Barra Resources listed on the ASX in 2000 on the back of some gold assets owned by Australia’s largest underground mining contractor Barminco. The company’s initial focus remained on gold exploration and production in Western Australia, although its motivation to stimulate shareholder growth led to Barra taking an interest in the Mt Thirsty Cobalt-Nickel project back in 2006. At Mt Thirsty, Barra established a 32 million tonnes (Mt) resource at 0.13% cobalt and 0.55% nickel, however managing director and CEO Sean Gregory recalls how the project then sat on the firm’s balance sheet as a ‘sleeper’ for around 10 years, until recent movement in the cobalt price brought the project sharply back into focus.
While rapidly accelerating cobalt prices in the last year has naturally dictated a flurry of activity on the Mt Thirsty project, Barra recognises the tremendous exploration upside around historical gold mines in WA. Thus, the company adheres to a dual commodity focus in this long-established and stable mining jurisdiction.
“If you were to pick two commodities that people would like to invest in, certainly gold and cobalt would be close to the top of most investor’s lists. That’s why we are progressing both,” says Gregory.
“This also provides a natural hedge in our balance sheet and for our investors and enables us to fill up the year with news flow from both assets.”
Western Australia has an incredibly diverse range of ancient geological structures and hosts several very large laterite nickel-cobalt deposits, many of which have been discovered and taken into production.
Yet Mt Thirsty goes against the grain in this respect, being a pure cobalt project with some nickel credits. The reason for this is the underlying geology, explains Gregory.
“The weathering at Mt Thirsty is deeper and more pervasive such that the cobalt has broken away from the silicates and the iron oxide, and the cobalt is now with the manganese in a mineral called asbolane.
“It is this mineral which is amenable to agitated atmospheric leaching, which allows us to recover that cobalt at relatively low capital costs.”
Barra delivered a scoping study for the Mt Thirsty project in October last year which outlined a host of attractive project metrics including a low capital cost of AUS$212 million, largely due to the aforementioned geological idiosyncrasies within the deposit.
Based on conservative assumptions, which allow for just 73% of the cobalt metal and 21.5% of nickel metal to be recovered through Barra’s process, the study concluded that Mt Thirsty can deliver a healthy net present value (NPV) of $290 million.
“We think we can significantly optimise those recoveries in the upcoming pre-feasibility study and indeed all variables in the PFS will be optimised to improve the already attractive economics,” claims Gregory.
Separating Barra’s future revenue streams from the Mt Thirsty project reveals that 84% off all profits will come from cobalt, with the balance of 16% from nickel. Therefore, a key aspect to consider is the extent to which the project is heavily geared towards leveraging a cobalt price hike.
“For example, the scoping study was done on a long-term cobalt price of US$72,000 per tonne. Recently it has risen to about $90,000 per tonne and if projected forward the NPV increases to around $500 million.
“As the cobalt price rises further still, the economics of the project are just going to get better and better. Critically, this surge in NPV is achieved without adjusting any other key variables such as recoveries and nickel price,” he adds.
A charged-up cobalt market
Nowadays it is common knowledge that cobalt is one of the key components in rechargeable batteries in a multitude of modern consumer products, from laptops to smartphones and electric vehicles (EVs). As such, around half of the world’s cobalt production supplies the battery market.
However, while the burgeoning battery market is certainly sweetening the deal for cobalt producers there remains 34 other industrial uses for cobalt, including in jet engines, hard alloys and ceramics. All things considered cobalt is already one of the most in-demand commodities in the world, and now the EV story is upon us.
“Every major commentator is forecasting a rapid uptake in EVs as we reach price parity for ownership of an EV versus a petrol vehicle.” Gregory refers to a recent study in the Journal of Applied Energy which identified that price parity between EVs and petrol vehicles on a total cost of ownership basis has already been reached in the US, UK and Japan.
