Ego gets cash infusion

While the situation is improving, a slow start to cobalt sales from its recovery plant in Cobalt, Ont., has made it necessary for Ego Resources (TSE) to find money elsewhere.

As a result, the company has sold a convertible debenture and common share purchase warrant package to a Canadian investment fund for $3 million.

Working Ventures Canadian Fund can acquire 2 million common shares of Ego at a conversion price of $1.50 per share under the debenture, and a further 1.5 million common shares upon exercising the warrant, for $1.50 per share in the first two years and $2 per share in the third.

Ego has developed a hydrometallurgical recovery process and built a cobalt recovery and refining plant near Cobalt, Ont., where tailings from several past-producing silver mines will provide many years of feed.

“[The financing] will be used for working capital and the like,” says Lawrence Smyth, Ego’s vice-president of operations. Since the plant was late coming on stream, revenue from sales has been lower than expected. He says engineering “glitches” in the design and operation of the plant were to blame, and they were not discovered until production got under way late last year.

“Reality is not always what it is on paper,” Smyth says.

Ego decided to deal with its plant’s glitches in the early months of operation so that full production levels could be achieved without any hindrances by the time chemical giant H.C. Starck (ultimately Ego’s primary customer) completes construction of its plant in Sarnia, Ont.

Since December, Ego has been selling cobalt carbonate on the spot market to other customers, but once the Starck plant is ready, Ego will shift to producing a modified cobalt compound. The compound is used in the production of a new type of rechargeable battery.

Smyth says Ego’s new plant will turn a profit “soon,” and that production and sales figures will be released by May.

“Our process works precisely as advertised,” Smyth insists. “I can’t stress enough how well. The market always looked at us somewhat askew. But we didn’t go out and spend $20-odd million and say OGee, we hope it works.’ We knew it would work.”