Cobalt27 ramps up its physical stock - Cobalt 27 Capital Corp.
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AUTHORIZED REPRINT
JULY 23-AUGUST 5, 2018 / VOL. 104 ISSUE 15 / WWW.NORTHERNMINER.COM
Cobalt27 ramps up
its physical stock
INTERVIEW | Cobalt27’s Anthony Milewski on Vale transaction, cobalt outlook
BY TRISH SAYWELL
tsaywell@northernminer.com
C
obalt27 Capital (TSXV: KBLT) re-
cently acquired a US$300-million cobalt
stream on Vale’s (NYSE: VALE) Voisey’s
Bay nickel-copper-cobalt mine, beginning
in 2021. It also has a stream on the Ramu
nickel-cobalt mine in Papua New Guinea
owned by the Metallurgical Corp. of China,
and a net smelter return royalty (NSR) on the
construction-ready Dumont nickel-cobalt
project owned by RNC Minerals (TSX: RNX)
in Quebec. In total the company has 12 streams
and royalties, as well as physical cobalt. In
the last five months alone the company has
The Basamuk processing plant, part of Metallurgical Corp. of China’s majority-owned Ramu nickel-
increased its physical stock of cobalt by 800 nobalt mine in Papua New Guinea, where Cobalt27 holds a cobalt stream on the project. HIGHLANDS PACIFIC
tonnes to 3,000 tonnes. The Northern Miner
recently spoke with Cobalt27’s chairman and 2006, is the largest producer of nickel globally, AM: It was a big year. We’ve built the company
CEO, Anthony Milewski, about the company’s and are significant producers of cobalt. The to a $733-million market capitalization in 12
investments and his outlook for nickel and opportunity for Cobalt 27 to gain access to this months. We always knew that it would be a
cobalt in the emerging electric vehicle (EV) asset through a 32.6% cobalt stream is really challenge to start a streaming and royalty
revolution. once in a lifetime, when you think about it. company. If you look at a lot of the big stream-
There may be two or three assets in this class ing and royalty companies, they were founded
The Northern Miner: You have just completed globally. Although the current life-of-mine is on some form of spin-off, or other corporate
a $300-million equity raise to pay for the cobalt stated at approximately 14 years, the Voisey’s transaction. We realized that was never going
stream in your portfolio from Voisey’s Bay Bay deposit is massive, and we believe that to happen for us, so, to begin, we went out
mine in Labrador. once Vale goes underground, further defini- and acquired the world’s largest commercial
tion of the resource will take place to really stockpile of physical cobalt. Having physical
Anthony Milewski: Vale’s Voisey’s Bay Mine is understand what is possible in extending the cobalt gave us a balance sheet, and once we
one of the best nickel-cobalt asset in the world, life of the mine. This has been demonstrated had that, we could use the physical cobalt as
and so, as a company focused on cobalt and in similar deposits of this nature, and there is part of our leverage to borrow money and
nickel, we felt it was important to participate the potential that Voisey’s Bay could produce complete streaming and royalty transactions.
and add value to our shareholders through nickel and cobalt for another 20 to 30 years. Since our initial public offering in June 2017,
streaming this orebody. Voisey’s Bay is con- The fact that Cobalt 27 was able to secure this Cobalt 27 has raised equity and secured a
sidered “generational” as it represents the only cobalt stream is significant to delivering on revolving-credit facility, which we intend
new, significant nickel sulphide discovery in our pledge to generate shareholder returns. to increase, as we build our electric metals-
the last 30 years. You just have to look back at focused investment portfolio. In addition to a
the interest it generated after being discovered, TNM: That’s quite a big transaction for a portfolio of streams and royalties, we also have
with both Inco and Falconbridge vying to ac- company that has been around for just a year. approximately 3,000 metric tonnes of cobalt
quire it. Vale, which acquired Voisey’s Bay in sitting in London Market Exchange-bonded
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warehouses in the U.S. and Europe. We are
building a cobalt-mining company with an AM: When we look at disruptive technologies
excel spreadsheet, and not a shovel. We have and the timeline for technology adoption, the
physical cobalt, however, with the exception first driver is price. Does the new technology
of one state-owned mine in Morocco, there cost about the same as whatever it is replacing?
