Months after acquiring the world's first pure cobalt stream for US$300 million on Vale's Voisey's Bay nickel-copper-cobalt mine in Labrador, Cobalt 27 Capital Corp. (TSXV: KBLT; US-OTC: CBLLF) is adding substantially to its portfolio of battery metal assets.
In January 2019, the company struck a deal to acquire Australian explorer, developer and miner Highlands Pacific Limited. Highlands' key asset is its 8.56% interest in the Ramu nickel-cobalt mine near Madang, on Papua New Guinea's north coast. Once Cobalt 27 closes the Highlands acquisition, it is expected that the company will repay Highlands' outstanding Ramu construction and development loans, which will increase Cobalt 27's JV interest in the Ramu mine to 11.3%.
Prior to the acquisition, Cobalt 27 had proposed to acquire a cobalt-nickel stream on Highlands' portion of Ramu. The company was set to pay $145 million for over 55% of Highlands' attributable cobalt production from the Ramu min and 27.5% of Highlands' attributable nickel production. However, in light of the current commodity price environment for cobalt and nickel, on January 1, 2019, the two companies agreed to mutually terminate the stream and announced Cobalt 27's friendly acquisition of Highlands Pacific.
"We believe the acceleration of global demand for electric vehicles, driven by strong improvements to battery technology and increased engagement from traditional automotive manufacturers, will drive positive supply and demand fundamentals over the next 10-15 years, and provide significant value appreciation through Cobalt 27's acquisition of cobalt and nickel-focused assets," says Cobalt 27 Chairman and CEO Anthony Milewski.
"It's an important acquisition because it increases our exposure to nickel, whereas before, Cobalt 27's asset base was focused entirely on cobalt."
The acquisition of Highlands Pacific enables Cobalt 27 to acquire significantly more attributable cobalt and nickel production at a lower transaction cost compared to the proposed stream transaction. The acquisition of Highlands will allow Cobalt 27 to gain a direct interest in the Ramu nickel-cobalt mine and materially increase its attributable exposure to the mine's nickel production from 1,000 tonnes to 2,900 tonnes, and cobalt production from 450,000 lb to over 600,000 lb per year, relative to the previously announced Ramu cobalt nickel stream. It does so at nearly half the cost of the previously announced Ramu cobalt nickel stream, provides increased balance sheet flexibility, and enhances value for Cobalt 27 shareholders. After Cobalt 27 repays Highland's JV construction and development loans, the company's attributable annual production is expected to increase to over 800,000 lb. cobalt and 3,800 tonnes nickel.
Cobalt 27 will acquire all the issued and outstanding Highlands shares it does not already own for an all-cash offer price of A$0.105 per share, or $96 million. Including the shares that Cobalt 27 already owns, the deal values Highlands at A$115 million. Cobalt 27 expects to fund the deal with cash on hand and available credit.
The Metallurgical Corporation of China Ltd., Ramu's controlling owner, is considering a US$1.5 billion expansion at Ramu, and Cobalt 27 will have the opportunity to participate in the expansion and increase its attributable production.
Shortly after the Highland acquisition was announced, Cobalt 27 bolstered its portfolio once again by acquiring a royalty on the producing Mount Marion lithium mine in Australia.
"It really gives that exposure to investors for the adoption of electric vehicles and battery storage," Milewski says."The focus of the company remains cobalt and nickel, that's really where we think you get the most torque on the adoption of the electric vehicle, but in the case of Mount Marion it was interesting because it's a producing mine, and so you're not taking ramp-up risk or exploration risk."
Cobalt 27's new royalty will bring it 1.5% of gross revenues and A$2 per tonne of ore mined under the Reed Industrial Minerals sub-lease agreement Westgold Resources Limited holds on Mount Marion. Cobalt 27 acquired the royalty for $240,400 plus 200 tonnes of physical cobalt metal.
Mount Marion entered production in 2017 with the world's second largest high-grade lithium concentrate-spodumene reserves. Cobalt 27 believes the royalty could supply it with considerable cash flow over a 17 year term.
"What you've seen over the past few months with Cobalt 27 is the continuation of our strategy and strengthening of our asset base," Milewski says. "One thing you're seeing with us is a very robust royalty portfolio. We've been very successful at going out and acquiring royalties on nickel-cobalt projects globally."
In February 2019, the company closed two more royalties on projects in Australia: a 1.5% gross revenue royalty (GRR) on the Flemington nickel-cobalt project and a 1.7% GRR on the Nyngan scandium project from Jervois Mining Limited for US$1.5 million and roughly 422,000 shares. The projects are currently held under option by Australian Mines Limited.
According to a 2017 resource estimate, Flemington contains 2.7 million measured and indicated tonnes grading 0.101% cobalt and 403 parts per million scandium for 2,744 tonnes cobalt and 1,090 tonnes scandium, constrained to only 1% of the project area.
According to Australian Mines, the deposit is connected to Clean TeQ Holdings Ltd.'s adjoining Syerston nickel-cobalt-scandium project, which hosts 101 million measured and indicated tonnes grading 0.65% nickel and 0.1% cobalt for 660,000 tonnes nickel and 106,000 tonnes cobalt.
The assets represents another opportunity for Cobalt 27 to build cash flow in a safe and mining-friendly jurisdiction.
"Today about 60% of global cobalt production is out of the Democratic Republic of the Congo," Milewski says. "There are issues there around ethical sourcing and child labour that need to be resolved.
"We've told our shareholders time and time again that we're very committed to not invest in the Congo."
Shares of Cobalt 27 are currently trading at $4.01 within a 52-week range of $3.27 to $14. The company has a $342 million market capitalization and a US$200 million revolving credit facility that remains undrawn. It holds the world's largest private stockpile of physical cobalt at over 2,900 tonnes, has a 32.6% cobalt stream on the Voisey's Bay mine and manages 11 royalties. It says being cash-flow positive in 2019 is a top priority.
- The preceding Joint-Venture Article is PROMOTED CONTENT sponsored by Cobalt 27 Capital Corp., and compiled in cooperation with The Northern Miner. Visit www.cobalt27.com for more information.