VALE - Pala to Acquire Cobalt 27 for C$501 Million Create Nickel 28
Mining investment company Pala Investments will pay C$501 million to acquire battery metals royalty and streaming company Cobalt 27 Capital (TSXV:KBLT,OTCQX:CBLLF).
The cobalt-focused company holds approximately 2,904 tonnes of physical cobalt at its warehouses in the US and Europe, as well as 11 royalty and streaming arrangements with miners such as Vale (NYSE:VALE), RNC Minerals (TSX:RNX,OTCQX:RNKLF) and Australian Mines (ASX:AUZ,OTCQB:AMSLF).
Shares of Cobalt 27 shot up as much as 24 percent on Tuesday (June 18) morning following the news.
Pala, which already holds a 19 percent stake in the Canadian company, has agreed to pay C$5.75 per common Cobalt 27 share, a price that is made up of C$3.57 in cash plus C$2.18 in shares of a newly established company called Nickel 28 Capital. The name references nickel’s number on the periodic table.
Nickel 28 will hold Cobalt 27’s joint venture interest in the Ramu nickel-cobalt mine, as well as the company’s royalty portfolio on future projects. Its royalties include the Turnagain royalty and Dumont royalty and certain equity positions.
The new company is planning on cashing in on the increasing demand for metals related to the electric vehicle, battery and energy storage sectors.
“We believe this is a highly compelling offer for Cobalt 27, as the transaction provides shareholders with a large upfront premium. It is also clear that nickel will be an increasingly critical component of the electric battery revolution, and the creation of Nickel 28 provides shareholders with significant incremental value and continued exposure to the strong fundamentals of battery metals,” Anthony Milewski, chairman and CEO of Cobalt 27, said in a press release.
Cobalt 27 started trading on the TSX Venture Exchange in June 2017 after a C$200 million initial public offering. Shares were offered at C$9, and at the time the debut was the largest in Canada since 2012.
The company’s share price has been on the decline since about mid-2018 on the back of a difficult cobalt price environment. Prices remain under pressure, and some market watchers have expressed dissatisfaction about the agreement with Pala.
Others are more optimistic. “It’s not an egregiously unfair deal based on the spot price of the metals,” Numis Securites analyst Jonathan Guy told the Financial Post. “Many people may say that Pala is buying it out at a low in the cobalt price, but that’s why they’re doing it. They don’t think market is pricing it fairly.”
As a whole, market watchers agree that cobalt and nickel will both be needed as the global electric vehicle market develops, meaning that building strong supply chains will be crucial.
With the majority of cobalt supply coming from the Democratic Republic of Congo (DRC), which has a long history of conflict in the resource sector, efforts by companies like Cobalt 27 and Nickel 28 to support projects outside of conflict zones is increasingly important.
“… This transaction is aligned with our strategy of building sustainable value chains around the raw materials that support a changing economy,” said Stephen Gill, managing partner at Pala.
“We look forward to remaining a supportive shareholder of Nickel 28, as it goes forward with a clean balance sheet to continue building its asset base, in particular, by leveraging its recently acquired exposure to the producing Ramu nickel-cobalt mine.”
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.