really aren’t any other primary cobalt mines And for EVs, the answer is yes. The second
to invest in. About 98% or 99% of all cobalt driver of technology adoption is utility, and
comes as a by-product from copper and nickel in the automotive sector there are two parts
production. to that. The first is range — how far does a
conventional car travel versus an EV — and
TNM: The Democratic Republic of the Congo the answer is that the new generation of EVs
(DRC) accounts for 60% of mined cobalt, and travel further than the majority of all com-
BMO estimates that will rise to 67% in 2025. muter travel in a conventional car in a single
But Cobalt 27 has sworn off doing any deals in day. The second aspect of utility in the case
the DRC for ethical reasons. (Apple calls DRC of EVs is rechargeability. I would encourage
cobalt a “conflict mineral.”) “CHINA IS AT readers to go to Tesla’s website and look at all
THE MOMENT A the recharging stations. They are everywhere
AM: One of our key tenets is that we don’t now — even at hotels. The industry has moved
invest inside the DRC.
GLOBAL LEADER IN through these barriers, which were real, and the
ENVIRONMENTAL acceleration of the adoption of EV technology
TNM: If the DRC produces so much of the world’s POLICY AROUND THE is happening. We have now reached a tipping
cobalt, doesn’t that mean battery makers will point. And the basic materials that comprise
be under pressure to find substitutes for the AUTOMOTIVE AND EVs are cobalt, copper, nickel and lithium,
cobalt in their batteries? TRANSPORTATION and for those metals we believe we are at the
beginning of a five- to 10-year bull market.
AM: Australia and Canada are two of the main SECTOR.”
regions where we expect to see increased mined ANTHONY MILEWSKI TNM: How big is total cobalt demand today?
cobalt production required to meet future CHAIRMAN AND CEO, COBALT27
demand. If you look at additional sources AM: The cobalt market today is approximately
of cobalt outside the Congo, those regions 110,000 metric tonnes, and a lot of that is driven
are really taking off. You have Clean TeQ’s by super-alloy industries — the airlines — and
Sunrise project in Australia, RNC’s Dumont electric battery-powered vehicles ultimately also batteries that have traditionally been used
project in Quebec, which is moving towards weighs on the energy industry, and the accel- in mobile phones and laptops. What we have
construction, and now, Vale’s recently an- erating adoption of the EVs, which includes today is a new and rapidly growing source of
nounced, US$1.7-billion expansion of Voisey’s rapidly increasing demand for electric metals demand, and depending on the penetration
Bay mine in Labrador, with production from used in lithium ion batteries. I believe we are rate of EVs, could require as much as three
underground operations scheduled to begin talking about “peak oil” in terms of demand, times today’s mined cobalt production by 2025.
in 2021. What we’re really talking about is and not supply. So when you introduce a brand-new source
additional supply coming from nickel mines, That’s not happening tomorrow, these take of demand it changes the dynamic. You had a
with corresponding projected increases in five or 10 years to transpire. But you’re seeing market that was flat and now out of nowhere
nickel and cobalt prices over time. a real disruption in important industries and you have a huge source of demand, as people
as a result you’ll see changes in demand for increasingly are buying EVs.
TNM: We’re at an inf lection point — the basic materials. Not just cobalt, but for nickel, There are multiple points here. On the one
transportation industry is on the cusp of mas- copper and lithium, as well. hand, EVs are coming online, with prices
sive disruption. comparable to conventional cars. Even in
TNM: But EVs still aren’t that cheap. places like China, more so than in the West,
AM: This is a big change and we are all just people are becoming more socially conscious.
beginning to appreciate how fast it’s com- AM: The entry point for the latest Tesla sedan People are being given the option to buy a
ing. We’re talking about a structural change is about US$35,000. I’m not saying that’s not car at the same price point, and there’s an
in two of the major industries on earth: the real money, or that you don’t have to earn that increasing awareness of the environment and
energy industry and the automotive industry. money, but there aren’t a lot of new cars that the destruction that fossil fuels are causing
It’s not very often that you have this type of sell for less than US$35,000. EVs cost almost the earth. That’s real.
