Cobalt 27 announces first-ever cobalt/nickel streaming deal

VANCOUVER (miningweekly.com) – Canadian cobalt company Cobalt 27 has created the world’s first cobalt/nickel streaming deal with ASX-listed Highlands Nickel on the Ramu mine, in Papua New Guinea (PNG).

The two partners have signed a metal purchase and sale agreement (MPA) giving Cobalt 27 the right to buy 55% of Highlands subsidiary Ramu Nickel's (RNL's) cobalt output and 27.5% of payable nickel metal output in return for a C$146-million upfront cash deposit to Highlands.

“Ramu is a large world-class, high-margin and long-life asset which we view as the ideal candidate for our inaugural stream. We believe the exposure to both cobalt and nickel, another key battery metal, will yield significant returns to our investors as electric vehicles begin to change our society in the coming years,” Cobalt 27 chairperson and CEO Anthony Milewski said in a statement Tuesday.

The transaction will provide Cobalt 27 with immediate cash flow, representing a short payback period on a world class stream. Ramu is a large-scale nickel/cobalt mine, ranking first-quartile on the global cost curve, and has a long mine life with significant resource upside potential, the company advised.

The Ramu stream is expected to reduce uncertainty for Highlands by allowing for the immediate debt repayment of Highlands’ Ramu partner loans and accelerating cash flows from Ramu to Highlands.

Highlands, which owns 100% of RNL, currently holds an effective 8.56% ownership interest in Ramu. However, Highlands will use proceeds from the transaction to increase its effective ownership interest in Ramu to 11.3% through repaying its share of outstanding Ramu construction and development loans. The Ramu cobalt/nickel stream will be over RNL’s pro forma 11.3% ownership interest in Ramu.

Cobalt 27 has created a new subsidiary Electric Metals Streaming to facilitate the streaming deal, and it will make ongoing production payments of $4/lb of cobalt and $1/lb of payable nickel, each subject to annual inflation adjustments beginning on June 30, 2023.

Cobalt 27’s stream will be secured by a first-priority ranking pledge over Highlands’ shares in RNL and a guarantee by Highlands.

Cobalt 27 has also agreed to complete a strategic equity investment in the common shares of Highlands, which will result in the company owning about a 13% pro forma interest in Highlands.

Upon closing following regulatory approval, Cobalt 27’s Milewski will be appointed to the Highlands board, and Highlands CEO Craig Lennon has agreed to join Cobalt 27’s advisory board.

STRONG ASSET
Further, Cobalt 27 revealed that it is also in advanced discussions with two local PNG stakeholders that own an equity interest in Ramu to negotiate an $87-million stream agreement on the same terms as the MPA, with a proportionate metal stream based on their attributable aggregate interest in Ramu being 6.44%, which would increase to 8.7% through the repayment of their proportionate share of outstanding Ramu construction and development loans.

Construction and commissioning of the $2.1-billion Ramu mine was completed in 2012 by owner/operator Metallurgical Corporation of China, as its cornerstone asset in a nickel-focused resource portfolio.

The Ramu mine has total estimated reserves of one-billion pounds of nickel and 100-million pounds of cobalt. Highlands management currently estimates a mine life of more than 30 years. Ramu produces about 3% of global mined cobalt a year as a co-product metal.

Ramu exceeded its yearly production projections in 2017, reporting net cash flow of $170-million, on production of 34 666 t of contained nickel and 3 308 t of contained cobalt, both in excess of nameplate capacity.

The streaming deal comes on the heels of a February 1.75% net smelter return royalty it secured on all future output of nickel and cobalt from Canadian diversified miner RNC Minerals' Dumont project, in the Abitibi region of Quebec, for $70-million.

In global markets, the price of cobalt has nearly tripled to $81 500/t in two years, while nickel has risen about 50% in the past six months to a recent high of $14 140/t.

Streaming deals offer win-win scenarios for both the investor and the miner, since it offers the miner upfront capital in exchange for fixed metal prices on future production, usually at a discount.

Cobalt 27 also owns nearly 3 000 t of physical cobalt, which it can use as strategic leverage in the rising cobalt price environment.