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Cobalt 27 charges up for transition

After a whirlwind eight months that has seen it raise close to C$300 million (US$239 million) and become one of the biggest holders of physical cobalt outside of China, Cobalt 27 (CN:KBLT) is ready to execute stage two of its plan: building out a royalty and streaming business.

Cobalt 27 charges up for transition Cobalt 27 charges up for transition Cobalt 27 charges up for transition Cobalt 27 charges up for transition Cobalt 27 charges up for transition

Anthony Milewski inspects his goods: Cobalt 27 has some of its 2,982 tonnes of physical cobalt in an LME-certified warehouse in Rotterdam

The company already has a subsidiary set up for this - Electric Metals Streaming Corp - that houses net smelter return royalties on seven exploration projects in Canada, but its second equity raise in December has accelerated the transition.

During this process, Cobalt 27 went to market looking for C$85 million to bolster its physical cobalt stocks by 800 tonnes. This came six months after securing C$200 million as the largest metals and mining IPO in Toronto since 2012.  

The company ended up coming back from the December capital raise with C$97.8 million of cash, an extra 22t of material, a more diverse shareholder base, increased stock liquidity and ambitions to extend its cobalt exposure in a different way.

On the latter, the company's chairman and CEO Anthony Milewski said: "It gives us further access to relatively inexpensive inventory financing, which is a pretty big step forward for the streaming and royalty strategy."

The more inventory the company has on its books, the more money at better terms it can potentially negotiate in the debt markets for these new deals.

"It is important because when you enter a streaming or royalty process, one of the first questions the counterparties think about is: can the company come up with the funds for the deal?" he said.

Cobalt 27 is unlikely to further increase its physical stock in the near term - unless a large strategic holding becomes available - but some 3,000t of cobalt stored in London Metal Exchange-approved warehouses is already a good answer to that question.

And, having fully exercised the over-allotment option on its December  share offering, the company has about C$20 million of cash and equivalents to add to this ‘asset' pile.

Open options

Just like the treasured physical inventory Cobalt 27 has been able to acquire, a cobalt stream or royalty pact on an asset near to production or already in operation is going to be in high demand and short supply.

There is a reason other big names in the sector have been so far unable to tie up any big transactions, but Cobalt 27 looks to be a company capable of such a deal. 

Milewski's cobalt market contacts built up over several years of trading the metal at Pala Investments proved key when it came to securing the physical cobalt.

He is still integral to the company's next phase of growth, but he will be ably supported by president and chief operating officer Justin Cochrane and director Candace MacGibbon.

Both Cochrane and MacGibbon were appointed to the Cobalt 27 board as the most recent equity raise closed and have skills the company will need as it looks to start generating cash flow in the near to medium term.

 obalt 27 has managed to get hold of one of the biggest physical stockpiles of cobalt outside of hina Cobalt 27 has managed to get hold of one of the biggest physical stockpiles of cobalt outside of China

Cochrane has over 15 years of royalty and stream financing, M&A and corporate finance experience. He most recently helped Sandstorm Gold (CN:SSL) become a substantial royalty and streaming entity as executive vice president and head of corporate development over a five-year period.

Chartered accountant MacGibbon, meanwhile, is currently the CEO of Ecuador-focused explorer INV Metals (CN:INV). Prior to this, she worked on the mining and metals side for the capital markets' teams of two of big Canadian banks - RBC and BMO.  

The trio of Milewski, Cochrane and MacGibbon - plus the experience of three other well-qualified board members - gives the company rare access to the cobalt market, the ability to structure a royalty or streaming transaction and the means to ensure Cobalt 27 generates long-term cash flow.

That is a potent combination that could pay off with another transformative deal this year.

Getting hotter

As Cobalt 27 has been evolving, the cobalt market has continued to get hotter.

The electric vehicle revolution that has helped its recent ascendancy has shown no signs of slowing down and fears over supply have only increased with the recent release of the proposed mining code from the Democratic Republic of Congo.

It is yet to become legislation - still requiring president Joseph Kabila's signature - but the mooted royalty increase and profit windfall tax has some analysts questioning if the DRC can continue to attract investment and retain its spot as the world's biggest cobalt producer.

It gives us further access to relatively inexpensive inventory financing, which is a pretty big step forward for the streaming and royalty strategy

At the same time, Marc Grynberg, the CEO of materials technology company and EV battery producer Umicore, recently came out and said it is not possible to design cobalt out of lithium-ion batteries. The minor metal is essential to the stability of the battery and effective recharging, he said.

While this has dashed the hopes of battery producers looking to cut costs by upping the amount of nickel in these batteries, it has ensured cobalt remains an investor target over the near and medium term.

As a result, the LME metal price is sitting at a close to 10-year high of US$82,000 per tonne.

This year could see cobalt - and therefore Cobalt 27 - receive another momentum boost, according to Milewski.

He names pending offtake deals between some of the biggest producers of cobalt and EV makers as one expected catalyst - BMW is aleady rumoured to be in talks over a multi-year cobalt and lithium deal.

Another could be wider-market realisation of growing demand from the energy storage sector. Up until now, this sector has been viewed as a much longer-term cobalt demand driver. 

"I think it (energy storage) is going to have a massive impact on cobalt and I think the market is just starting to understand that," he said.

Milewski is not about to make any price predictions, but he does say: "You can imagine cobalt will get even hotter."

If that is the case, the rise of pure-play investment vehicle Cobalt 27 is only beginning.

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HEAD OFFICE:

  • 4 King Street West, Suite 401, Toronto, ON
    M5H 1B6, Canada
  • Telephone: +1 647-846-7765
  • Email: info@co27.com
  • Web: www.co27.com  

DIRECTORS:

  • Anthony Milewski
  • Justin Cochrane
  • Frank Estergaard
  • Nick French
  • Jonathan Hykawy
  • John Kanellitsas
  • Candace MacGibbon

QUOTED SHARES ON ISSUE:

  • 34.35 million

MARKET CAP (February 16, 2018):

  • C$393.62 million (US$314 million)

MAJOR SHAREHOLDERS:

  • Blackrock
  • Pala Investments
  • GEM

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category-img

HEAD OFFICE:

  • 4 King Street West, Suite 401, Toronto, ON
    M5H 1B6, Canada
  • Telephone: +1 647-846-7765
  • Email: info@co27.com
  • Web: www.co27.com  

DIRECTORS:

  • Anthony Milewski
  • Justin Cochrane
  • Frank Estergaard
  • Nick French
  • Jonathan Hykawy
  • John Kanellitsas
  • Candace MacGibbon

QUOTED SHARES ON ISSUE:

  • 34.35 million

MARKET CAP (February 16, 2018):

  • C$393.62 million (US$314 million)

MAJOR SHAREHOLDERS:

  • Blackrock
  • Pala Investments
  • GEM