Cobalt 27 acquires Highlands Pacific for $96 million

Cobalt 27 Capital Corp. [KBLT-TSXV, 270-FSE], owner of the world’s largest stockpile of cobalt, on Wednesday January 2 announced the friendly acquisition of Australian Securities Exchange-listed Highlands Pacific Ltd. [HIG-ASX] in a $96 million transaction. Highlands’ primary assets include an 8.56% stake in the producing Ramu Mine and a 20% interest in the Frieda River copper-gold project. Both are located in Papua New Guinea.

Ramu is a large scale, nickel-cobalt mine with estimated reserves of one billion pounds of nickel and 100 million pounds of cobalt. Ramu exceeded annual production projections in 2017, reporting net cash flow of US$170 million on production of 34,666 tonnes of contained nickel and 3,308 tonnes of contained cobalt.

Ramu produces 3% of annual global mined cobalt as a by-product has an estimated mine life of 30 years.

Following repayment of Highlands’ attributable Ramu construction and development loans, Highlands’ ownership in Ramu would increase to 11.3%.

Cobalt shares rallied on the news, rising 16.67% or 55 cents to $3.85. The shares trade in a 52-week range of $14 and $3.36.

The announcement comes nearly eight months after Cobalt 27 said it had agreed to acquire a stream of over 55% and 27.5% of Highland’s attributable share of cobalt and nickel production, respectively, from the Ramu Mine in exchange for a $145 million upfront deposit.

“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 exposure from 55% to 100%, relative to the previously announced Ramu cobalt-nickel stream,” said Cobalt 27 Chairman and CEO Anthony Milewski.

“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,” he said.

“It also brings cash flow to our business, something we have told our shareholders was important from the beginning.”

Cobalt 27 has established itself as an investment vehicle that offers exposure to the metals that are key to the production of electric vehicles and battery energy storage. It recently acquired a cobalt stream on the Voisey’s Bay nickel mine in Labrador.

On Wednesday, Cobalt 27 said it has agreed to acquire all the issued and ordinary shares of Highlands that it doesn’t already own by means of a scheme of arrangement under Part 16 of the PNG Companies Act in Papua New Guinea.

Under the terms of the scheme, Cobalt 27 will pay an all-cash offer price of 10.5 Australian cents per share. The base purchase price consideration offered for all of the scheme shares is valued at approximately $96 million.

Also, Cobalt 27 said Highlands will use its best endeavours to enter into a buyback agreement with China state-owned Australian company PanAust, under which PanAust would transfer to Highlands legal and beneficial ownership of 128.8 million Highland shares currently held by PanAust and agree to the cancellation of outstanding liabilities owed by Highlands owned by PanAust.

If the PanAust buyback agreement closes, such shares in Highlands will be bought back by Highlands and cancelled, and will not be acquired by Cobalt 27 under the terms of scheme.