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Cobalt 27 changes the course of metals streaming

Unique cobalt sector play Cobalt 27 has had a hectic 12 months or so since its spectacular launch on the Toronto Stock Exchange last year. Yet, despite the rapid progress made so far in the execution of its distinctive strategy, observers can’t help but think the journey has only just started for the ‘electric-metals’ company.

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Cobalt 27 changes the course of metals streaming Cobalt 27 changes the course of metals streaming Cobalt 27 changes the course of metals streaming Cobalt 27 changes the course of metals streaming Cobalt 27 changes the course of metals streaming

Basamuk processing plant, part of US$2.1 billion Ramu nickel-cobalt mine in Papua New Guinea. Image: Highlands Pacific, June 2018

"We plan on continuing to grow our asset base," says CEO Anthony Milewski.

"It's been a big year.

"We always knew that it would be a challenge to start a streaming and royalty company. Most of them were founded on a spin-off or some other corporate transaction. We went out and acquired the world's largest commercial stockpile of physical cobalt. Having physical cobalt gave us a balance sheet, and once we had that, we could use the physical cobalt as part of our leverage to raise equity and debt financing to complete streaming and royalty transactions.

"We are building a cobalt-mining company with an excel spreadsheet, not a shovel.

"We've really focused on creating a structured investment vehicle  that appeals to not only mining investors but general investors as well."

This year has already seen Cobalt 27 complete two game-changing deals, securing the world's first producing cobalt nickel stream on the low-cost, long-life Ramu nickel-cobalt mine in Papua New Guinea, and a cobalt stream on Vale's major Voisey's Bay mine in Canada, the latter starting in 2021. The company also manages royalties on two of the largest emerging nickel-cobalt projects in the world in Dumont and Turnagain, and eight other exploration-stage royalties.

"Vale's Voisey's Bay Mine is one of the best nickel-cobalt assets in the world, and so, as a company focused on cobalt and nickel, we felt it was important to participate and add value to our shareholders through streaming this orebody," Milewski says.

"Voisey's Bay is considered generational as it represents the only new, significant nickel sulphide discovery in the last 30 years. You just have to look back at the interest it generated after being discovered, with Inco and Falconbridge vying to acquire it. The opportunity for Cobalt 27 to gain access to this asset through a 32.6% cobalt stream is really once in a lifetime.

"There may be two or three assets in this class globally.

"There is the potential that Voisey's Bay could produce nickel and cobalt for another 20 to 30 years.

"Our 32.6% cobalt stream is expected to deliver approximately 1.9 million pounds of cobalt per year to Cobalt 27, to be settled in physical delivery for the life of the mine. We have marketing rights over the cobalt which we intend to sell.

"The fact that Cobalt 27 was able to secure this cobalt stream is significant to delivering on our pledge to generate shareholder returns."

Earlier this year the company signed an agreement for the first tranche of a metal stream on the Ramu nickel-cobalt mine in Papua New Guinea, whereby Cobalt 27 would acquire 55% and 27.5% of Highlands Pacific's attributable share of cobalt and nickel production, respectively, from the Ramu mine, for an US$113 million upfront deposit. The mine is also expected to produce for at least another 30 years.

The Ramu nickel-cobalt mine is majority-owned and operated by a first in class operator, Metallurgical Corporation of China Ltd, which has a market capitalization of about US$12 billion. The mine was delivered on budget, US$2.1 billion, in 2012, which at the time was China's largest overseas mining investment.

Cobalt 27 expects to close the first and second tranches of the US$200 million total Ramu nickel-cobalt stream, before the end of 2018, with estimated attributable stream production of about 700,000lb of cobalt and 3Mlb of nickel per year, to provide immediate cash-flow to Cobalt 27.

Milewski says the company continues to scour the market for opportunities, but has already built an exceptional platform for growth. It also continues to build an exceptional management group to take the company forward.

It recently hired as head of strategy Martin Vydra, a nickel and cobalt technical expert who's worked in the industry for more than 30 years.

