Cobalt 27 Capital Corp. (TSXV: KBLT; US: CBLLF; FRA: 270) is riding a wave of burgeoning market interest in electric vehicles (EVs) and grid-storage technology.
In June of 2017, the company completed the single largest initial public offering in Canada since 2012, raising over $200-million in equity financing and signaling to Canadian and international capital markets the beginning of a large and fast moving battery metals upcycle.
And in December 2017, Cobalt 27 closed an over-allotted, $97.8-million bought deal financing wherein it issued 9.2 million shares priced at $10.50 each, for a total of over C$300 million in equity financing in 2017. The deal was underwritten by a syndicate co-led by TD Securities and Scotiabank, and included BMO Capital Markets, RBC Dominion Securities and other major Canadian financial institutions.
Between June and December 2017, Cobalt 27 acquired over 2,982 tonnes of physical cobalt which is the world’s second largest above ground inventory of refined cobalt after the Chinese government’s strategic stockpiles.
Cobalt is a foundational component in established, high-performance battery chemistries. The metal has no near-term substitute and roughly 65% of current supply originates in the politically-volatile Democratic Republic of the Congo.
“It’s really about a pure play on the adoption of EVs and grid storage,” Cobalt 27 Chairman and CEO Anthony Milewski says in an interview. “There’s an arms race going on in the EV space, and we really don’t know who is going to be the winner. What we do know, however, is the basic materials that comprise the battery and the technology will be winners. The supply-demand dynamics for cobalt are such that we believe Cobalt 27 is the purest levered vehicle to the adoption of these technologies.”
According to BMO Capital Markets, world cobalt production currently totals roughly 100,000 tonnes per annum. Cobalt 27 entered into physical cobalt option contracts over the past year totaling 2,270 tonnes of premium grade, and 710 tonnes of standard grade, physical cobalt. The company closed more than two dozen deals at an average price of US$30.76 per pound. The London Metal Exchange price was sitting at a 10-year high of US$82,000 per tonne cobalt with high grade cobalt sitting around US$38.80 per pound at the time of writing.
“We completed the bought-deal financing in December 2017, to go out into the market and buy additional physical cobalt,” adds Milewski. “That inventory gives our investors direct leverage to price movement, but it also provides us with an asset-strong balance sheet moving forward to look at large streaming transactions. The physical position allows us to establish the streaming model, complete inventory financings, and enter into negotiations with producers.”
“There are a number of opportunities out there in the market, and we see the supply-demand fundamentals getting tighter,” continues Milewski. “We’re now hearing BMW is out there looking for a 10-year offtake deal, which could spark fear in other automobile makers who are long the EV story. There aren’t many options available for the types of deals that automakers are after. The noose is tightening around the neck of folks who don’t have the material.”
Cobalt 27 initially secured net smelter return royalties (NSRs) on seven exploration-stage properties in Canada to establish a long-term pipeline, but its ambitious near-term plan involves leveraging its cobalt exposure through the acquisition of new, or existing, streams and royalties from production or development assets.
On Feb. 22, Cobalt 27 announced the purchase of a 1.75% NSR on RNC Minerals’ (TSX: RNC) Dumont nickel-cobalt sulphide asset in Quebec’s Abitibi region.
The project’s feasibility study outlines initial annual production of 33,000 tonnes nickel and 1,000 tonnes cobalt, which would jump to 51,000 tonnes nickel and 2,000 tonnes cobalt in year 5 assuming mill-throughput expansions.
RNC retains the right to buy back 0.375% of the NSR for US$15 million through mid-2020, which equates to a US$70-million value for the entire royalty.
“It’s really accelerated. The numbers came out recently where we saw that EV penetration rates are really on the rise,” says Milewski. “We’re looking to execute deals on world class nickel-cobalt projects. We have both royalty and streaming transactions in the pipeline that could certainly be keeping our news flow going this year. We could also pick up more physical cobalt as well. One thing that’s come to our attention in the past couple months is that we have the second largest stockpile of cobalt in the world. We hadn’t planned it, but Cobalt 27 could very well be a take-out target.”
Dumont has an initial 33-year life of mine based on proven-and-probable reserves of 1.2 billion tonnes grading 0.27% nickel, 107 parts per million (ppm) cobalt, 0.009 gram platinum per tonne, and 0.019 gram palladium per tonne. The property’s contained metal totals 6.8 billion lb. nickel and 278 million lb. cobalt.
RNC said in mid-January that it hopes to make a construction decision at Dumont next year. It’s also in discussions with Asian trading houses and financiers in a bid to secure around US$1 billion in project financing.
BMO Capital Markets analyst Andrew Mikitchook maintains an “outperform” rating on Cobalt 27 stock alongside a $17.50 per share price target. He says the company represents the “only non-development/exploration cobalt investment opportunity” in the market, and adds that BMO anticipates “further upside and stronger future valuations” from the EV and cobalt sector.
“Our shareholders are some of the biggest funds in the world and they’re all in,” Milewski concludes. “People who come out and talk about an alternative to cobalt in the battery space are misguided or have an agenda. I think we can talk about maturing and changing chemistry. We’re hearing now that it might take up to 15 years to find an alternative to cobalt in terms of battery chemistry. So it’s here to stay for a decade at least.”
Cobalt 27 shares have traded in a 52-week range of $7.42 and $13.88, and last closed at $13.48 per share. The company has 34.3 million shares outstanding for a $463-million market capitalization.