COBC’s cobalt off-take agreement and US$30 million trade finance facility turns heads
Businesses that do well solve real problems, or in VC/entrepreneur lingo, pain points. Canada’s Cobalt Blockchain Inc. (TSXV: COBC), often known as its ticker symbol, COBC, does just that.
Here are the pain points. The likes of Apple Inc. or BMW AG need cobalt in their telephone and car batteries, and they loathe to buy it from artisanal mining groups in the Democratic Republic of Congo (DRC) that have been known to employ underage labor. Apple and Samsung’s DRC dependence is actually going to increase in the short-term, with the central African country supplying 70% of world supply by 2020, from 65% now.
On the other hand, for every artisanal mining group employing children, there are several others that don’t. These groups are afraid that those who allow unethical practices will ruin it for everyone, allowing the cobalt boom to pass the DRC by. Scientists are trying to find alternatives to cobalt, which up until now has been the best preserver of energy in lithium-ion batteries.
Having a slick iPhone traced back to a child carrying a heavy sack in Africa is, rightly, an unacceptable outcome. This is an industry that needs to build a reliable supply chain. Some companies have already decided that they are not going to buy cobalt from the DRC, COBC President Lance Hooper told InvestorIntel.
COBC has come up with a solution, to make sure that small DRC mining groups won’t miss out on the cobalt boom. It ensures that procedures are put in place to ensure underage workers do not enter a mine site, and that miners are compensated fairly for their produce. This data is entered into a blockchain ledger.
I was slightly apprehensive when I first heard about Cobalt Blockchain. Isn’t this a management team trying to put two hot topics into one name? Not at all. The amalgamation of these two concepts makes perfect sense.
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First, COBC puts a fence around a mine site, cameras and round the clock guards. Only authorized artisanal miners are allowed to enter through the main entry checkpoint, and the barcode (scanned by guards) creates an indelible blockchain entry. This ensures no child labor, and no 20-hour days.
Mining co-operatives, often groups of 5-10 men, bring their sacks to the depot. They are weighed, scanned and sealed with a tag akin to those used in banks. An average is taken of average grade. All this data is uploaded to the blockchain. All subsequent processes, including trucks to the refinery, are scanned and recorded. It’s a ledger process that the COBC executive team learned in northern DRC for tin, tantum and tungsten mines. This updated version for cobalt uses blockchain. The diamond industry is already using blockchain.
“Our blockchain user interface is not very sexy,” Hooper said. “But if you drill into the transaction data you can see the back-up data. There are no ways of changing it.”
COBC accomplished a big milestone this week after signing a letter of intent to establish a commercial partnership with Traxys, a commodities trader with annual revenue of more than $6 billion.
The partnership allows COBC to lease and operate Traxys’ cobalt hydroxide plant in Lubumbashi (close to the artisanal mines) in a 10-year offtake agreement. COBC also gets a US$30mn trade finance facility from Traxys for certified, ethically-sourced cobalt concentrates traded by COBC over that time period.
The plant could potentially operate as much as $50 million of metal a year, Hooper said.
COBC designed its process to comply with the Responsible Cobalt Initiative (RCI), a group spearheaded by the Chinese Chamber of Commerce for Metals, Minerals & Chemicals Importers & Exporters (CCCMC) that allows companies to ensure that material is sourced ethically. The RCI was created in accordance with Organization for Economic Co-operation and Development (OECD) guidelines and is backed from major buyers from Apple Inc. to Samsung SDI.
Traxys picked COBC among about 20 groups who were bidding to operate the Lubumbashi plant, Hooper said. The company’s Mintrax technology, developed in a joint venture with Toronto-based blockchain specialist DLT Labs, had also caught the attention of other major trading groups, including Glencore and Trafigura.
In 2017, average annual cobalt prices more than doubled, owing to strong demand from consumers, limited availability of cobalt on the spot market, and an increase in metal purchases by investors, according to the 2018 Mineral Commodity Summaries of the US Geological Survey (USGS).
Growth in world refined cobalt supply was forecast to increase at a lower rate than that of consumption, which was driven mainly by the rechargeable battery and aerospace industries.
Matt Craze works with New York-based management consultancy 10EQS and is the founder of Spheric Research, a firm dedicated to global seafood industry research. Matt ... <Read more about Matt Craze>