First Cobalt Corp. Specialty Minerals and Metals Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX) The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and all the companies and securities that are the subject of this report discussed herein. Canadian Equity Research 18 September 2018 SPECULATIVE BUY PRICE TARGET C$0.70 Price (17-Sep) Ticker C$0.35 ; A$0.38 FCC-TSX 52-Week Range (C$): 0.26 - 1.65 Avg Daily Vol (M) : 0.5 Enterprise Value (C$M): 86.8 Cash (C$M): 19.8 Long-Term Debt (C$M): 0.0 NAV /Shr (C$): 0.67 NAV /Shr (5%) (C$): 1.30 P/NAV (x) (C$): 0.52 Working Capital (C$M): 18.3 FYE Dec 2017A 2018E 2019E EBITDA (C$M) (10.1) (21.9) (22.1) Net Debt (Cash) (C$M) (29) (32) (9) Quarterly EBITDA Q1 Q2 Q3 Q4 2017A (1.5) (1.6) (2.1) (4.9) 2018E (3.2)A (5.8)A (6.4) (6.4) 2019E (5.5) (5.5) (5.6) (5.7) Quarterly Net Debt (Cash) Q1 Q2 Q3 Q4 2017A (5) (4) (3) (29) 2018E (25)A (19)A (13) (32) 2019E (26) (21) (15) (9) 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Ju n -1 8 Jul-18 Aug-18 Sep-18 FCC Global X Lithium & Battery Tech ETF (rebased) Source: FactSet Priced as of close of business 17 September 2018 Eric Zaunscherb, CFA | Analyst | Canaccord Genuity Corp. (Canada) | [email protected] | 1.416.869.7299 Reg Spencer | Analyst | Canaccord Genuity (Australia) Ltd. | [email protected] | +61.2.9263.2701 Allison Carson | Associate | Canaccord Genuity Corp. (Canada) | [email protected] | 1.416.869.7285 Initiation of Coverage Seeking the Holy Grail Investment recommendation We are initiating coverage of First Cobalt with a conservative C$0.70 target price. The 80% projected return justifies a SPECULATIVE BUY rating reflecting the company’s reliance on capital markets to advance as an exploration and development company. We consider finding primary cobalt production outside of the high-risk Democratic Republic of Congo, with upcoming elections and rising export taxes, one of the Holy Grails of the lithium ion battery supply chain. First Cobalt may garner positive market attention as its exploration and development projects in Ontario and Idaho are advanced and de-risked. Investment highlights Cobalt (-8%) and cobalt equities (-31% on an EV/t basis) have pulled back strongly this year on bearish sentiment related to changes in Chinese electric vehicle incentives and increased supply from the Democratic Republic of Congo (DRC), exacerbated by a thin spot market. This, in our view, may be an important investment opportunity. We maintain a constructive outlook on cobalt, focusing on 2025e 14% electric vehicle sales penetration with strong support from energy storage systems growth. Increased battery manufacture capacity and battery materials supply growth are required. The industry’s reliance on cobalt supplies from the DRC makes it vulnerable. First Cobalt has built an excellent project portfolio through the 2017 and 2018 roll-up of several cobalt explorers. This portfolio includes 1) almost one-half of the area of the venerable Cobalt, Ontario mining camp, 2) a fully-permitted cobalt refinery in that camp, and 3) the highly prospective Iron Creek cobalt exploration project in the Idaho Cobalt Belt. In our view, all three projects offer the potential to grow significantly in value as they are advanced while also subject to re-rating as they are de-risked. Potential share price catalysts include an initial resource estimate and metallurgical studies for Iron Creek, a recommissioning study for the Cobalt refinery, and ongoing drill results from both. Sources of risk include cobalt pricing and technical assumptions in advance of the company’s delivery of technical reports. We believe First Cobalt has the experienced management and board of directors necessary to advance the company’s projects, as well as the financial means to take these projects through 2019. We have modeled a $25 million raise at a discount to market ($0.35/sh) in order to fund the company’s needs beyond 2019. At current levels, First Cobalt’s share price implies a US$15/lb cobalt price, as compared to the current US$28/lb spot price and our long-term deck at US$49/lb. This highlights the valuation proposition inherent in the recent cobalt and battery materials theme pullback. Valuation We value First Cobalt’s assets on a spot cobalt basis, currently US$28/lb. Our valuation yields a project NAV of $251 million or $0.59/sh. We add net corporate adjustments of $34 million or $0.08/sh with 422 million shares outstanding. We apply a 1.0x multiple to the corporate NAVPS of $0.67 to yield our target NAVPS of $0.67, which supports a rounded target price of C$0.70. For important information, please see the Important Disclosures beginning on page 36 of this document.
