickel chemistry across the board. There might be some divergence. Obviously, Tesla chose an NCA outside of China. Most of the others are going NMC. But if you look at the rollout of NMC 811, I think that's illustrating, because 2-years ago they were saying it is going to be the battery chemistry of choice. 811, it's there, it's coming but it's not 90% of the NMC chemistry that is getting rolled out. The bulk of them are still 532q and others because the incremental complexity, in terms of going that last stretch, isn't worth it economically for the battery makers. It is certainly not worth the risk.
I'm very bullish on EV's. I'm very bullish on both the metals that go into them and I do think that there's a unique opportunity to create something from an investment perspective that has more direct exposure to this thematic, which is what we're looking to create by bringing in Sao Miguel and coming into production in North America. Elon focussed on the North American supply chain, and I can tell you, the focus of his peers is as strong or stronger in this area. Governments have been focused on Cobalt and supply chains and China for a number of years. They are making significantly more progress now than before. Pre-COVID, I'm not saying industry wasn't paying attention, but industry was less concerned. From our perspective, the mentality of the US automakers was like, we don't need to think about domestic supply chains. We can continue buying batteries off South Korea. Why would we care about necessarily replicating that capital investment here in the United States? That mindset is changing; they don't want supply chains that crisscross across the globe, and obviously, some of the Asian economies are more heavily intertwined with China from a trade perspective and unwinding that is going to be complicated. We are seeing that strong pressure, and it's not just the United States, Europe as well. People are seeing EVs for what it is. It's a transformative event and you don't want to be reliant; you want to have a degree of self-sufficiency in that transformative event.
Matthew Gordon: What's the other side of this executive order where you are putting these 35 different components? What do they give you if you're going to be a critical mineral to the US government? Are they introducing you to funders, industrial partners as part of your industrial logic?
Bryce Crocker: We've been careful not to play out any discussions we have with government in the public domain, but there is legislation: DPA Title 3, which some of the audience will be familiar with through some of the questions around ventilators etc. The DOD has various titles under DPA Title 3, it was extended to the AFC. The last executive order that you referenced earlier, which came out a couple of days ago, that provided additional flexibility to the DOE in terms of advanced vehicle technology and what that could mean. The government, essentially, has a lot of flexibility in terms of how they choose or choose not to get involved. I'm here because it's important that they understand who Jervois is, what we're looking to do. We're not in the business ideologically, my view is very strongly that government shouldn't interfere in commodity markets.
What I articulated to the US Cross-party Subcommittee. I said, your problem right now is that every shitty, uneconomic Rare Earths project in world is now coming to you for funding, and the reason why they haven't been built is because they are shitty, uneconomic Rare Earths projects. I don't want the government's anywhere to be building Cobalt or Nickel deposits that are uneconomic. That's not in my interest because I've got a good deposit. I've got a good business. I don't want the government undermining free markets, but equally, if you take a step back, the playing field isn't level. If you look at the way that China is influencing global commodity markets, what they've done in the DRC, the US has a problem. Australia is a like-minded ally. We've got a problem as does the UK, as does Canada, and to the extent that governments take a more proactive approach in terms of dealing with that problem, again, we're here. We're articulating what we see is the problem. We see what's happening in the DRC and elsewhere and we can be part of the solution.
We're not the only solution; US Cobalt demand is probably 15,000t, and when we come onto production, we will be 2,000. But 2 out of 15 is better than 0 out of 15.
Matthew Gordon: Idaho: You have put the numbers in there - USD$25/lb Cobalt - is that a fair reflection of where things are at the moment?
Bryce Crocker: First of all, there's sensitivities there. I don’t actually get hung up on what price we put in the study, and I think investors are smart enough as well. If I put out a study with USD$40/lb, investors wouldn't look at that, they go straight to the sensitivity table and say, my Cobalt price is USD$20. What does it look like at USD$20? At USD$25, most investment banking, when we looked at consensus for investment banks was consistently in the low-20s. If you look at the independent forecasters that consider themselves experts in the area, most of them would be above USD$25 on a long-term basis.
The cost curve for Cobalt is opaque, but it is changing. When we initially went into the DRC with big Copper operations, the sites that were more familiar like Katanga and Rotunda, Cobalt was initially almost free. Initially, it wasn't even measured as a cost input at that time, we just came out with the Copper. But the days of the DRC punching out these big operations, producing Cobalt for less than USD$5/lb is not real anymore. The DRC is an expensive place to operate; it is landlocked, the logistics are horrific, you have to get consumables in, expats in, experts don't go to the DRC for the same price they will come and work in Idaho. It's an expensive place to operate. When you look at our operating costs in Idaho, that's why it's exciting – USD$7.50 - that's DRC-like OPEX. We're not at USD$25 today. Do I think that USD$25 is an appropriate long-term price? Absolutely, I do.
Matthew Gordon: Talk to me about the opaque nature of the market.
