Why IBK is focusing on Africa
Why is Canadian’s leading boutique investment bank turning to Africa? Where do they see the opportunities, and where do they see the challenges? We caught up with their CEO Mike White in advance of this year’s https://london.minesandmoney.com/
Michael F. White, President and Chief Executive Officer, IBK Capital
Andrew Thake, Mines and Money
5 / 09 / 2018
Mr. White has been with IBK Capital since 1990. During this time, Mr. White has been involved in private placement financings totalling over $500 million. He has also been active in financial advisory assignments and mining industry developments including: advisory services to the Government of Newfoundland and Labrador with respect to its arrangements with Inco Ltd. over the development of the nickel deposit at Voisey’s Bay; acting as financial advisor to Noront Resources Ltd. to evaluate strategic alternatives to maximize shareholder value in the wake of a major nickel discovery at its Double Eagle Project in the McFauld’s Lake region of Ontario, Canada; advisory and financing services to Western Goldfields Inc. on its purchase and development of the Mesquite gold mine in south-eastern California; and advisory services to Cobalt Blockchain Inc. and the development of The Democratic Republic of the Congo’s artisinal mineral wealth.
Mines and Money (MM). You’re chairing the Africa day at Mines and Money. Most people associate IBK Capital as being Canadian focused. What are you doing in Africa?
Michael White (MW): I am delighted to host the Africa day at Mines and Money London. IBK Capital is a Canadian based boutique investment bank but we work with global metals and mining companies. Over our 29 years of business we have worked in a number of African countries. Today our African focus is the Democratic Republic of the Congo with Cobalt Blockchain or COBC for short. Cobalt Blockchain is building up a metals mining and trading business in the DRC. The business began privately with the buying and selling of tin, and we have since taken them public and are helping Cobalt Blockchain build up a cobalt business. The company is traded on the TSX-V under the symbol COBC. It has a market cap of about $32 million.
MM: For Cobalt what is the USP for Cobalt Blockchain? What will be the impact of blockchain in the mining industry?
MW: The unique selling proposition is Cobalt Blockchain’s ability to mine source, upgrade and sell clean cobalt from the DRC. It’s blockchain application is perfect to trace the cobalt and prove it is sourced and upgraded ethically. OEMs are under immense pressure to clean up their supply chains. The cobalt supply chain is particularly murky and greatly criticized for supporting child labour. 60% of the world’s cobalt comes for the DRC so it can’t be ignored as a source of world cobalt supply. End users of cobalt like tech companies and car manufactures need a solution that is immutable and transparent and turning your back on the DRC is not a solution. Cobalt Blockchain is the solution.
MM: What could go wrong with the Cobalt invest hypothesis? What about TESLA cutting back on the use of Cobalt in its batteries?
MW: A pleasant reality of Cobalt Blockchain’s artisanal mining (ASM) business model is they are joint ventured with artisanal miners that get paid a percentage of LME for their production. So as the price of cobalt fluctuates, COBC’s mining costs adjust. In addition, with ASM there is very little capital cost to recover. COBC is leasing, not building a hydroxide plant. The total capital costs will likely be about US$5 million for COBC’s business plan including upgrades to the hydroxide plant. This model builds in downside protection to the cobalt price. Further, the ASM market in the DRC has the ability to adjust to rising prices by relatively rapidly increasing supply compared to traditional mining. We saw this recently when cobalt prices spiked to over $90,000 per tonne. ASM production from the DRC filled the demand and brought prices back in line. Today artisanal mining from the DRC represents between 10 and 15 percent of world supply and it’s climbing. Cobalt Blockchain’s currently planned cobalt ASM/hydroxide upgrading business is estimated to add 3,000 tonnes of net new cobalt to world supply. Cobalt 27 paid US$300 million for what will ultimately be 862 tonnes annually of cobalt supply from Vale’s Voisey’s Bay including upfront cobalt purchase payments. Elon Musk and others touting reduced cobalt battery schemes will be less inclined to spend on new technology if cobalt prices remain reasonable. DRC ASM can be that buffer. But even if cobalt prices get a bit frothy you have to remember Cobalt is essential for battery stability. So even with reduced cobalt battery technology, expected increase in overall battery consumption could triple current cobalt demand for batteries by 2025.
MM: Many people have said that the Canadian mining industry is suffering as investors have been attracted to cryptocurrencies and cannabis. Do you agree with this view and if so what can the industry do differently?
MW: Yes, we have seen a considerable amount of money flow into cryptocurrencies and cannabis in the last nine months. This has caused some pain in the junior mining markets from a valuation and capital raising perspective. To reverse this outflow of capital the exploration industry needs a bona fide metals discovery in a company that has a good capital structure. We believe it’s happened with Great Bear Resources and its high-grade gold discovery in the world-class Red Lake gold camp in Ontario, Canada. The company put out fantastic results in late August including 16 metres of 27 grams per tonne gold, and seven metres of 44 grams per tonne gold with lots of positive drill results in the area supporting a big system. Red Lake is home to all the infrastructure needed to develop a gold mine. The discovery is right off the main highway. We brokered a financing for them in early September bringing in Rob McEwen for about $6 million of a $10 million financing. As you know, Rob McEwen’s success in Red Lake is impressive and unmatched. It’s exciting to have him join forces with Chris Taylor, President and CEO of Great Bear and his team. The work they’ve done to date is excellent and we expect more great things from them. You should say hi to Chris if you haven’t met him yet.
MM: Why are you attending Mines and Money London?
MW: Mines and Money London has consistently exceeded my expectations of what a mining and metals conference should deliver. I particularly enjoy the increased emphasis on technology. I believe the mining industry is finally beginning to see the benefits of its tech efforts, especially in exploration but we have a long way to go. I like the way Rob McEwen emphasizes this point. At McEwen Mining’s head office in Toronto there is a video clip showing a Formula 1 pit stop in 1950 versus today. It took 67 seconds in 1950 and takes only two seconds today. There’s a lot we could be doing in mining.