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First Cobalt Corp.
Specialty Minerals and Metals
Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX)The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and allthe companies and securities that are the subject of this report discussed herein.
Seeking the Holy GrailInvestment recommendationWe are initiating coverage of First Cobalt with a conservative C$0.70 target price. The80% projected return justifies a SPECULATIVE BUY rating reflecting the company’sreliance on capital markets to advance as an exploration and development company. Weconsider finding primary cobalt production outside of the high-risk Democratic Republicof Congo, with upcoming elections and rising export taxes, one of the Holy Grails of thelithium ion battery supply chain. First Cobalt may garner positive market attention as itsexploration and development projects in Ontario and Idaho are advanced and de-risked.
Investment highlightsCobalt (-8%) and cobalt equities (-31% on an EV/t basis) have pulled back strongly thisyear on bearish sentiment related to changes in Chinese electric vehicle incentivesand increased supply from the Democratic Republic of Congo (DRC), exacerbated bya thin spot market. This, in our view, may be an important investment opportunity. Wemaintain a constructive outlook on cobalt, focusing on 2025e 14% electric vehicle salespenetration with strong support from energy storage systems growth. Increased batterymanufacture capacity and battery materials supply growth are required. The industry’sreliance on cobalt supplies from the DRC makes it vulnerable.First Cobalt has built an excellent project portfolio through the 2017 and 2018 roll-upof several cobalt explorers. This portfolio includes 1) almost one-half of the area of thevenerable Cobalt, Ontario mining camp, 2) a fully-permitted cobalt refinery in that camp,and 3) the highly prospective Iron Creek cobalt exploration project in the Idaho CobaltBelt. In our view, all three projects offer the potential to grow significantly in value as theyare advanced while also subject to re-rating as they are de-risked.Potential share price catalysts include an initial resource estimate and metallurgicalstudies for Iron Creek, a recommissioning study for the Cobalt refinery, and ongoing drillresults from both. Sources of risk include cobalt pricing and technical assumptions inadvance of the company’s delivery of technical reports.We believe First Cobalt has the experienced management and board of directorsnecessary to advance the company’s projects, as well as the financial means to takethese projects through 2019. We have modeled a $25 million raise at a discount tomarket ($0.35/sh) in order to fund the company’s needs beyond 2019. At current levels,First Cobalt’s share price implies a US$15/lb cobalt price, as compared to the currentUS$28/lb spot price and our long-term deck at US$49/lb. This highlights the valuationproposition inherent in the recent cobalt and battery materials theme pullback.
ValuationWe value First Cobalt’s assets on a spot cobalt basis, currently US$28/lb. Our valuationyields a project NAV of $251 million or $0.59/sh. We add net corporate adjustments of$34 million or $0.08/sh with 422 million shares outstanding. We apply a 1.0x multipleto the corporate NAVPS of $0.67 to yield our target NAVPS of $0.67, which supports arounded target price of C$0.70.
For important information, please see the Important Disclosures beginning on page 36 of this document.
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Table of Contents
Table of Contents ....................................................................................................... 2
Seeking the Holy Grail ................................................................................................ 4
Figure 23: Cobalt supply is constrained geographically (left) with the Democratic Republic of Congo dominating, and by producer (right) with the
majors dominating.
Source: Company Reports, USGS, Darton Consulting, Canaccord Genuity estimates
The USGS estimates (2016) global cobalt reserves at 7.0 Mt, with the Democratic
Republic of Congo (DRC) hosting a clear majority of known reserves at 49% of the
global total. The DRC is the world’s largest producer of mined cobalt at over 56% of
global output in 2016, followed by other major copper/nickel producing nations such
as Australia, Canada, and the Philippines. In addition to geographic constraints (Figure
23), cobalt supply is also constrained by producer, dominated by several majors.
