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EU mandate lures refocused Australian junior High Grade Metals

Quest Minerals has re-emerged on the ASX on March 7 as High Grade Metals Ltd., switching its project focus from vanadium in Australia to mainly cobalt and gold in Austria, leveraging off what analysts see as an increasing push within the European Union to own battery minerals resources.

High Grade completed a relisting on the ASX via a reverse takeover of Quest following an oversubscribed A$4.5 million raising at 3 Australian cents per share, cornerstoned by Sprott Resource Holdings.

While High Grade has nine projects in Austria after Quest announced plans to access about 84,000 square kilometers via the acquisition of Austrian Projects Corp. Pty Ltd. on Nov. 13, 2017, its initial focus will be on the Leogang cobalt-copper-nickel and Schellgaden gold projects.

While all nine projects, which also includes silver, contain old mines and workings and have had no modern exploration, High Grade head of corporate governance Omar Khan said this meant they also had very high grades recorded, as that was all that could be mined and processed at the time.

He said rock chip sample results at Leogang have included grades of 15% cobalt, 12% copper and 8% nickel.

"While we're not expecting the resource to be at that level, it's significantly high grade, and similarly historical results show that there's something like 93 g/t of gold from about 25 years ago in channel samples at Schellgaden," Khan told S&P Global Market Intelligence.

Though the cobalt investment story in Australia is built around the fact that 64% of global production comes from the Democratic Republic of Congo, just 7% of the European Union's supply of the critical raw material comes from there; 91% actually comes from Russia, according to EU averages between 2010 to 2014.

Khan said this proximity to a growing manufacturing base in Europe was a key investment thesis for High Grade.

High Grade will now embark on a two-year exploration and development program, aiming to move quickly into production to leverage that market.

"The European Union is very much focused on technology and manufacturing and production, but with the global geopolitics, the EU is starting to look a lot more at mining and base metals, especially things like lithium and cobalt, given how important they are in the manufacturing process for batteries," Khan said.

"They want to be not just buyers, but owners of the metals, or at least the resource; and certainly Austria has a formal Mineral Raw Materials Act, very similar to the processes in a modern country such as Australia."

A European Commission report on Critical Raw Materials and the Circular Economy issued in January 2018 noted that unlike graphite, cobalt — along with vanadium, tungsten and antimony — have a high recycling throughput rate, which is cheaper than extracting it from ores.

That report also noted that the battery market has seen a relative increase in the amount of cobalt used, from 25% in 2005 to 44% in 2015, due mainly to applications in lithium-ion chemistries common in electric vehicles.

The European Union first created a list of 14 critical raw materials in 2011 and expanded it to 20 in 2014 before adding seven more in 2017.

Baryte, bismuth, hafnium, helium, natural rubber, phosphorous, scandium, tantalum and vanadium have all been added to that list since 2014.

Blue Ocean Equities' Sydney-based senior resource analyst Steuart McIntyre told S&P Global Market Intelligence that his firm was a "strong believer" in the mainstream adoption of electric vehicles over the next few years and expects to see continued growth in the supporting industries like lithium-ion batteries.

"We have seen a number of countries around the world, including Europe, beginning to set timeframes to ban the use of combustion engines," he said.

"As electric vehicles become more mainstream, we expect to see increased demand for key commodities, like cobalt, lithium and graphite … and we wouldn’t be surprised to see a renewed push from governments in Europe to encourage exploration and mining to secure these critical commodities from domestic sources."

"In time, we believe energy security considerations may lead to many countries reclassifying these important commodities as ‘strategic’ as the DRC did with cobalt in January this year."

Given supply is significantly more constrained, cobalt is his firm's preferred commodity over lithium and graphite, though he cautioned that there are "very limited quality cobalt exposures out there."