“We see a major structural shift in front of us and that is manifesting itself in higher prices for cobalt,” he deduces. “On the supply side, 97% of all cobalt is a by-product of nickel and copper mines. Now as cobalt prices go up, the nickel and copper mines aren’t necessarily incentivised to start new mines.”
But, being a true cobalt project with nickel credits, Mt Thirsty is one of a limited number of projects being mobilised that can respond to this demand increase. “We see that those simple supply-demand dynamics are going to push the cobalt price higher going into the future.”
Another potential value-adding element down the line for Barra stems from the fact that Mt Thirsty is located in the safe and ethical mining jurisdiction of WA. The same statement cannot be routinely applied to the DRC’s industry, which supplies roughly 56% of the world’s cobalt.
Of that percentage, around 20% comes from artisanal mines, where serious concerns have been raised regarding human rights abuses, child labour and low industrial standards.
“The intelligence that we are getting is that battery manufacturers are prepared to pay a premium for material that is sustainably sourced. We can certainly guarantee that from WA, we’ve got a well-established mining jurisdiction and very high environmental standards.”
Along with its 50:50 joint venture partner, fellow WA-based mining outfit Conico, Barra is charging into work on the PFS and expects to publish the study by the end of the year, although Gregory stresses that the company is taking a meticulous approach to ensure maximum value is extracted for shareholders.
The JV has been on foot for many years now and operates very effectively, he adds. However, it’s also worth noting that while the project already has a long 21-year mine life, additional tonnages from the deposit exist outside of Barra and Conico’s acreage and are owned by Galileo Mining, who recently floated on the ASX at a significant premium.
“The present ownership structure really puts the opportunity in front of us for a regional development story and for some cooperation in the region.
“I’m now calling the region ‘cobalt valley’, based on the number of high quality players involved there and the opportunities available to develop a significant industrial centre for cobalt production.”
Old but gold
Gold has been a staple of WA’s mining industry since the very beginnings of the trade at the end of 19th century.
Barra’s current gold portfolio is comprised of a brownfields asset in the shape of the Burbanks project and a greenfields deposit named Phillips Find, both of which are located around Coolgardie.
The Burbanks mining centre was first mined in 1885 and over 420,000 ounces of gold have been produced from the centre ever since. “We have a resource in the ground of 95,000 ounces and our geologists have identified an exploration target of 223,000-564,000 ounces.
“Based on that tremendous potential, we really think it is a fantastic investment for a relatively low cost to continue to explore that project and build on those ounces to add value.”
While the company has decided to limit its near-term activity across the gold portfolio so as not to distract from the cobalt project, it does hope to grow its existing gold resources and add value via some modest exploration expenditure.
“We have just announced the very positive results of a drill programme at Main Lode within the Burbanks project, which has significantly expanded the strike length of the mineralisation out to 650 metres and is the first step towards realising our exploration target.”
Barra will now move on to test other targets at Burbank including Kangaroo Hills along with targets at Phillips Find. “We are confident that by backing our geologists with modest investment in gold exploration they will do their work and steadily build that resource base.”
Over the coming months, investors can expect a steady stream of news flow from the gold side of the business as the company invests in small-scale drilling programmes which will be delivered by safety-focused contractor Egan Drilling. Meanwhile, on the cobalt front investors can expect swift progression through the studies, with the PFS next off the list.
After an extensive tendering process Barra selected Amec Foster Wheeler, a subsidiary of global engineering house the Wood group, to undertake the main body of the PFS along with engineering and metallurgical testwork. They will be supported by Snowden Mining Consultants in mine planning, Golder Associates in many technical areas and Talis Environmental Consultants.
In the medium term, Barra is beginning to assess downstream partnership opportunities for its cobalt product, particularly with companies in the battery manufacturing market.
“We really see that the PFS should give the market a good baseline of the value of this project and we think it would be an appropriate time to bring in strategic partners to maximise value for our shareholders, who have been supporting us in moving the project through the development milestones.”