Global cobalt supply (incorporating mined production and refined cobalt products) has
increased by a 6% CAGR since 2009, with estimated global mine supply in 2016 of
106kt, excluding difficult-to-estimate supply from artisanal/informal sources in the
DRC, which could constitute ~10-15% of the global supply.
A precarious balance
We expect overall annual refined cobalt demand to grow at ~9% CAGR to 213kt by
2025 as per Figure 22. This reflects our view of the key growth segment of Li-Bs for
EV/Storage applications based on overall penetration of 14% of global passenger
vehicle sales by 2025 (Figure 24).
Aside from considering the impacts of various incentive programs, one must also
predict the pace of the transition from high cobalt battery cathode chemistries like
LCO and NMC 111 to lower cobalt cathode chemistries like NMC 662 and NMC 811
(Figure 25). In our view, extensive quality and safety testing will slow acceptance of
the latter chemistries, which will then allow them to dominate new vehicle sales.
With an estimated 97% of current mined cobalt supply derived as a by-product of
nickel and copper production, the unhealthy reliance on DRC operations is unlikely to
dissipate in the near term. In fact, we believe that the dependence on the DRC is likely
to increase going forward as outlined in Figure 26, exacerbated by a very thin non-DRC
pipeline of projects.
Putting it all together (Figure 27), we expect that the market will remain tight until
2020. Even then, small supply excesses could easily be vulnerable to supply
disruptions due to political upheaval or even strife within the DRC. We expect that the
cobalt price will remain elevated, further motivating battery precursor manufactures to
thrift within NMC cathode formulations. This is anticipated to have the effect of
bringing the market into balance before unspecified new supply is required to avoid
deficits of >7%. Our price deck features a long-term (+2025) forecast of US$49/lb.
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Figure 24: CGe forecast of EV sales penetration 2017 - 2025.
Source: Company Reports, Canaccord Genuity estimates
Figure 25: CGe of cobalt distribution in cathodes
Source: Company Reports, Canaccord Genuity estimates
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Figure 26: CG mined cobalt supply forecasts dominated by the DRC
Source: Company Reports, Canaccord Genuity estimates
Figure 27: CGe of cobalt market balance 2018-2025
Source: Company Reports, Canaccord Genuity estimates
Key influences on our near-term supply projections include the ramp-up of large
projects such as the whole of ore leach project at Kamoto (toward 31kt) along with the
nearby Sicomines operation (towards 12kt). We also expect consolidation in refined
cobalt operations will reduce the impact of process loss; however, this could be offset
by a lack of capacity to provide adequate supply of refined chemical products.
Overall demand is expected to continue to grow at 8% CAGR to 2025 with industrial
applications such as super alloys assumed to only grow at 0.5% p.a. as end users are
expected to reduce cobalt content in with chromium alloys. Within the key EV and
storage battery segment, demand is expected to equate to a CAGR of 26% until 2025.
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Appendix C – Cobalt, Ontario
History
Cobalt is located ~500km north of Toronto, in northeastern Ontario and was named
during the construction of the Temiskaming and Northern Ontario Railway for one of
the elements found in the arsenide minerals within the veins found at surface. In
1884 Sir William Logan discovered a vein bearing cobalt at what would become the
Agaunico mine, 1km south of the town of Haileybury. The first mine in the Cobalt camp
commenced operations in 1904 and produced mainly silver, almost continuously until
1989. Between 1909 and 1989 there were approximately 140 silver-cobalt properties
in the Cobalt Embayment. Official production during these times, although possibly
under-reported, was 553,168,278 oz Ag, 24,685,219 lb Co, 3,624,546 lb Ni, and
2,625,714 lb Cu.
The camp is broken into two main mining areas, Cobalt and Silver Center. The Cobalt
mining camp is located to the north of Silver Center and featured the Silverfield Mine,
the Kerr Lake deposit (Kerr, Hargrave and Consil mines), the Lawson Mine, and the
Ophir mine.
