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Canada’s First Cobalt braves political risk to pile in to Congo

With Western companies in Democratic Republic of Congo treading carefully in the face of political turbulence and a worsening business climate, Canada’s First Cobalt Corp is an unlikely newcomer to the central African nation’s mining scene.

Several of the Toronto-based firm’s workers are former employees of First Quantum Minerals, whose prized Kolwezi project was expropriated in 2010 in an episode that underscored the risks of investing in Congo.

But for First Cobalt CEO Trent Mell, the logic of entering a country responsible for nearly two thirds of global cobalt output as the electric vehicle market booms is simple.

“The bottom line is: No DRC, no Tesla,” he said, referring to the U.S. automaker. “You can’t fill the void when you have 64 percent of production coming out of the DRC.”

Demand for the metal, a key component in the lithium-ion batteries that power electric cars and mobile phones, is surging. Consultancy CRU Group say electric car and plug-in hybrid vehicle sales could quadruple to 4.4 million in 2021.

The market is so promising, Mell said, he is ditching the traditional model of treating cobalt as a by-product of metals such as copper or nickel and is basing investment decisions primarily on sites’ cobalt potential.

“We apply the lens of our exploration efforts and strategy around where are we going to find cobalt,” he said. “We’re able to cross – whether it be cobalt-silver, cobalt-copper, maybe even cobalt-nickel.”

CRU consultant Edward Spencer said there was only one active primary cobalt mine, in Morocco, and only a handful of others in development. Cobalt concentrations are typically too low compared with copper or nickel to justify prioritising them.

Last month, First Cobalt signed a letter of intent with Madini Minerals, a private Africa-focused mining firm, for a 70 percent controlling interest in seven prospective copper-cobalt properties in southeastern Congo for about $1.6 million.

The investments are the first overseas foray by the company, formerly known as Aurgent Resource Corp, after investing this year in a silver and cobalt mine in northern Ontario.

Mell said preliminary prospecting would begin in two to three months, though production is at least five years off.

‘UNFINISHED WORK’

First Cobalt is bucking a trend of western wariness of Congo, now in one of its worst political crises in a generation.

President Joseph Kabila’s refusal to step down when his mandate expired in December has fuelled rising insecurity in the perpetually unstable country, where millions died in regional conflicts from 1996-2003.

The southeastern mining zones near Zambia have been spared the fighting so far, though mining companies there have complained of harassment by revenue-starved taxmen.

Last year, Freeport McMoRan sold off its majority stake in the Tenke copper mine, one of the world’s largest. It cited a desire to reduce debts, though analysts say the operating environment played an important role in the decision.

Chinese investors, including Zijin Mining and China Molybdenum have stepped into the void and now control 43 percent of global refined cobalt material, according to CRU’s Spencer.

Several First Cobalt workers, including its vice-president for exploration, are intimately familiar with operating in Congo from their time with First Quantum.

In 2010, the government expropriated the company’s Kolwezi project, in which it had invested $750 million, after a protracted contract review.

Mell said that for the former First Quantum staff, their first taste of Congo had only whetted their appetite.

“I think they thought they had some unfinished work when they were forced to leave the country,” he said. “This is truly incredible geology. The opportunity for a game-changing discovery in the DRC is hard to replicate elsewhere.”

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Lowest Core Inflation Since 1999 Tests Canada Rate-Hike Talk

The Bank of Canada’s efforts to set the stage for a rate increase were set back Friday after data showed inflation pressures continuing to ease.

Canada’s consumer price index rose 1.3 percent in May from a year ago, the slowest pace this year, down from an annual pace of 1.6 percent in April, Statistics Canada said Friday from Ottawa. Another key gauge of price pressures that excludes gasoline and some other more volatile items fell to the lowest since 1999.

The inflation report undermines the case for a quick rate hike by the Bank of Canada even as the nation’s economy has been growing at a pace that is among the fastest in the developed world. Governor Stephen Poloz and his top deputy Carolyn Wilkins have begun to openly talk about the prospects of higher interest rates, fearing the acceleration in growth will fuel increases in prices and wages.

“We think prospects of a move next month have been dealt a blow today,” Josh Nye, an economist at Royal Bank of Canada, said in a note to investors.

The Canadian dollar fell on the report, losing 0.3 percent to C$1.3265 per U.S. dollar at 11:17 a.m. in Toronto. Yields on Canadian government two-year bonds fell to 0.9 percent, from 0.93 percent yesterday. Swaps trading suggests investors are putting a 33 percent probability of a rate hike at the Bank of Canada’s next rate decision July 12. That’s down from more than 50 percent earlier in the day.

Economists surveyed by Bloomberg had forecast inflation would slow to 1.5 percent from 1.6 percent in April on lower gasoline prices.

 

 

The Bank of Canada last week began to play down sluggish inflation numbers, arguing they were simply capturing the lagged effects of past excess capacity — suggesting it was turning its focus to growth and employment figures that show the economy has been running hot.

The economy accelerated to a 3.7 percent annualized pace in the first quarter, following gross-domestic-product gains of 2.7 percent and 4.2 percent in the prior two periods. That’s the strongest three-quarter gain since 2010.

But inflation numbers have disappointed. While a low inflation-high growth situation seems optimal, policy makers interpret sluggish price gains as signs of excess capacity in the economy. That’s why the Bank of Canada has an explicit mandate to keep inflation at about 2 percent, an objective it’s largely failed to deliver over the past five years.

