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Northern Cobalt banks on lasting cobalt boom

Northern Cobalt Limited (ASX:N27) is the latest cobalt exploration company to list on the ASX. Seeking to raise up to $6 million, should investors consider this junior explorer?

Cobalt is one of the hottest commodities of 2017. Speculation around future demand for energy storage and electric vehicles coupled with projected supply shortages have propelled cobalt prices higher at the beginning of the year. The price for cobalt on the London Metal Exchange briefly spiked above US$60,000 a tonne in July 2017, up from around US$26,000 a tonne last August. While a higher price improves the economics of numerous cobalt projects, prices may be at cyclical peak and many small-cap companies will likely face significant hurdles to advance their exploration projects. 

Northern Cobalt Limited, a newly incorporated cobalt exploration company located in the Northern Territory, is poised to hit the ASX boards later this month. The company‚Äôs primary asset is the Wollogorang Cobalt Project, covering an area of 1,131 km2 in the north-east of the Northern Territory and which has a JORC 2012 compliant inferred mineral resource of 500,000 tonnes with cobalt, nickel and copper mineralisation. 

Upon listing Northern Cobalt will complete 20,000 meters of drilling with the aim to expand the existing mineral resource and test mineralised drill targets. Upcoming appraisal is designed to highlight the commercial appeal of the project and any upgrade to the resource base stands as a near-term value driver.

Hurdles include the limited operating history of the company, reliance on external capital and general exploration risks. There is no guarantee that future funding can be procured, nor that the Wollogorang Cobalt project will eventually advance into production.

Cobalt prices have doubled in the past twelve months, which has created a hype around this industry and I urge investors to remember that there is no guarantee that prices will continue to rise. However the valuation of the IPO is undemanding and the capital structure is appropriate given the risks, hence I believe this IPO deserves attention.