Voisey’s Bay expansion a go
Cobalt is technically a by-product at Vale’s Voisey’s Bay nickel-copper- cobalt mine in northern Labrador, but expected demand for the battery metal is playing an outsized role in the operation’s future.
Vale announced in June that it’s going ahead with a long delayed underground expansion of the mine due to an infusion of cash made possible by cobalt.
The company has sold 75% of its cobalt production at Voisey’s Bay for a total upfront payment of US$690 million via two streaming deals – an amount that will cover 40% of the expected capital cost of US$1.7 billion.
“By unlocking the value of the cobalt by-product at Voisey’s Bay through this streaming deal, Vale has found a way to resume substantive work on the underground project in Voisey’s Bay and support the market’s increasing demand for nickel, copper and cobalt, as well as uphold its commitment to the government, our Indigenous stakeholders and the people of Newfoundland and Labrador,” said Eduardo Bartolomeo, Vale’s executive officer for base metals.
The development will allow Vale to deposits via two decline and ramp systems, extending the mine life from 2023 to 2034. Production at Voisey’s Bay, 35 km south of Nain, Nfld., and 2,000 km north of St. John’s, began in 2005 from open-pit mining at the Ovoid deposit.
Vale produced a positive feasibility study for the expansion in early 2015 and approved the development in mid-2015.
But nickel prices, which declined to under US$4 per lb. in late 2015 from US$9 per lb. in 2014, had the company rethinking the investment. (Nickel has rebounded somewhat and was around US$6.25 per lb. at press time.) Vale says the investment is in line with its “rigorous capital allocation process,” which requires projects to generate returns at current price levels rather than depending on future forecast prices.
“The transaction unlocks important EV optionality for Vale and is consistent with Vale’s rigorous discipline of capital allocation, as it reduces the financial risks of the (expansion) project,” the company noted in a release.
The streaming deals, with Wheaton Precious Metals (US$390 million) and Cobalt 27 Capital (US$300 million) give Vale US$690 million in return for 75% of Voisey’s Bay’s cobalt production, starting in 2021.
In addition to retaining 25% of cobalt production, Vale will also receive ongoing additional payments from Wheaton and Cobalt 27 linked to the cobalt price (about 20% of the price of cobalt per pound of finished cobalt delivered).
All the metals produced at Voisey’s Bay could benefit from a surge in electric vehicle sales and production. But as a low-volume specialty metal, cobalt is enjoying special attention from investors.
In fact, for Wheaton Precious Metals, the Voisey’s Bay stream is its first outside of the precious metals space.
“We see numerous similarities between cobalt and silver, as both are primarily produced as by-products and both are integral to sustainable clean energy and electronics,” said Randy Smallwood, Wheaton’s president and CEO. “In addition, given cobalt supply is concentrated in high political risk jurisdictions, Voisey’s Bay is particularly attractive for cobalt production as it is located in Canada.”
EVs comprise a tiny portion of the overall auto market, but their market share is expected to increase dramatically in future.
Construction of the underground mine at Voisey’s Bay is expected to take five years. Major components of the project include: underground development to access the Reid Brook and Eastern Deeps deposits, which are located at between 200 and 900 metres depth; fresh and return air fans; and increased power generation and fuel storage. Accommodations, maintenance shops and other buildings will also need to be expanded, and water and sewage treatment facilities, as well as paste backfill and shotcrete plants, will need to be upgraded.
The bulk of project spending, US$750- 850 million of the total US$1.7 billion, is slated for 2019-2020.
The first full year of underground production is expected to be 2021, when current open pit mining begins to ramp down.
For the first four years, underground refined cobalt production is expected to average 1,800 tonnes per year. When operating at full scale, from 2025 to 2033, production is forecast to ramp up to 2,600 tonnes annually of refined cobalt, at average grade of 0.13% cobalt.
Between them, the Reid Brook and Eastern Deeps deposits contain mineral reserves of 23.6 million tonnes grading 2.17% nickel, about 0.9% copper and 0.14% cobalt.
Open pit mining at the Ovoid deposit has so far produced over 600,000 tonnes of nickel, 400,000 tonnes of copper concentrate, and 12,000 tonnes of cobalt.