Capstone Mining Corp. is pushing ahead with a feasibility study of potential cobalt sulfate production at its Santo Domingo copper-iron-gold project in Chile, which analysts have cast as a rare example of supply from outside the Democratic Republic of Congo.
"You don't typically think of cobalt in Chile. It's bit of a unicorn in that way," Cormark Securities mining analyst Stefan Ioannou said in an interview. "It is strategic because, on paper, it is the second-largest undeveloped cobalt project outside of the DRC."
Capstone outlined the cobalt project in a February 2020 preliminary economic assessment, expanding on broader copper-iron-gold mining plans at Santo Domingo. It is geared to produce 4,700 tonnes of cobalt per year over 16 years of the property's estimated 18-year mine life. The cobalt project has an after-tax net present value of about $630 million, using an 8% discount rate and a cobalt price of $20 per pound.
"It basically doubles the [net asset value] of the project, depending on what metal prices you're using," Ioannou said.
In releasing plans to go ahead with a feasibility study of the cobalt option, Capstone said it would design the project to come on stream after the construction of copper processing operations, with the cobalt expansion expected to cost about $670 million to build.
The Canadian mining company plans to extract cobalt from copper tailings and undertake additional concentration of the tails through pyrite flotation, estimating a cobalt grade of about 0.7% in February 2020. Further processing will include roasting, leaching, purification, solvent extraction and crystallization to yield cobalt-sulfate heptahydrate.
Cobalt is a key ingredient in some types of rechargeable batteries, and analysts said the potential new source would draw interest from buyers looking to diversify their cobalt supply chains, which largely depend on production from the DRC, and from battery makers keen on securing cobalt in an increasingly tight market.
"No company wants to source all of its raw materials from one geographical location," said Caspar Rawles, an analyst with Benchmark Mineral Intelligence.
Given expected growth in manufacturing of electrical vehicles, some of which depend on cobalt-bearing batteries, cobalt demand is expected to surge in coming years, Rawles noted. That could favor Capstone, which is targeting 2025 or 2026 for initial cobalt production.
"We're looking at a situation where there isn't going to be enough cobalt, certainly by 2026," Rawles said. "These incremental tonnages from operations all over the world are, ultimately, what's needed."
Still, the cobalt project at Santo Domingo is at a relatively early stage, and analysts are watching to see how it fares after greater scrutiny through the feasibility study.
"Some people are still maybe a bit skeptical on exactly how the metallurgy pans out on this, but it seems so far so good," Ioannou said.
The addition of cobalt to the mix at Santo Domingo could also help draw interest from potential backers of the project as Capstone looks to fund capital costs. "That's where you bring in ... someone like a Tesla Inc. to help you with the heavy lifting to get the cobalt off the ground," Ioannou said.
Capstone recently signed a definitive agreement to sell a gold stream on the Santo Domingo project to Wheaton Precious Metals Corp. for $290 million while also consolidating ownership of the project and entering into a framework agreement with Puerto Ventanas SA to oversee the development of port-related facilities.