The Silverfield Mine operated from 1903 until it was eventually shut down by
Teck in 1983. Although cobalt production is uncertain, grades reported vary
from 0.25-1%.
The Kerr Lake deposit was discovered in 1904, commercial production began
in 1905 and the mine operated intermittently until 1964. A total of eight
shafts were sunk on the Kerr Lake claims, along with one adit that was driven
south from the shoreline of Kerr Lake. These underground workings were
connected to Hargrave, Conisil, and Lawson Mines.
The Lawson deposit was discovered in 1905 and production at the Lawson
Mine commenced in 1909. From 1922 to 1944 the Lawson Mine was
operated pursuant to several leases. The mine re-opened in 1953 and
remained in operation until 1960 by Silver Miller Mines Ltd. No record of
silver production came during this period, as the ore was mixed with other
Silver Miller ores from surrounding mines.
In 1977 St. Joseph Exploration constructed the Canadaka Mill, which was
designed to process up to 500 tons per day; however, it was estimated to
only have processed 350 tons per day. The mill was closed in 1980 when the
company’s mines ceased operations. Sulpetro Minerals Ltd. bought the mill in
1983 and modified it to process tailings being mined at the Chambers-
Ferland tailings containment area. Milling rates averaged 450 to 500 short
tons per day. The mill was later sold to Trio during the acquisition of the
Property. In 2012 Trio completed diamond drill holes, one of which
intersected mineralization consisting of cobaltite +/- silver veinlets up to
several millimeters wide. The diamond drilling, however, was not conducted
to industry standards as outlined by CIM Best Practice Guidelines.
The Ophir Mine reported production of 2.2Kg silver in 1921 and 2,282
tonnes of cobalt mineralization extracted in 1954. Cobalt mineralization was
generally restricted to the vein proper, so the width of the stope was kept
small. Minor silver and bismuth were reported in the stoped material. Total
production is uncertain, and further complicated by the fact that the claim
was also accessed via shafts and underground development from the
adjacent Mayfair and Silver Banner mines.
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The Silver Center mining camp is in the southern part of the district and was host to
the Lang-Caswell, Keeley, Frontier, and Bellellen mines.
Lang-Caswell is the furthest north of the afore mentioned mines and reported
minor production of 46.8kg Ag and 2,237kg Co in 1936.
Further south in the Keeley-Frontier area, silver mineralization was first
discovered in 1907 and led to the development of the Keeley mine. The
claims where the silver was discovered traded hands several times. The
“Farmers Bank” owned the claims briefly, but were never owners of the mine.
Liquidators gained possession of the Keeley mine after the Farmers Bank
failed. Keeley Mine Limited became the operators of the property and kept it
in good standing. In 1913 The Association of Gold Mines of Western Australia
acquired the option on the property and in 1919 the property and majority of
the stock in Keeley Mine Limited was transferred to Associated Gold. In 1933
Keeley Mines Ltd. and the property were acquired by Anglo-Huronian.
Along with the Keeley mine, the other key mine in the area is the Frontier
mine. It was in the south half of the Haileybury Silver Mining Company’s claim
and the claim was purchased by Henry Newburger in 1912. Newburger
formed the Haileybury Frontier Company and sank two shafts into the
property. After Newburger’s death in 1914 his brother bought into the
property. The mine remained closed until 1920 when Joseph Newburger had
the mine dewatered and examined by several silver-mining companies.
Horace Strong purchased the property in 1920 and secured a one-year lease
option to purchase the Frontier Mine. Strong discovered high-grade silver on
the south half of the claim in 1921 immediately north of the Keeley claim.
In 1921 the Mining Corporation of Canada amalgamated several companies
and claims, including the Haileybury Silver Mines and Frontier Mine
properties, the former Compton, Little Keeley, and the Keeley Extension
properties into Frontier Silver Mines Limited. The intermittent production at
Keeley Mine, operated by the Keeley Silver Mines Ltd., from 1908 to 1942
totalled 12,154,353 oz Ag and 1,617,684 lbs Co. The Frontier mine was
operated by the Mining Corporation of Canada from 1921 to 1943 and
produced 6,695,415 oz Ag, 1,683,769 lb Co and 12,158 lb Ni.
