Pala Investments offers $501M for Cobalt 27

Battery metals-focused Cobalt 27 Capital (TSXV: KBLT; US-OTC: CBLLF) has come a long way since listing on the TSX Venture Exchange in June 2017.

The company has a cobalt stream on Vale’s (NYSE: VALE) world-class Voisey’s Bay nickel-copper-cobalt mine in Labrador beginning in 2021; holds an 8.56% joint-venture interest in the producing Ramu nickel-cobalt mine in Papua New Guinea; owns one of the world’s largest stockpiles of physical cobalt; and manages a portfolio of 11 royalties on mineral properties containing battery metals.

In June, the company’s board agreed to a $501-million takeover offer from Pala Investments, which already owns 19% of the company.

Cobalt 27 Capital chairman and CEO Anthony Milewski

Under the proposed deal, Cobalt 27 shareholders will receive $5.75 per common share — $3.57 in cash, and $2.18 in shares of a newly listed company that will be called “Nickel 28 Capital.”

The offer represents a 66% premium to Cobalt 27’s closing share price on June 17 of $3.47, and a 46% premium to its 20-day, volume-weighted average trading price of $3.95.

The new entity would be funded with US$5 million in cash and hold Cobalt 27’s interest in the Ramu mine, its royalty portfolio on future projects, and its equity position in Giga Metals (TSXV: GIGA; US-OTC: HNCKF).

But what won’t be transferred to Nickel 28 are two of Cobalt 27’s most valuable assets — its physical inventory of cobalt, and its stream on Voisey’s Bay, both of which Pala will keep.

“Pala will be acquiring the physical cobalt inventory and stream on Voisey’s Bay at a significant discount to carrying value, leaving the Ramu royalty as the main asset in the newco,” Colin Healey, of Haywood Securities, says in a research note.

“Pala’s offer is opportunistic, acquiring the Voisey’s Bay stream at a 27% discount to the current carrying value,” which was US$253 million in first-quarter 2019, if physical cobalt inventory and net-debt are taken at spot and face value, Healey says. “Given the weakness and bearish trend in KBLT shares over the past year, we see this proposal as a probable exit for shareholders, and likely to gain two-thirds shareholder approval.”

Shareholders will vote on the transaction at a meeting in August.

Nickel 28 would have no corporate debt and be run by Cobalt 27’s executive team. Pala would own a 4.9% stake in the company.

If a superior offer emerges for Cobalt 27, Pala has five business days to match it.

Pala’s managing partner, Stephen Gill, was travelling and unavailable for an interview, and Cobalt 27’s chairman and CEO, Anthony Milewski, would not comment.