New Strategic Acquisition Could Significantly Increase Cobalt 27′s Attributable Production of Cobalt to over 600,000 Pounds Annually
TORONTO, ON / ACCESSWIRE / January 9, 2019 / New analyst comments out of Canada’s largest banks suggest that Cobalt 27 Capital Corp. (TSX-V: KBLT; OTCQB: CBLLF; FSE: 27O) could be due for a re-rating thanks to the Company’s recent decision to acquire Highland Pacific Limited in an all-cash offer for C$96 million.
Previously structured as a streaming transaction, the newly proposed acquisition would provide Cobalt 27 shareholders with a direct 8.56% interest in the producing Ramu nickel-cobalt mine in Papua New Guinea. The Company will also hold the option to increase its interest in Ramu to 11.3% once construction and development loans are repaid.
Ramu is a large-scale, open pit mine estimated to hold mineral reserves totaling approximately 1 billion pounds of nickel and 100 million pounds of cobalt. The mine, which came online in 2012, is already responsible for 3% of globally produced bi-product cobalt each year. Ramu is considered one of the most efficient nickel-cobalt operations in the world, ranking it in the lowest-cost quartile. In 2017 the operational output totaled 34,666 tonnes of contained nickel and 3,308 tonnes of contained cobalt, both exceeding nameplate capacity.
The proposed acquisition of Highland Pacific, if successful, will increase Cobalt 27′s attributable production from Ramu to over 600,000 pounds of cobalt and 2,900 tonnes of nickel annually. The transaction would be directly accretive for shareholders on a net asset value basis and provide a superior platform in Australasia, allowing the Company to assess additional opportunities in the region.
National Bank of Canada analyst, Rupert Merer, says that the proposed deal could return over 10% cash flow yield at Cobalt 27′s current share price and that the stock ″looks cheap relative to the US$300 mln invested in Voisey’s Bay stream, it’s roughly C$240 mln in cobalt inventory (at current prices) and more than C$40 mln in cash before the transaction. At the current stock price, investors would be buying cobalt and cash, with Voisey’s Bay for free and no upside for Ramu included. KBLT should rise from here.″
Analysts at Haywood Securities also see the deal as a positive development for Cobalt 27. Haywood, which has a buy rating on the stock, noted in its recent report that the acquisition ″provides greater nickel and cobalt production exposure at a lower cost (~$83-96M vs. ~$145M for the original stream)″ and that direct ownership in Ramu should result in greater attributable cash flow compared to the originally proposed transaction.
Canaccord Genuity analysts maintained their speculative buy rating on Cobalt 27 after the announcement, suggesting that the new proposed deal structure ″addresses potential market concerns about the original stream deal while satisfying its thirst for growth in quality battery materials exposure″ while also reiterating that they ″continue to view Cobalt 27 as the premier investment vehicle for exposure to battery materials in the burgeoning electric vehicle theme.″
In a press release issued by the Company on January 1, 2019, Chairman and CEO Anthony Milewski stated: “The acquisition of Highlands will allow Cobalt 27 to gain a direct interest in the Ramu nickel-cobalt mine and materially increase its attributable exposure to the mine’s nickel production from 27.5% to 100% and cobalt production from 55% to 100%, relative to the previously announced Ramu Cobalt Nickel Stream. It does so at nearly half the cost of the previously announced Ramu Cobalt Nickel Stream, provides increased balance sheet flexibility, and enhances value for Cobalt 27 shareholders. It also brings cash flow to our business, something we have told our shareholders was important from the beginning.”
Construction and commissioning of the US$2.1 billion Ramu mine was completed in 2012. The mine utilizes traditional open-pit mining methods and a 135km pipeline that transports a mineralized slurry to the Basamuk processing plant where it is further processed to produce a mixed hydroxide product that contains nickel and cobalt. The mine is jointly owned by Highland Pacific, the PNG Government and Landowners and Metallurgical Corporation of China Ltd. (MCC). MCC is a publicly traded company listed on the Shanghai and Hong Kong stock exchanges that boasts a market capitalization of approximately US$9 billion. MCC also acts as mine operator.
Figure 1. Regional Map showing location of Ramu mine assets
Junior Mining Network (″JMN″) is not a financial advisory or advisor, investment advisor or broker-dealer and does not undertake any activities that would require such registration. The information contained herein is not intended to be used as the basis for investment decisions and should not be considered as investment advice or a recommendation, nor is the information an offer or solicitation to buy, hold or sell any security. JMN does not represent or warrant that the information posted is accurate, unbiased or complete and make no representations as to the completeness or timeless of the material provided. JMN receives fees for producing content on financial news and has been compensated US$750 by Cobalt 27 Capital Corp. to publish this report. Investors should consult with an investment advisor, tax and legal consultant before making any investment decisions. All materials are subject to change without notice.
Junior Mining Network
SOURCE: Junior Mining Network