In 1961 Keeley-Frontier Mines Limited purchased and consolidated the 13
patented claims that now form the core Keeley-Frontier patent claim group. It
was subsequently re-organized as Canadian Keeley Mines Ltd. in 1964 and
then became Keeley Frontier Resources Inc. in 1980. Work on the property
from 1961-1962 included dewatering and rehabilitating the mines. The two
mines were connected at three points. The Woods vein had been mined out
by this time and the 1963-1965 Keeley-Frontier mine produced 347,645 oz
Ag & 9,003 lb Co & 14,358 lb Ni, which came primarily from the Keeley Mine
and reprocessed tailings. Agnico Eagle optioned the property circa 1969 to
1972 and completed an underground drilling program.
The property changed hands from Keeley Frontier Resources to M&M
Porcupine Gold Mines in 1984, and to 155433 Canada Limited, a subsidiary
of LaChib Development Corporation, in 1987.
In 1994 Transway Capital Inc. acquired the property and sold 10,000 tons of
muck to Cobatec Ltd.
1695255 Ontario Inc. acquired the property in 2007 and then changed its
name to Silver Centre Resources. They subsequently changed their name to
Canadian Silver Hunter Inc. in 2010 and completed a six-hole diamond
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drilling program. In 2012 they completed bedrock stripping, channel
sampling, geological mapping, and mechanical stripping.
The last mine in the Silver Center camp, the Bellellen mine, operated
intermittently from 1910 to 1943 and produced 1,182,772 oz Ag, 28,481 lb
Co and 13,404 lb Ni.
Geologic Setting
The Cobalt, Ontario district is host to the two Cobalt-Gowganda silver-cobalt mining
camps. They are found within the Cobalt Embayment and are hosts to silver-cobalt
“vein style” mineralization. Economic grade deposits in the Cobalt and Gowganda
mining camps are hosted within or adjacent to diabase sills, located proximally to the
Huronian-Archean unconformity. Silver-cobalt vein deposits have been discovered
along the north and northeastern margins of the Cobalt Embayment where the
Proterozoic vein systems typically occur in proximity to the pre-Huronian faults that
were reactivated during emplacement of the Nipissing Diabase.
The Cobalt Embayment represents the northeastern part of the Southern geological
province, close to the boundary of the Superior and Grenville provinces and is a
continental rift system that is a large, 120km across, circular domain of flat-lying,
gently undulating succession of dominantly siliciclastic sedimentary rocks belonging to
the Huronian Supergroup. The embayment is bounded in most directions by Archean
rocks, except to the south, where it is truncated by the Grenville Front tectonic zone.
The Archean basement is exposed as isolated inliers in the north and northeast
margin of the Cobalt Embayment. The basement consists of metavolcanic rocks and
associated interflow sedimentary rocks of the Abitibi Subprovince, one of the world’s
largest, best preserved, and most economically productive greenstone belts. The
Cobalt Project properties cover the main eastern Cobalt Embayment portion of the
Nipissing sill complex and most of the exposed Archean-Proterozoic unconformity.
The Cobalt Group is relatively undeformed Huronian Supergroup rocks. Within the
Cobalt Group, the Coleman member, a basal conglomerate above the steeply dipping
and folded Archean volcanic rocks, is the most important member as it is the
sediment host to the silver-cobalt vein deposits. It is composed of conglomerate,
greywacke, quartzite and laminated siltstone, and has a maximum thickness of 180m.
The Nipissing Diabase is interpreted as a thick undulating sheet intruding the Cobalt
Group sediments at or immediately above the Archean unconformity. Intrusions that
are closer in proximity to the steeply dipping Archean basement volcanic rocks, is
where more vigorous fracture generation occurs relative to the flat-lying Huronian
sequence. The Nipissing diabase and regional high heat flow/geothermal gradient
served as a heat source to mobilize metals from the Huronian and Archean rocks and
advect hypersaline formation brines. Both mineralizing solutions and magmas may
have utilized the periodically reactivated, deep regional fault systems to access the
upper levels of the crust. Deposition occurs where oxidized basin fluids reacted with
localized reductants and possibly structural traps where boiling may augment
deposition.