"While the focus of our business is cobalt and nickel, we told our investors that we are not going to invest in the Congo," says Milewski. "Outside of the Congo, nickel and cobalt basically go together in the majority of cases. I would just note to investors, that in addition to cobalt, we have significant nickel exposure and I think that's overlooked by the market. I think that nickel has a great few years ahead of it."

 oiseys ay port site ewfoundland anada where obalt 27 holds a 326 cobalt production stream beginning anuary 1 2021 from the 17 billion oiseys ay underground mine expansion  mage ale Voisey's Bay port site, Newfoundland, Canada, where Cobalt 27 holds a 32.6% cobalt production stream beginning January 1, 2021, from the US$1.7 billion Voisey's Bay underground mine expansion. Image: Vale

Philip Williams, elected to the Cobalt 27 board last month, brings more than 15 years of mining and finance industry experience to the company, including roles in corporate development, as a sell-side research analyst, in fund management and most recently as a managing director of investment banking focused on the metals and mining sector.

"I think we will continue to model ourselves after companies such as [precious metals stream majors] Franco Nevada and Wheaton Precious Metals," Milewski says.

A key difference in the Cobalt 27 strategy and growth platform is the 2,905.7 tonnes of cobalt it also owns, worth about C$275 million, representing the world's largest commercial stockpile of physical cobalt, which is fully insured and stored in LME-bonded warehouses in Rotterdam, Antwerp and Baltimore. Milewski says holding physical cobalt and electric-metals focused streams and royalties means the company provides investors with unique exposure to rising metal prices without the standard mining company operational, environmental, closure and capital risks.

"We [the management group] examined various opportunities to invest in electric metals and decided the most attractive structure would be to create a company with an asset base underpinned by physical cobalt material and enhanced with growth opportunities in the form of streams, royalties and direct interests in mineral properties containing cobalt," he says.

"We're not focused on exploration assets, we're targeting producing and near-production opportunities.

"Australia and Canada are two of the main regions where we expect to see increased mined cobalt production required to meet future demand. If you look at additional sources of cobalt outside the Congo, those regions are really taking off. You have Clean TeQ's Sunrise project in Australia, RNC's Dumont project in Quebec, which is moving towards construction, and now, Vale's recently announced, US$1.7-billion expansion of Voisey's Bay mine in Labrador, with production from underground operations scheduled to begin in 2021.

"What we're really talking about is additional supply coming from nickel mines, with corresponding projected increases in nickel and cobalt prices over time.

"For investors, with streaming, you isolate exposure to their particular metal of interest and, for the mining company, you are providing them with funds for a capital structure in a non-dilutive way. Stream financing is often cheaper than equity or debt.

"Through the acquisition of streaming and royalties on current and future production, we are helping to fund sustainable mines that produce cobalt and nickel that will help drive EVs. By creating this company, we're helping to finance nickel and cobalt mines that will ultimately power a cleaner future.

"And we're avoiding the Congo, which is one of the ways we're giving investors a unique, more geopolitically secure way to participate in the electric metals market shift.

"This is a big change and we are all just beginning to appreciate how fast it's coming. We're talking about a structural change in two of the major industries on earth: the energy industry and the automotive industry.

"It's not very often that you have this type of disruptive change in two global industries. The automotive manufacturers are moving towards electric and hybrid-electric vehicles. And then you have as much as 70% of crude used in the transportation sector. And, in the coming decades, a switch from fossil fuels into electric battery-powered vehicles ultimately weighs on the energy industry, and the accelerating adoption of the EVs, which includes rapidly increasing demand for electric metals used in lithium ion batteries.

"I believe we are talking about peak oil in terms of demand, and not supply.

"That's not happening tomorrow, these take five or 10 years to transpire.

"But you're seeing a real disruption in important global industries and as a result you'll see changes in demand for basic materials. Not just cobalt, but for nickel, copper and lithium, as well."

 

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HEAD OFFICE:

DIRECTORS:

  • Anthony Milewski
  • Justin Cochrane
  • Frank Estergaard
  • Nick French
  • Philip Williams
  • John Kanellitsas
  • Candace MacGibbon

QUOTED SHARES ON ISSUE:

  • 83.2 million

MARKET CAP (September 12, 2018):

  • C$512.9 million

MAJOR SHAREHOLDERS:

  • Blackrock
  • Pala Investments
  • GEM

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category-img

HEAD OFFICE:

DIRECTORS:

  • Anthony Milewski
  • Justin Cochrane
  • Frank Estergaard
  • Nick French
  • Philip Williams
  • John Kanellitsas
  • Candace MacGibbon

QUOTED SHARES ON ISSUE:

  • 83.2 million

MARKET CAP (September 12, 2018):

  • C$512.9 million

MAJOR SHAREHOLDERS:

  • Blackrock
  • Pala Investments
  • GEM