Cobalt 27 Capital Corp is the culmination of nearly three years of exhaustive market research and planning by a group of professionals specialising in various roles within the global mining and metals industry. The TSX-V-listed company was forged from a succession of discussions on different types of transformational disruptive technology and how they will ultimately impact basic materials. They looked at a range of technologies including semi-conductors and robotics but concluded that the energy and automobile industries are set to undergo a complete transformation, driven by advances in renewable energy, battery storage technology and the inbound electric vehicle revolution.
These disruptive industries require a host of minerals and metals from lithium, graphite and cobalt in cathode and anode manufacturing, to copper and aluminium in EV model production. This begs the following question to investors: Why cobalt?
“We found that cobalt was the most interesting because of how critical it is to so many types of existing batteries and future batteries,” says Cobalt 27’s chairman and CEO, Anthony Milewski.
“What is probably most important is that it’s a by-product of nickel and copper mining in approximately 98% of cases. That is interesting because as a by-product, cobalt on its own, doesn’t have the ability to form the supply side response.
“However, SQM were recently able to announce that they will double global output of lithium in a single day, whereas with cobalt, you’d have to build a large, multi-billion dollar copper or nickel mine, so it’s a very unique commodity in that respect.”
After concluding that cobalt was the best material to back based on supply and demand fundamentals and projected demand growth from disruptive technology markets, such as electric vehicles and large-scale energy storage systems, the hard work began for Cobalt 27. The board and management team, comprised of industry experts in mining, mine financing, cobalt and streaming and royalties, began to build the company’s asset base.
Before looking at Cobalt 27’s asset base, it is important to consider the current sentiment and attitudes across the world that are shaping these disruptive industries, particularly within the EV market.
At the crux of the gradual shift towards electrification of the global vehicle fleet is a greater awareness of environmental degradation. According to the World Health Organization, air pollution is the world largest single environmental health risk, with up to 80% of greenhouse gas emissions since the 1970s attributable to combustion engine vehicles.
However, the world has responded. The watershed Paris climate accord targets 100 million EVs across the global vehicle fleet by 2030, meanwhile governments have responded by banning the sale of gasoline and diesel engine vehicles, such as Norway and Netherlands by 2025, and the UK and France by 2040.
Today, the global EV fleet remains relatively small, with three million cars on the road worldwide. But, the targets loom large over the sector and, as technological advances continue to drive costs down, the fabled tipping point shuffles ever closer.
“When we investigated disruptive technology, what we arrived at was the significance of two factors: 1) Cost and 2) Utility,” says Milewski. “If you look at the EV, you are now reaching cost parity with a like-for-like gas vehicle and I think secondly, on the utility side, what’s interesting now is that range exceeds the majority of commuter distances.”
“Range was one of the significant concerns and that has kind of gone away now. The second part of utility is the ease of recharging. If you go and look at the Tesla website what you will find is you can drive to any place in the US and can charge along the way.”
Now that these two barriers have been breached in many developed markets, Milewski points to the recent explosion in quarterly and year-on-year growth, an acceleration that not many people anticipated just two years ago.
“In terms of Cobalt 27, we are really one of the purist ways to invest in that adoption, because it’s hard to say if Ford is going to be the winner, or if it will be Tesla, or GM.
“Certainly there is going to be a winner in that EV race, and if you believe there is going to be a winner then it is cobalt, because cobalt is in every single battery cell that’s used in automobiles.”
Pure play cobalt exposure
Cobalt 27 asset base includes 2,982 tonnes of physical cobalt, valued at approximately C$323 million, which is securely stored at LME-certified warehouses in Baltimore, Antwerp and Amsterdam.
The company’s strategy also incorporates the management of cobalt streams and royalties, which involve purchase agreements with nickel and copper mining companies who extract cobalt as a by-product metal. The company’s physical cobalt position combined with its plan to acquire a portfolio of cobalt streaming and royalty assets, are expected to provide shareholders with diversified asset exposure, free cash flow, and additional future avenues for growth, within a pure play cobalt investment vehicle.
Cobalt 27 also holds royalties on 7 exploration-stage projects prospective for cobalt and in February 2018, acquired a 1.75% Net Smelter Return royalty on all future production over all metals from the Dumont Nickel-Cobalt Project, which contains the world’s largest undeveloped, permitted, and construction-ready reserves of nickel and cobalt, and is located in the geopolitically secure and mining-friendly Abitibi region of the Canadian province of Québec.
“The current royalties we have right now are largely options,” reveals Milewski. “We are currently focused on producing assets and this gives shareholders leverage to the cobalt price.
“We are not operators and we do not intend to become a mining company. Instead we are really focused on giving people leverage to cobalt and leveraging the EV story as opposed to running a mining company which is a very different business.
“Going forward, the growth of the company will really be coming from streaming and royalty transactions. That’s how we are going to get the scale and size that we want to achieve.”
The decision to build its asset portfolio on physical cobalt and mining streams and royalties, has resulted in the company evolving into one of the best pure play cobalt investment vehicles on the TSX-V, and this has been recognised by investors globally.
In June 2017, Cobalt 27 completed the single largest IPO on the TSX and TSX-V since 2012, raising C$200 million in equity financing and signalling to Canadian and international capital markets the beginning of a large and fast-growing battery metals upcycle.
The company raised a total of C$300 million in equity financing in 2017 and acquired the world’s second largest above ground inventory of refined cobalt after the government of China’s strategic stockpile. Plus, on March 9, 2018, Cobalt 27 closed a C$200 million private placement offering conducted by a syndicate of agents co-led by Credit Suisse and TD Securities, with proceeds to be used by the company to fund the acquisition of further cobalt streams and royalties.
Cobalt and conflict mining
In recent years the global cobalt supply chain has come into disrepute after numerous reports of exploitative and conflict-driven mining practises, many of which originate in the Democratic Republic of Congo, home to over 60% of global cobalt supply.
So, how does Cobalt 27 ensure all its physical holdings and the cobalt from its streams and royalties are ethically sourced?
“First and foremost, we are not operating, transacting or doing business in DRC. There are companies that do that, and if you do it ethically then there are no problems. I think Glencore does a tremendous job there, but that’s not really our business model.
“For us, we buy branded cobalt from outside DRC, whether that is Norilsk, Vale or Sherrit, there are any number of brands globally that are outside of DRC. If you buy metal in Canada, you know that there are no conflict issues there,” explains Milewski.
Today, the world is hovering on the cusp of a significant energy transformation. Electrification of the global vehicle fleet will have untold effects on basic materials, and Cobalt 27 offers direct leverage to one of the most vital metals powering the EV revolution, with limited exposure to capital risks.
“This is a once-in-a-lifetime change in two of the biggest industries in the world and there are a variety of ways to play it, but I believe that cobalt is one of the purest forms of playing the adoption of the EV. If people share that view of the global adoption of the EV than this is a really unique opportunity and time to invest.”