Mineralization occurs as Ag-Co-Ni-Bi-arsenides, predominantly hosted in veins and
stockworks known as the Five-Element Vein Type deposits. The silver dominated
veins, with subordinate cobalt, nickel, copper and zinc content, are mostly located in
the northern part of the embayment. The cobalt dominant veins, however, are found
mainly in the eastern margin of the embayment in the Cobalt and Silver Center mining
camps. Deposits in the Cobalt mining camp are extremely rich, polymetallic, small and
narrow, sharp-walled and fracture-infilled veins. Although the ore is localized, the vein
systems themselves can be quite extensive, in some instances they completely
transect the Nipissing sills, and often continue for significant distances into
surrounding country rocks. Their extent can be as much as 1000m horizontally and
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120m vertically. Silver-cobalt ore is found almost exclusively within the steeply dipping
veins but has a restricted vertical extent, and in flat-laying veins it is only present at
intersections with steep veins. The ore veins are characterized by a complex ore
mineralogy composed of arsenides and sulpharsenides of Co, Ni, Fe together with
native silver and bismuth, with minor antimonides, and sulphides of Pb, Sn, and Cu.
Silver grades are highest in the Ni-bearing assemblages, and intersections of flat and
ore vein are commonly preferred sites for ore deposition.
The Silver Centre area is different than the Cobalt mining camp. Production veins are
predominantly found in the Archean metavolcanics rocks adjacent to the first 60m
upper contact of the diabase sill. Ore shoots range in length up to 30m and width from
15cm to 1m. Most of the veins are localized in steeply dipping fault zones.
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Appendix D – The Idaho Cobalt Belt, Idaho
History
First Cobalt’s Iron Creek property is in the Idaho Cobalt Belt approximately 29km
southwest from Salmon, Idaho. The Property has had substantial historical work
completed including approximately 1,500 feet of underground workings, several
copper and cobalt targets identified by three different companies, and a non-NI 43-
101 compliant historic resource. The name of the property originates from 1946 when
it drew attention for iron prospecting. In 1967, during the construction of a logging
road, 14 claims were staked on copper stains in the No Name Zone.
In 1970 the claims were leased to Sachem Prospects Corporation. Sachem completed
an exploration program that included staking, geologic mapping, aerial photography,
induced polarization, self potential, magnetic and geochemical surveys over the No
Name Zone. They also drilled eleven diamond drill holes and drove three drifts. They
optioned the property in 1972 to Costal Mining Co. and Idaho Mining Co, wholly
owned subsidiaries of Hanna Mining (Hanna), Hanna then went on to acquire the
property a year later through a lawsuit.
By 1967, Hanna had spent a total of $536,000 on exploration activities on the
property including a PEA, reconnaissance of four additional zones, and diamond
drilled a total of 13,250 feet, mainly on the No Name Zone. In 1979 Noranda
Exploration Inc. earned a 75% interest in the property when it optioned the nearby
Blackbird Mine property from Hanna. Noranda conducted $132,000 of exploration
work by 1983. In 1985 Inspiration and Noranda released the property and Hanna
rehabilitated the workings and drove a new portal into the 6500 Level adit around the
caved original portal. The Property also hosts a historical estimate of 4.57 million tons
grading 1.84% copper. This historical estimate is from the Noranda Report that notes
that, in the west zone of the No Name Zone, there is the presence of 4.57 million tons
grading 1.84% copper "possible reserves" or similar.
The property was acquired from Hanna in 1988 by Centurion Gold whose objective
was to find additional gold mineralization. Through their work, Centurion found copper-
cobalt mineralized intersections of up to 25ft grading 5.54% copper and 0.19%
cobalt, three additional copper-cobalt targets, and a location within a belt of rocks that
contains similar copper-cobalt mines and showings.
The property was then leased to Cominco American Resources Inc. in 1991. Cominco
was looking to upgrade and enlarge the area of copper-cobalt mineralization, however,
after two years of exploration work geologists were not able to identify good potential
for substantially increasing reserves and grade of the Iron Creek deposit.
