The TSX Venture has gone quiet. As it usually does towards the end of June and into July, liquidity has all but dried up on Canada’s small-cap exchange. This has not prevented companies such as Cobalt 27 to raise considerable funds for raw materials necessary for electric vehicles and battery energy storage markets. The other bright spot can be found in the marijuana sector as nation-wide recreational legalization comes to the fore in Canada.
Cobalt | EV Dark Horse Moves to the Limelight
First graphite and then lithium dominated headlines and liquidity; now, cobalt is showing some strength.
In a Forbes article from March of 2018, Cobalt: The Achilles Heel for Electric Car Makers, the rush to find new sources of cobalt is on,
“Despite their name, most lithium-ion batteries also require cobalt and graphite to do their job of retaining and discharging electricity, and while lithium and graphite are plentiful, it is cobalt that has manufacturers of battery-based products worried.”
Cobalt 27 Inks Deal for US$300 Million Cobalt Stream
The far and away leader in Canada’s cobalt mining space is Cobalt 27. The royalty company is focused on securing direct interests and streaming agreements with global cobalt producers. The streaming model has worked for various companies to different degrees, but appeals to many investors. Unlike a mining company that must put up massive capital costs, a streaming company essentially purchases future production, usually at a significantly discounted price.
Liquidity is paramount to becoming a successful streaming company. To acquire a stream of any commodity, the buyer usually puts up significant cash up front. Mining is a capital-intensive business, with most companies always looking to secure more financing (especially when their sector is hot, like cobalt is today).
Cobalt 27 Cashes Up Before Buying Spree
In May, Anthony Milewski, Chairman and CEO of Cobalt 27, stated,
“Adding a revolver to our balance sheet is an important step towards becoming a cash flow positive streaming company. This US$80 million Credit Facility, combined with our recently completed CAD$200 million equity financing, significantly strengthens Cobalt 27’s liquidity and provides the financial capacity to accelerate our plans to close streaming transactions.”
Days later, the company announced the acquisition of cash flowing cobalt-nickel stream on the producing Ramu Nickel-Cobalt Mine for US$113 Million. On June 11th Cobalt 27 announced a deal that would rock the sector. It involves perhaps the most iconic mining project in Canadian history: Voisey Bay.
Led by famed promoter Robert Friedland, who we wrote about in our Ebook titled Leading Juniors to Multimillion dollar buyouts, led Diamond Fields who ultimately sold the asset for a whopping C$4.3 billion – back in April of 1996.
Diamond Fields Stock Chart
To view an infographic on the incredible rise of Diamond Fields which ultimately sold its Voisey Bay deposit, click here.
Cobalt 27 Joins Voisey Bay History
In Early June, Cobalt 27 announced that, Cobalt 27 Acquires US$300 Million Cobalt Stream on Vale’s Voisey’s Bay Mine Expansion and Announces C$300 Million Bought Deal Offering of Common Shares To Fund Stream Acquisition. Yesterday, on June 28th, the deal closed.
Cobalt 27 closed its previously announced acquisition from a subsidiary of Vale S.A., of the world’s first pure cobalt stream. The market reacted by selling off 5% as it often does after historic news.
Concerning the acquisition,
An amount of finished cobalt equal to 32.6% of the cobalt production from Vale’s Voisey’s Bay Mine, including from the proposed Voisey’s Bay Mine Expansion commencing January 1, 2021, will consist of the cobalt stream. Furthermore,
“The Company has paid to Vale total upfront cash consideration of US$300 million, which represents a prepayment of a portion of the purchase price for the sale of cobalt to Cobalt 27.”
Finally, the company reported,
“Cobalt 27 will also make ongoing payments (the “Ongoing Payments”) equal to 18% of the Cobalt Reference Price for each pound of cobalt delivered under the Cobalt Stream, until Cobalt 27 has recovered the full value of the Advance Amount through Vale’s deliveries of finished cobalt under the Cobalt Stream. After this time, the Ongoing Payments will increase to 22% of the Cobalt Reference Price.”
Wheaton Precious Metals Joins Cobalt 27 in Cobalt Streaming Deal
A long-time leader in the streaming space, Wheaton Precious Metals Corp., also completed a separate streaming agreement with Vale. Moreover, “In total, Cobalt 27 and WPM have provided Vale an aggregate of US$690 million in upfront proceeds for a combined purchase of finished cobalt equal to 75% of Voisey’s Bay cobalt production commencing January 1, 2021.” Astonishing.
Anthony Milewski, Chairman and Chief Executive Officer of Cobalt 27 commented, “The Voisey’s Bay Cobalt Stream is a milestone achievement in our pursuit of building the world’s premier investment vehicle to play the electric vehicle and battery energy storage revolution.”
Again, the demand is for cobalt only because of new and rising demand for electric vehicles and battery energy storage.
Cobalt 27 Market Cap Flirts with $750 Million
The success of Cobalt 27 (KBLT:TSXV) is telling us capital is becoming more concentrated within the mining space. For example, say the entire mining sector on the TSX Venture was worth $1 billion. 20% of it would be concentrated in a ‘hot’ sector, driving gains, but lifting the overall market up. Now, more than 50% of the capital is concentrated in a handful of ‘hot’ spaces, including cobalt, graphite and lithium, with valuations for more boring sectors falling by the wayside. This new world makes it critical to spot trends early, reap the benefits and divest before significant production comes online to alter the demand narrative. Right now cobalt is hot as electric vehicles and battery energy storage dominate headlines. As miners rush to bring on supply, another hot commodity will emerge. For the time being, cobalt and anything related to EVs and battery storage market is in vogue.
