First Cobalt Corp.; fully-funded & substantially de-risked with new US$45M financing package

First Cobalt Corp. [FCC] — (TSX-V: FCC) / (OTCQX: FTSSF) is a North American battery materials company with leading ESG credentials that’s ideally positioned to play an important role in Ontario’s emergence as a significant EV & Li-ion battery manufacturing hub.

FCC plans to; 1] produce cobalt (Co) sulfate (“CoSO4”) from late-2022, 2] recycle black mass (from end-of-life batteries) & scrap (battery materials waste from new EV production) from 2023, 3] produce Ni sulfate by 2024 or 2025, 4] entice one or more third-parties to co-locate a precursor / battery cathode plant by 2025, and 5] be a Co/Cu producer in Idaho (USA) by 2026 or 2027.

First Cobalt to be a significant Li-ion battery materials player in North America

In Phase 1, management is expanding, optimizing & recommissioning North America’s only permitted refinery capable of producing clean, conflict-free battery-quality CoSO4.

Phase 1 will be completed in late 2022, at which time the refinery will start ramping up to 25,000 tonnes/yr. CoSO4, making it the second largest producer outside of China. Note: {subject to market conditions, management believes it can increase CoSO4 production by up to 30% from 2024}.

FCC has achieved a major de-risking milestone. For the past few months investors were anxiously awaiting news of a final US$45M funding package for the 100%-owned hydro-metallurgical refinery in northern Ontario.

That news arrived on August 23rd in the form of a US$37.5M secured convertible note, [6.95% interest rate, due 12/1/26], convertible at a 25% premium to the pricing of a concurrent equity issuance of ~C$9.5M. Note: {cobalt junior Jervois Global Ltd. recently issued 5-yr. (non-convertible) secured notes at 12.5%, @ 98% of par, for a yield of ~13.1%}.

The new equity was priced at C$0.25/shr., [with no warrants]. The notes are convertible at ~C$0.31. Note holders have a 60-day option to take down an incremental US$7.5M under the same terms. For the purposes of this article, I assume that extra US$7.5M gets issued.

After three years, if the share price is > ~C$0.47 for any 20 [of 30 consecutive trading days], FCC can force conversion, which would save C$4M/yr. in interest expense for up to two years. Note: {importantly, shares issued from note conversions will have no warrants attached.}

If/when this new debt is converted, the combined US$52.5M in funding would equate to ~44% equity dilution. However, the vast majority of that dilution will occur after August, 2024.

Fully-funding the expansion of the refinery marks major project milestone

Upon conversion, FCC will have a pristine balance sheet with just C$5M of debt — comprised entirely of a Canadian gov’t loan [interest-free, ~9.5 yr. remaining maturity], and a partially-drawn US$5M working capital facility.

A bullet-proof balance sheet will serve FCC well if management wants to expand operations and/or make acquisitions.

Importantly, all these activities (except the Idaho operations) are anticipated to run concurrently at the Company’s expanded & integrated battery materials park. Companies with long-term, sustainable cash flow generation typically command attractive valuations.

For example, six well-known gold/silver royalty & streaming companies are trading [on average] at an EV ratio of ~23 times trailing 12-month EBITDA. Major cannabis players are valued at an average of > 20x trailing EBITDA. Lithium giants Albemarle & SQM are trading at 34x & 35x!

If First Cobalt could achieve a 12x multiple of 2024e EBITDA (estimated @ C$55M, incl. C$5M from recycling), discounting that indicative C$660M valuation back three years at 10%/yr. would equate to a valuation of ~C$0.80/shr. (based on 534.2M pro forma shares & C$70M of pro forma net debt).

Assuming the eventual conversion of US$45M of notes, FCC would have ~717M shares outstanding (after Aug,, 2024). CEO Trent Mell has said that at an opportune time, the Company will do a reverse stock split in order to obtain a NYSE (American) or OTC listing in the U.S.

Several Canadian-listed lithium juniors — most notably Lithium Americas & Standard Lithium — have garnered premium valuations, strong institutional support & excellent trading liquidity via U.S. listings.

Management now ready, willing & able to attract new long-term shareholders & institutions

Now that FCC is fully-funded through cash flow positive operations in early 2023, management can more readily tell the story to attract longer-term investors & institutions.

I suspect we’ll see updated sell-side research notes from Cantor Fitzgerald, Eight Capital & Red Cloud Securities, plus possibly new coverage from BMO and hopefully a few others. Readers are reminded of the relative scarcity of Li-ion battery materials players, especially ones that will be meaningfully cash flow positive in 2023.

There are dozens of pre-revenue companies tied to the global paradigm shift to EVs — OEMs, EV charging & recycling start-ups, battery makers, etc. — but most will not be substantially EBITDA positive before 2025, if ever. Yet, many high-flying names have valuations in the billions of dollars.

ESG credentials + near-term cash flow + cheap valuation = attractive entry point?

FCC has the added advantage of being a green energy metals company. It’s hydro-metallurgical process scores high on (low) emissions. And, combined with its N. American location & 100% use of hydroelectric power, it also scores high on ESG metrics.

Not only is FCC in a select group of juniors that will soon be cash flow positive with environmentally-friendly practices, it’s expanding, enhancing & constructing what will become a very valuable, integrated battery materials park. Compare FCC’s robust business plan to pre-production mining projects.

The probability of FCC generating meaningful cash flow in 2023 is far greater than that of most battery metals / EV-related peers. And, the risks of commissioning the refinery are much lower (in my opinion) than the risks of developing a new mine.

Management has expertly positioned the Company to be a significant part of the EV / battery story unfolding in North America. In Canada & the U.S. it would likely take 6-10 years to plan, permit, fund, construct & commission a new battery materials park + the associated regional infrastructure.

By contrast, FCC will be up & running late next year with Phase 1 CoSO4 production. Cash flow from Phase 1 should self-fund the expansion into a fully-integrated battery materials park by 2025, and also exploration & development of its promising Co/Cu project in Idaho.


It would be hard to overstate how much de-risking has occurred in the past year. In addition to fully-funding the refinery expansion, management has secured Co hydroxide feedstock for refinery operations, lined up a long-term off-take agreement for up to 100% of its CoSO4 production and secured C$10M of gov’t funding (C$5M in a free cash grant, plus C$5M from a 10-yr., interest-free loan).

Moreover, the business plan has been greatly enhanced to include ever-stronger ESG credentials, black mass / battery scrap recycling & Ni sulfate refining.

With prospects for the battery materials park in Ontario now a lot more compelling, the ability to fund and actively advance the Co/Cu project has gone way up.

North America is poised to become a major, world-class, manufacturing hub for EVs & Li-ion batteries. First Cobalt Corp.’s (TSX-v: FCC) / (OTCQX: FTSSF) Ontario operations will be right in the heart of it all.

Disclosures: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about First Cobalt Corp., including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of First Cobalt Corp. are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

At the time this interview was posted, Peter Epstein owned shares of First Cobalt Corp., and the Company was an advertiser on [ER]. 

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