disruptive change in two global industries. the same as conventional cars. In China you
The automotive manufacturers are moving can buy an EV for about US$6,000. TNM: Would you agree that China is at the
towards electric and quasi-electric vehicles. forefront of the EV movement? It subsidizes the
And then you have as much as 70% of crude TNM: What about some of the other barriers EV market and has set a target that would see
used in the transportation sector. And, in the to adoption, like range anxiety and the avail- zero-emission vehicles make up 10% of all new
coming decades, a switch from fossil fuels into ability of charging stations? sales by 2019, and 12% of all new sales by 2020.
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There are 172 car companies in China, among on EVs, in terms of manufacturing, research and cobalt thrifting, or the emergence of a
them the world’s largest EV company, BYD and development and infrastructure, will new battery technology that doesn’t require
Auto Co. in Xi’an, Shaanxi province. (Berkshire far outweigh what everyone else is spending. cobalt at all?
Hathaway owns 8.25% of BYD Auto, which
stands for “Build Your Dreams”). According TNM: Pollution from transportation is re- AM: We’re going to be using nickel-manganese-
to BMO, China has 40% of the world’s EV car sponsible for 25–30% of global greenhouse cobalt chemistry for a long time. Tesla uses
stock and 30% of global sales overall. Last year gas emissions. Is reducing emissions a reason NCA batteries and the balance of the world uses
there were over 600,000 units of battery electric you decided to jump into the cobalt business? NMC batteries. The overwhelming majority of
and plug-in hybrid EVs — up 71% from 2016. investment dollars, perhaps as much as 95%,
AM: Cobalt 27 is contributing by helping are being spent on developing NMC batteries,
AM: China is at the moment a global leader in to fund the production and development of so we believe NMC battery chemistry is go-
environmental policy around the automotive mined cobalt outside of the Congo. Through ing to be around for at least the next decade.
and transportation sector. In the West we’re the acquisition of streaming and royalties on However, the chemistry within the NMC
lagging behind. China is targeting 25% pen- current and future production, we are helping will evolve over time. The conventional wisdom
etration of EVs in 2025. It’s clear the govern- to fund sustainable mines that produce cobalt today is that the battery chemistry that has the
ment has looked at ways to clean up the air, and nickel that will help drive EVs. By creating best stability, longevity, and re-chargeability
particularly in large urban areas, and they’ve this company, we’re helping to finance nickel is the 6-2-2 (six parts nickel, two parts man-
determined the most cost-effective and fastest and cobalt mines that ultimately power a cleaner ganese and 2 parts cobalt). We are at a 5-2-3
way is through EVs. It’s an important moment future. And we’re avoiding the Congo, which (five parts nickel, two parts manganese and 3
in the world. is one of the other ways we’re contributing. parts cobalt) today, and the generation after
The U.S. has guided global policy since World the 6-2-2 is the 8-1-1 (8 parts nickel, 1 part
War II, and now you’ve got China sticking TNM: There are two major types of lithium- manganese and 1 part cobalt).
its hand up and becoming a world leader on ion batteries: nickel-manganese-cobalt (NMC)
one of the most important issues of our time, and nickel-cobalt-aluminum (NCA). Are you TNM: The idea with the 8-1-1 is that its higher
the environment. What China is spending concerned about changing battery chemistries nickel content will increase the range, or energy
TSXv: KBLT | FRA: 270
Caption here
Leading electric metals
investment vehicle
Streams & Royalties WORLD’S FIRST
Physical Cobalt PRODUCING
VOISEY’S BAY COBALT-NICKEL
MINE Mineral Properties STREAM
Cobalt 27’s asset base includes:
e
N
IC • 32.6% cobalt stream on Vale’s Voisey’s Bay mine
K
E expansion commencing January 1, 2021.
LABRADOR
L
C
• Cash flowing cobalt-nickel stream on the producing
O
N
world-class Ramu Nickel-Cobalt Mine.
