Castillo Copper (LON: CCZ) faces the basic problem that afflicts all junior miners right at the beginning of their adventure. What, exactly, is it that should be concentrated upon? At any one time, there are vast areas of the world, with varied mineral deposits, that can be prospected. Then there are those finds which have more or less attractiveness dependent upon outside market conditions.
So the very early stage of any junior miner is a certain amount of thrashing around to see what can be found, where, and what the future market for that mineral or element is likely to be.
Castillo has noted – correctly – that the EV revolution is going to require much more lithium and much more cobalt. Castillo has also had some interesting indications that they’ve got access to potentially viable deposits of both. So, which should be concentrated upon?
As with Castillo’s last announcement to the market they’ve decided that cobalt looks better. This makes sense to us for there’s an awful lot of lithium out there and many, many, people chasing it. It’s entirely possible that the lithium market will face oversupply in years to come – as, in fact, the last investment boom in lithium led to. Cobalt, on the other hand, is rather harder to find, it’s considerably rarer on the planet. So, objectively, a potentially viable cobalt deposit looks a more interesting prospect than a potentially viable lithium one.
Yes, of course, at this stage this is all potentially, maybe, possibly, that’s just what junior miners like Callisto Copper are about at this stage of their development.
On to today’s announcement, which is about that cobalt prospect. Drilling at the BHA prospect is showing some interesting results. Far too early to decide that this is the place to produce, but a step along the path to being able to make such a decision. The previous plan was to float this prospect off on the ASX as an independent play. Given the earlier decision to leave the lithium market and concentrate upon cobalt this plan has now been reversed.
This could well be a viable plan. There are those stages a junior miner must go through. Show that there’s a deposit, prove that it’s viable, raise the capital to exploit, go into production. At each stage of those early processes, at each stage of proof of concept to viability, it’s possible to spin the project onto a larger company. Each stage of certainty about
The deposit’s viability also increases the price at which the project can be sold on.
So, Castillo has some more and more interesting cobalt results. It might well be worth holding the project and continuing to work on it to reach the next stage of proof of viability. Then a decision can be made to spin off, sell on, develop internally, but all of those are now at a higher price.
The speculation is, of course, that not every such attempt to prove a project does pan out. So while the potential rewards are now firmly concentrated within Castillo Copper so are the risks.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.