Bryce Crocker: It is a trader’s market; this is the thing; when we left there was only 6-8 Cobalt traders and everyone else in the market knew nothing. Unless you are physically trading the product, it doesn't matter if you're writing research or if you're talking to everyone - you don't know. You just rely on what someone else is telling you. The same applies for investment banks because they don't have the necessary trading capability for the product. It's opaque, but the market is changing. There's more transparency coming in with some of the metrics, Cobalt hydroxides for example, when we were trading it, there was never any benchmark pricing reflected in commercial contracts. That's changing. The market is evolving, but we know the market. We like the market and it's something that, certainly from a financing perspective, still has challenges versus Copper for commercial banks to get their head around, but it's not Lithium. It's not a boutique chemical that you really can't understand or from a credit perspective.
Matthew Gordon: What's next? Because you're going to need to get some scale into this industrial logic of yours.
Bryce Crocker: We've got a big refinery that's got a 25,000t legal capacity and it's 3,000t Cobalt. Idaho fuels the 2000t Cobalt, so now we have to figure out what we do with the other 25,000t Nickel. Do we leave it as Nickel? Do we convert some into Cobalt? That brings Nico Young back onto the table, but it doesn't bring Nico Young back onto the table in 2022, but a number of years after that. We are now talking to third party MHP, mix hydroxide suppliers, a Nickel intermediate that Sao Miguel Paulista processed historically. We are opening discussions with Cobalt hydroxide suppliers to ascertain should we be converting capacity. There's a number of commercial issues now that are underway to really support the restart of the facility.
The focus is on getting into production as quickly as we can. The earliest we can start production, based on the Idaho Cobalt concentrate supply is 2022. I can't accelerate that. That's fast in our industry and that is a differentiating factor versus the other companies that are moving into development; most of them have high CAPEX and are 5-years from production. We've got a real mine that is economic, that is going to be built. We can accelerate the restart of Sao Miguel Paulista if we have other materials that can come through, so that's the commercial focus now. Can we negotiate commercial arrangements from bankable suppliers? It changes the dynamic completely in terms of the offtake, because previously, conceptually, if you're selling a Cobalt concentrate, you've got potentially 6 customers, 6 potential end-users. As you say, Cobalt is a small industry, they all know each other. I don't want to say it's controlled or it's a cartel, but I used to work in it; no-one bids against themselves and no-one bids aggressively against each other.
Simplistically, we've now transformed that 6 to 60. We've got all the automakers, all the battery makers, all the US specialty Steel companies. The breath of partners that we can look to work with is significantly greater because we can provide the product in a form that these groups really want, and that opens up a lot of funding, As we're working through off-take and thinking about financing and where we put leveraging in. Is it the right security package for the project finance facility for Idaho? Should it still be just the US, or should we expand that to encompass Brazil? What are the benefits and challenges associated with that? We can sell equity at the ICO project level or at the refinery level. Just because we paid USD$22.5M, we don’t have to sell 50% for USD$11.25; there's a number of ways that we can do that now we have that flexibility.
I've said to the team that we have to really focus; let's have the workshop, let's work through the options. We're busy updating OEMs and end-users as to what the next steps are because we essentially want to get project financed in Idaho by the end of the year.
Matthew Gordon: How much do you to need to raise?
Bryce Crocker: Capex in Idaho was USD$80M. If we take to Idaho you would probably get another USD$20 to convert the facility, depending on which option we chose. For example, if we chose to restart it based on Idaho, you have about another USD$10-15M to restart the refinery on that basis. The key is that this is financeable. We got the indicative term sheets back from the lenders in January, after we provided them an information circular in December. We chose not to make an appointment. It was a line ball call as to whether you go with commercial lenders or the old alternates. They are more expensive, but potentially, they can be more flexible on structure, off-take requirements, tenure, leverage. Now we're sitting down with the lenders saying, these are the structures, we think they are interesting, what do you think? And we'll make a decision about how we want to move forwards.
RPM Global were appointed as the independent expert. They work for the banks, not Jervois. We allow them to do about 60% of their work but Covid prevented their site visit. To be honest, I would have paused it anyway because they work for the banks not for us. I actually don't want them to finish their report. I need them to to get far enough along that they don't become a constraint on timing, but then, essentially, we appoint the lender and then they take over the mandate from RPM. They dictate to RPM what they want the site visit to focus on. RPM work for them not us. We've compressed that time so that's why we've still got the ability to close the project finance facility by year-end.
Matthew Gordon: That's a great update. I appreciate your time today. It sounds like before the end of the year, you'll have a bit more information around the financing, and that's when the market should really take note.
Bryce Crocker: We're a small company, so all of the suppliers we're talking to in terms of the material that comes into San Miguel, they're not going to be USD$200M market cap companies, and the groups that we're selling the product to are not going to be either, because we need to work with groups that have balance sheets and credibility, and that allows us to do some interesting things on the financing side.
Here is the link to Jervois Mining Company website.
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