CE
NT
• 2,982 Mt of physical cobalt, the world’s second
RA
TE
largest stockpile of refined cobalt*
e
NEWFOUNDLAND
• 8 cobalt royalties, including a royalty on Dumont,
VALE
the largest construction-ready nickel cobalt project.
NICKEL
REFINERY
* The Government of China through the State Bureau of Material Reserves’ acquired the largest strategic
cobalt stockpile in excess of 5,000 Mt, in 2015-2016.
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density, of an EV, and lower the amount of
cobalt — making it cheaper. But there are some
risks when you increase the nickel content, such
as instability, because cobalt (and manganese)
stabilize nickel. Doesn’t the formulation lose
its capacity more quickly as well?
AM: While the actual chemistry may work
over the next four or five years, the commer-
cial viability of that chemistry is highly in
question. Can it be done? Yes, of course. Is it
a commercially viable chemistry? The answer
is not at this time. And it’s a long time before it
becomes commercially viable. When you go to
a lower chemistry like an 8-1-1, the temperature
at which the battery catches fire may be 50%
lower, so we believe the 6-2-2, which is being
rolled out today and in the coming years, will
be the chemistry for a very long time.
TNM: What about the long-term supply of
cobalt? By some estimates cobalt demand in
lithium ion batteries is expected to average
11.7% between 2016 and 2022.
AM: The world has vast cobalt resources.
What I say is: go build Clean TeQ’s Sunrise,
go build RNC’s Dumont and go build Vale’s
underground mine at Voisey’s Bay. We don’t
need to go exploring when I think we have
what we need.
TNM: We have enough cobalt perhaps for the
next 25 years, but what happens after that?
Cobalt demand has grown from 40,000 tonnes Cobalt briquettes at an LME certified warehouse in Rotterdam, where Cobalt27 stores cobalt. COBALT27
in 2000 to more than 100,000 tonnes this year,
and Bank of America Merrill Lynch stated in benefits of an integrated operation without any
an April report that in a decade, the market for TNM: What do you see are advantages of stream- of the risks the operator must assume. From
EVs will require 10 times the amount of cobalt ing, especially from the investor’s point of view? the investor’s point of view, a well-structured
currently in use. stream is accretive to the share value of the
AM: The advantage of streaming is that cobalt streamer, with minimal downside risk.
AM: Fair enough. You have to be continually is a by-product and there’s only one primary
adding to supply, but the scare story that there cobalt mine in the world, and it’s a government- TNM: You studied law and then completed a
is not enough basic material is not supported. owned mine in Morocco. As a by-product, masters’ degree in Russian studies. You then
We believe there are enough resources. The cost cobalt is ideally suited to streaming because it worked in a law firm in Russia for several years
might be a bit higher, in particular nickel, but doesn’t impact the economics of the primary before moving into fund management. How did
the resources are there. metal. With metal streaming the investor you come to start Cobalt 27 Capital?
has many of the same benefits of investing
TNM: More than 39 carmakers have invested in a producer, however, with significantly AM: Living in Russia got me interested in
in electric and plug-in electric vehicles, and lower risk exposure. The streamer has upside natural resources and oil initially, because
the Paris Declaration on Electro-Mobility and exposure to metal price appreciation, earnings oil and coal were the drivers of the Russian
Climate Change is targeting 100 million EVs from dividends and increases in production economy, and they still are today. So after a
by 2030. The landscape is changing quickly. efficiencies, rates and resources, and reserve few years at the law firm I moved into fund
increases. The streaming company does not management and focused on natural resources.
AM: People didn’t appreciate EVs three years have exposure to capital or operating cost risk I grew up in the Pacific Northwest, I love
ago. The penetration rate was zero, and last and is disconnected from any environmental the outdoors, so I enjoy being — in some small
year it was a couple of million EVs. I think it’s costs associated with the operation. In a sense, way — a part of the environmental revolu-
happening already, and people are now begin- a stream deal, with appropriate due diligence tion, and funding companies that are going
ning to appreciate how quickly it’s rolling out. and understanding of risk, can have all of the to change the world. TNM
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