THE COBALT BLUES
Rival closes in on Vancouver firm amid delays, shareholder backlash
The more cobalt prices rise, the more pressure companies with cobalt projects face.
On Monday, Vancouver-based eCobalt Solutions Inc. found itself under siege from Australian rival Jervois Mining Ltd, which announced it has acquired 4.7 per cent of its shares — the potential rumblings of a hostile takeover.
The announcement comes two days after Australian hedge fund Tribeca Investment Partners sent a stern letter to eCobalt’s board, rebuking its management for “unnecessary ” delays and mistakes as it seeks to build a cobalt mine in Idaho.
The letter, obtained by the Financial Post from an industry insider, highlights the eCobalt’s struggling stock price, calling for a sale of the company and a change in management.
“Our contention is that (eCobalt)’s poor performance is the result of strategic missteps,” Ben Cleary, a portfolio manager at Tribeca, wrote in the letter.
The TSX-listed eCobalt’s stock price has declined 42 per cent in the past year even as the cash price of cobalt rose 22.5 per cent, according to the letter.
Its stock was trading at 92 cents on Monday, down from $2.07 at the start of the year.
Cleary was not immediately available for comment and J. Paul Farquharson, chief executive of eCobalt, declined to comment.
But Fiona Ledler, vice-president of investor relations at eCobalt, wrote in an email that the company appreciates “constructive input” from shareholders.
The company has been developing a cobalt project in Idaho, which it claims is the only “near term environmentally permitted cobalt project in the United States.”
Cobalt is most often mined as a byproduct.
For instance, in Ontario, it was found in many of the past silver mines in and around the town of Cobalt; now, it is suddenly in hot demand as anticipation grows that automakers are on the cusp of a significant shift to manufacturing electric vehicles en masse — in which cobalt is an essential component of the batteries.
Last July, cobalt traded on the London Metals Exchange for US$57,000 per tonne, rising steadily to a peak above $94,000 per tonne at one point earlier this year, according to Cleary.
However, the base metal has fallen lower in recent months, trading at around $69,750 per tonne as of Friday, Cleary’s letter notes.
Against this backdrop, he accuses eCobalt’s management of at least one major misstep: It changed strategies from producing a cobalt sulphate to a concentrate. As a result, it had to scrap the feasibility study it has already completed in June, and commission a new feasibility study, not expected until September.
Cleary notes the decision resulted in delays and ate up capital. Plus, he takes issue with the company’s inability to devise a plan that is unlikely to provoke the ire of U.S. President Donald Trump, whose administration recently put cobalt on a list of strategic metals.
“We are troubled by management’s indications of a desire to sell cobalt concentrate to China, something that is sure to draw the attention of the present U.S. administration,” he wrote.
In a further rebuke to eCobalt’s Farquharson, Cleary called for a change in management.
The uproar shows how even as cobalt prices have soared, investors are eager to see quick returns given the uncertainty about the demand for electric vehicles, and even the role cobalt will play in batteries.
Elon Musk, co-founder and chief executive of Tesla, has been emphatic about his desire to reduce cobalt from his car’s batteries.
Last month, Musk even tweeted that he plans to eliminate cobalt from his vehicles batteries.
“We use less than 3% cobalt in our batteries & will use none in next gen,” Musk tweeted on June 13.
On the other hand, there are plenty of investors out there: Jervois, an ASX-listed company that is developing a nickel-cobalt project in New South Wales, said it may continue to acquire or sell shares in eCobalt.
It said it acquired the shares because eCobalt has a high grade, primary cobalt mine in a historic cobalt district in Idaho, and plans to work with the board to advance the project.
“The mine is fully environmentally permitted and ready for construction ... the only near term domestic cobalt production potential in the United States,” Jervois wrote to shareholders.