In 2016 Scientific Metals (STM) entered into a letter agreement with a private
company providing STM with exclusive rights to enter into a lease agreement with an
option to acquire a 100% interest in the Iron Creek Cobalt Property. STM changed
their name to US Cobalt in May 2017. Since 2016, US Cobalt has completed
approximately 35,000ft. of core drilling from surface, rehabilitated two of the three
adits, and commenced underground core drilling. US Cobalt announced a friendly
acquisition of the company by First Cobalt in an all share transaction on March 14,
2018.
Geologic Setting
The Iron Creek Project lies within the Blackbird copper-cobalt district, the most prolific
trend of cobalt mineralization in the Idaho Cobalt Belt. The Idaho Cobalt Belt is similar
in formation to the world class Copper Belt located between Zambia and the
Democratic Republic of Congo. Large tabular mineralized lenses lay within fine
grained sedimentary and metasedimentary strataform horizons. This style of
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mineralization differs greatly from the Ag-Co “vein style” mineralization found in
Northern Ontario and may be more amenable to larger scale commercial production.
The rock that hosts the Iron Creek mineralization is part of the upper Middle
Proterozoic Yellowjacket Formation, which is the oldest unit within a 50,000-ft thick
sedimentary section. The mineralization occurs within the Middle Member of the
Formation and is associated with tuffaceous and exhalative deposits in a sequence of
argillite, phyllite and lesser quartzite. Bedding and foliation are prominent, and both
generally strike northwest and dip 60º to 80 º northeast. The rocks at the Iron Creek
Property have undergone intense penetrative deformation. Small recumbent, isoclinal
drag folds are common among the strata and compose fields of unique orientation
and drag sense that can imply only the presences of much larger isoclinal folds.
The main mineralized zone on the Property is the No Name Zone, typified by steeply
dipping, tabular zone containing a “swarm” of en-echelon layers and lenses composed
of copper, iron, and cobalt sulphides, and magnetite. This Zone and it’s massive-
sulphide components are concordant primarily with the flanking metasedimentary
rocks, implying a syngenetic origin where cross cutting veins have also been
identified.
Dominant minerals in the No Name Zone include pyrite (FeS2), magnetite (Fe3O4),
chalcopyrite (CuFeS2), native copper (Cu) and pyrrhotite (Fe1-xS). Oxidation and
weathering have formed gossans of quartz, jarosite, goethite and hematite with
malachite staining and some remnant sygenetic mineralization. Cobalt occurs almost
entirely within pyrite. Two varieties of pyrite have been identified on the property, a
cobalt-rich variety containing 2.5%-4.5% Co and a cobalt-free pyrite. There appear to
be three stages of pyrite deposition, chalcopyrite probably is coincident with the last
pyrite stage while marcasite and the rare cobaltite are later than the chalcopyrite.
There are three other Zones on the property, Jackass, Footwall No Name, and
Sulphate. The Jackass Zone is located 2000 ft. southeast of the No Name Zone.
Outcrop mapping indicates the presence of zoning like the No Name Zone, where
magnetite and pyrite are confined to the footwall of the zone. Pyrite increases, and
magnetite decreases in abundance in the stratigraphic sequence. Unlike the No Name
Zone, there is an upper magnetite zone in the hanging wall which outcrops along the
road. The Footwall No Name Zone is a copper-cobalt zone that occurs stratigraphically
below the No Name Zone possibly along strike with the Jackass Zone. It’s 2000-foot
strike length is at least partly covered by Tertiary Challis Volcanics. The Sulphate Zone
is another stratabound, magnetite-rich mineralized area that exhibits conformable,
narrow zones of magnetite and pyrite, resembling the No Name and Jackass Zones.
Malachite stains chloritic rocks in the area. No distinct mineralogical zoning is evident
within the Sulphate Zone.