Inflation for the first two months of the second quarter is averaging 1.5 percent, versus Bank of Canada forecasts of 1.7 percent.

Measures of annual core inflation, a key indicator tracked by the Bank of Canada that excludes volatile components such as gasoline, fell to the lowest in almost two decades. The average of the central bank’s three core measures declined to 1.3 percent, the lowest since March 1999.

Recent changes in electricity policy by Ontario Premier Kathleen Wynne’s government seem to be having an impact. Electricity prices in that province were down 16.1 percent year over year in May, bringing inflation down in Ontario to 1.4 percent from 1.9 percent in April.
The gap between goods and services inflation is widening. Price increases for services were 2.3 percent in May, compared with 0.1 percent for goods. The difference between the two rates was the widest since 2015.

Inflation has eased largely because of non-existent price gains for goods. Prices for services — which some economists believe may be a better gauge of how strongly a domestic economy is moving — are showing a different picture, with annual gains of 2.3 percent in May.

Services inflation “is a better indicator of domestic slack, and where underlying inflation trends are heading,” Nick Exarhos, an economist at Canadian Imperial Bank of Commerce, said in a note to investors.

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NEWS: Standard Lithium Raises $7.4 Million in Oversubscribed Financing

Standard Lithium Ltd. (“Standard Lithium” or the “Company”) (TSXV:SLL) (FRA:S5L) is pleased to announce that it has completed the private placement of 9,894,785 common shares at a price of $0.75 per share for gross proceeds of $7,421,089.  Interest in the placement far exceeded the expectations of the Company, and the additional amount raised provides the Company with the capital needed to advance its current projects and pursue strategic acquisitions in the lithium sector.

“We are extremely pleased with the interest received in this placement, and completion represents a significant milestone for the Company,” commented Anthony Alvaro, a director of the Company.  “The strong demand speaks to the growing confidence in our team, projects and future vision for the Company.”

In connection with completion of the private placement the Company paid cash commissions of $74,840 and issued 590,687 common shares to certain parties who introduced subscribers to the Company.  All securities issued in the private placement are subject to a four-month-and-one-day statutory hold period.

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Miners Drop as South Africa Escalates Black Ownership Rules

South African regulators unveiled a new mining charter to force companies to give more ownership to black shareholders, sparking a selloff across the industry.

Anglo American Plc and Sibanye Gold Ltd. shares tumbled after the Department of Mineral Resources introduced requirements that local companies must ensure 30 percent of their shareholders are black, up from a previous level of 26 percent. Several of South Africa’s biggest mining companies may have to sell new stakes, raising the risk of dilution for existing owners.

The new rules “could pull the rug right from under the industry’s feet,” said Andy Pfaff, chief investment officer of Vanguard Derivatives, a South Africa-based broker. “It’s certainly not going to help with attracting foreign investment into South Africa.”

The mining industry has become a major target of reform in South Africa, where highly paid, mainly white male executives oversee hundreds of thousands of mostly black workers laboring in some of the world’s deepest and most dangerous operations. The government’s updated rules for so-called black economic empowerment seek to reverse the imbalances.

Court Battle

The Chamber of Mines, which represents mining companies in South Africa, will seek to stop the mining charter in court, which may delay the regulation. The group says the rules are unfair and will hurt investment.

Mining stocks pared losses later in the trading day as analysts speculated the charter faces a drawn out court battle. Sibanye closed down 3.5 percent and Anglo American declined 6 percent.

The African National Congress’s economic transformation committee is planning to discuss the charter with Mines Minister Mosebenzi Zwane.

“Given the fact that the mining industry has shed about 60,000 jobs in the last five years, we don’t want legislation that will add to that bloodbath,” ANC party spokesman Zizi Kodwa said by phone.

Most mining companies reached the 26 percent level under previous versions of the charter but many of the black investors have since sold out. The new rules, which require 30 percent ownership in 12 months regardless of prior deals, will mean companies will have to meet the requirements all over again.

The charter will also require companies to pay 1 percent of annual revenue to communities and new prospecting rights will require black control, Zwane said.

“The new charter is significantly worse for the mining industry than the original draft,” Peter Leon, the Africa co-chair at Herbert Smith Freehills LLP, said by phone on Thursday. “It’s poorly considered and raises serious questions about the government’s commitment to the protection of property rights.”

The industry is confident of its prospects in challenging the charter in court, said Steve Phiri, the chief executive officer of platinum producer Royal Bafokeng Platinum Ltd. The new rules will deter investors and serve as a “nail in the coffin” of the local mining industry, he told reporters at a Johannesburg briefing hosted by the Chamber of Mines.

Highest Court

“There are a lot of constitutional issues,” he said. “I would not rule out the possibility of this matter being decided by the highest court in the land,” Phiri said.

Glencore Plc, Impala Platinum Holdings Ltd., South32 Ltd. and Kumba Iron Ore Ltd., which is majority owned by Anglo American, would need to sell the biggest stakes if the new charter fails to give credit for previous deals, Avior Capital Markets (Pty) Ltd. said June 1. AngloGold Ashanti Ltd. and Sibanye, the country’s two biggest gold miners, may also be affected by the new rules.

The charter also introduced new procurement rules, including that 80 percent of mining-services spending go to black-owned companies, as well as management and board representation. At least 50 percent of the executive directors and 60 percent of senior management must be black, with black women making up half of each target.

“The timeline is very aggressive” for the changes, said Pfaff. “It may even be in the interest of miners and to the benefit of society in the long run, but in the short-term, they’re going to get hit.”

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