Unfazed by market drubbing, Cobalt 27 continues deal-making
Toronto company makes $96M offer for Australian miner in bet on electric cars
Cobalt 27 Capital Corp.’s stock may be limping along, down more than 75 per cent in the past year, but the Toronto-based company focused on electric vehicles is continuing its deal-making spree.
On Tuesday, it announced at least its third major deal in the past 12 months: a proposed $96-million buyout of Highlands Pacific Ltd., which owns a stake in a nickel and cobalt mine in Papua New Guinea.
Nickel and cobalt are both key components in the lithium-ion batteries found in electric vehicles as well as smartphones and other devices. Cobalt 27 has been acquiring streams on both metals from mines around the world, betting that growing sales of electric vehicles will turbocharge demand for both metals.
But Cobalt 27’s latest deal reveals how investor views on the company are diverging: Market excitement about cobalt and nickel has waned in the past year, as have their prices along with Cobalt 27’s share price, but banks and large investors continue to provide the company with the credit and backing needed to acquire more assets.
“It’s very hard to judge what’s going to happen in any given time period,” Anthony Milewski, chairman and chief executive of Cobalt 27, said, “but over the coming years, it’s clear both (nickel and cobalt) have a bright future.”
Cobalt 27’s latest deal has it paying $83 million in cash to purchase Australian-listed Highlands’s outstanding shares at 10.5 Australian cents each, a 44-per-cent premium to the closing price on Dec. 24.
The remaining $13 million of the deal will be funded with credit, according to a Cobalt 27 press release.
The deal replaces an earlier agreement with Highlands. In May, Cobalt 27 announced a $145-million deal to purchase only a portion of Highlands’s cobalt and nickel production from the Ramu mine in Papua New Guinea. The mine is majority owned and operated by Metallurgical Corp. of China Ltd., while Highlands controls 8.56 per cent.
That deal failed to close before its December deadline after some owners of the Ramu mine failed to execute certain contracts related to project loans and other issues, allowing Cobalt 27 to negotiate new terms.
The new deal increases Cobalt 27’s exposure to the Ramu mine’s cobalt and nickel to 600,000 pounds and 2,900 tonnes, respectively, from 450,000 pounds and 1,000 tonnes, while paying about one-third less.
The new terms reflect the decline in nickel and cobalt prices.
Since May 31, nickel prices have fallen to US$10,590 per tonne from US$15,175, or about 30 per cent. Cobalt prices have fallen to US$54,500 per tonne from about US$89,500, or about 39 per cent, according to the London Metal Exchange.
If nickel prices rise above US$13,000 for five days in 2019, Cobalt 27 will pay Highland shareholders an additional Australian cent per share.
Cobalt 27’s stock rallied Wednesday, rising 15.15 per cent to close at $3.80 in Toronto.
“The big picture here is really about nickel,” Milewski said. “Nickel is going to be the next metal to really benefit from the electric-vehicle revolution.”
He predicted battery chemistry will change with nickel percentages increasing, and noted his company’s assets are now weighted more evenly between cobalt and nickel. Originally, as Cobalt 27’s name suggests, it primarily invested in cobalt, and had stockpiled thousands of tonnes of the metal in a warehouse in the Netherlands.
In July, 76 tonnes of the company’s cobalt was stolen from the warehouse, for which it received a US$6.8-million insurance payout based on prevailing prices at the time of the theft. Nevertheless, the company made a couple of other large deals during 2018. In February, it signed a $70-million deal for the rights to cobalt and nickel production from Royal Nickel Co.’s proposed Dumont mine in Quebec. In June, the company announced a $300-million deal with Vale SA to purchase about one-third of the cobalt from its Voisey’s Bay Mine.
Cobalt 27 also continues to receive loans and investments even though cobalt and nickel prices remain far below their 2018 peaks.
Ten of the 11 analysts listed by Bloomberg as covering Cobalt 27 give it positive recommendations.
“Our share price is down,” Milewski acknowledged, but blamed fears about a U.S.-China trade war, and other larger macroeconomic trends. “The entire space is down,” he said. “That’s just a reflection of people’s interest in materials waning.”
Nickel is going to be the next metal to really benefit from the electric-vehicle revolution.