First Cobalt Corp.Initiation of Coverage
Speculative Buy Target Price C$0.70 | 18 September 2018 Specialty Minerals and Metals 35
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Investment RecommendationDate and time of first dissemination: September 18, 2018, 06:49 ETDate and time of production: September 18, 2018, 06:49 ETTarget Price / Valuation Methodology:First Cobalt Corp. - FCCWe value First Cobalt’s assets on a spot cobalt basis, currently US$28/lb. Our valuation yields a project NAV of $251 million or $0.59/sh.We add net corporate adjustments of $34 million or $0.08/sh including $25 million raised at $0.32/sh to fund First Cobalt into 2020with 422 million shares outstanding. We apply a 1.0x multiple to the corporate NAVPS of $0.67 to yield our target NAVPS of $0.67, whichsupports a rounded target price of C$0.70.Risks to achieving Target Price / Valuation:First Cobalt Corp. - FCCAside from the usual risks associated with exploration and development, risks centre on cobalt pricing, the technical assumptions wehave made in our project valuations in advance of the company’s delivery of technical reports, and potential risks from environmentaland safety legacies in the Cobalt mining camp in Ontario.
Distribution of Ratings:Global Stock Ratings (as of 09/18/18)Rating Coverage Universe IB Clients
883* 100.0%*Total includes stocks that are Under Review
Canaccord Genuity Ratings SystemBUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months.
HOLD: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months.
SELL: The stock is expected to generate negative risk-adjusted returns during the next 12 months.
NOT RATED: Canaccord Genuity does not provide research coverage of the relevant issuer.“Risk-adjusted return” refers to the expected return in relation to the amount of risk associated with the designated investment or therelevant issuer.Risk QualifierSPECULATIVE: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in thestock may result in material loss.
12-Month Recommendation History (as of date same as the Global Stock Ratings table)
First Cobalt Corp.Initiation of Coverage
Speculative Buy Target Price C$0.70 | 18 September 2018 Specialty Minerals and Metals 36
A list of all the recommendations on any issuer under coverage that was disseminated during the preceding 12-month periodmay be obtained at the following website (provided as a hyperlink if this report is being read electronically) http://disclosures-mar.canaccordgenuity.com/EN/Pages/default.aspx
Required Company-Specific Disclosures (as of date of this publication)First Cobalt Corp. currently is, or in the past 12 months was, a client of Canaccord Genuity or its affiliated companies. During this period,Canaccord Genuity or its affiliated companies provided investment banking services to First Cobalt Corp..In the past 12 months, Canaccord Genuity or its affiliated companies have received compensation for Investment Banking services fromFirst Cobalt Corp. .In the past 12 months, Canaccord Genuity or any of its affiliated companies have been lead manager, co-lead manager or co-managerof a public offering of securities of First Cobalt Corp. or any publicly disclosed offer of securities of First Cobalt Corp. or in any relatedderivatives.Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Investment Bankingservices from First Cobalt Corp. in the next three months.The primary analyst, a member of primary analyst's household, or any individual directly involved in the preparation of this research, hasa long position in the shares or derivatives, or has any other financial interest in First Cobalt Corp., the value of which increases as thevalue of the underlying equity increases.
First Cobalt Corp. Rating History as of 09/17/2018C$1.60C$1.40C$1.20C$1.00C$0.80C$0.60C$0.40C$0.20C$0.00
Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18
Closing Price Price Target
Buy (B); Speculative Buy (SB); Sell (S); Hold (H); Suspended (SU); Under Review (UR); Restricted (RE); Not Rated (NR)
Past performanceIn line with Article 44(4)(b), MiFID II Delegated Regulation, we disclose price performance for the preceding five years or the whole periodfor which the financial instrument has been offered or investment service provided where less than five years. Please note price historyrefers to actual past performance, and that past performance is not a reliable indicator of future price and/or performance.
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First Cobalt Corp.Initiation of Coverage
Speculative Buy Target Price C$0.70 | 18 September 2018 Specialty Minerals and Metals 37
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First Cobalt Corp.Initiation of Coverage
Speculative Buy Target Price C$0.70 | 18 September 2018 Specialty Minerals and Metals 38
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First Cobalt Corp.Initiation of Coverage
Speculative Buy Target Price C$0.70 | 18 September 2018 Specialty Minerals and Metals 39