Cobalt 27 to pay $145M in streaming agreement

Toronto-based Cobalt 27 Capital Corp. on Tuesday announced it will pay $145 million for the right to the cobalt and nickel from the Ramu mine in Papua New Guinea, in what marks the first streaming deal of its kind in the battery-metals space.

The company, which announced an US$80 million credit facility earlier this month and US$185 million in equity financing in March, said it will not take on any new debt for the deal — a sign of the market interest for companies with exposure to battery metals as automakers prepare to increase electric vehicle manufacturing.

“This completely transforms our company because it brings immediate free cash flow into the business,” said Anthony Milewski, chairman of Cobalt 27.

It would put Cobalt 27 in line to receive the revenue from the sale of 450,000 pounds of cobalt and 2.25 million pounds of nickel per year — about US$30 million at current prices.

The price of cobalt on the London Metals Exchange has risen more than fourfold to above US$90,000 per ton from under US$22,000 in 2016. Much of the demand is connected to predictions that automakers are about to shift to manufacturing electric vehicles en masse, and cobalt is a key component of the batteries.

Under the proposed deal, Cobalt 27 will make an upfront $145 million payment to Brisbane-based Highlands Pacific Limited, which currently holds an 8.56 per cent interest in the Ramu Mine. In exchange, Highland will transfer 55 per cent of its share of cobalt production, and 27 per cent of its share of nickel production from the Ramu mine.

Located on the north coast of Papua New Guinea, the Ramu mine accounts for three per cent of the world’s annual cobalt production. It has been operating for five years with a current reserve estimate of 100 million pounds of cobalt, and a billion pounds of nickel, and an estimated mine life of 30 years, according to Highlands.

The Metallurgical Company of China, which built and operates the mine, is its largest owner at around 82.3 per cent; the Papua New Guinea government and local landowners own an additional 6.44 per cent stake.

Highlands currently owns 8.56 per cent of the mine. If the deal closes — which Cobalt 27 suggested would take 60 to 90 days — Highlands would use the proceeds of the $145 million to pay back certain loans and up its stake in Ramu to 11.3 per cent.

Cobalt 27 also has the option to pay US$87 to purchase streaming rights from the government and local landowners, but did not reveal details about when and if it might move forward on that deal.

The company stock fell nearly 2.5 per cent on Tuesday in Toronto to close at $11.90 per share.