Cobalt 27 Capital Corp. (TSXV:KBLT) (US:CBLLF)

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March 12, 2018 Issue



With 3,000 Metric Tons of Physical Cobalt housed in LME-certified Warehouses in Amsterdam, Rotterdam and Baltimore, Cobalt 27 Capital Corp. is positioned to take advantage of the need for Cobalt in the growing Electric Vehicle Market and Grid Energy Storage Systems Globally



Anthony Milewski

Chairman, Chief Executive Officer


Cobalt 27 Capital Corp.


Interview conducted by:

Lynn Fosse, Senior Editor, CEOCFO Magazine, Published – March 12, 2018


CEOCFO: Mr. Milewski, what is the idea behind Cobalt 27 Capital Corp?

Mr. Milewski: The idea is to create a leveraged play to the adoption of the electric vehicle and to the subsequent adoption of grid energy storage systems globally. Several years ago, we sat down and thought about investment opportunities in basic materials and what the future of basic materials would look like as technology evolved. We looked at different opportunities and what struck us as being maybe, the most unique opportunity was the electric vehicle and the adoption of the electric vehicle. We looked into the basic materials that comprise the electric vehicle and we noticed that nickel, lithium, copper and cobalt, were all interesting ways to play it. However, as we delved into it further, what we realized was of those basic materials, cobalt was the purist way to play the electric vehicle and energy storage systems thematic. The reason for that was very straight forward. There are material and significant drivers in the copper market that are not related to electric vehicles. The same is the case for nickel. With lithium, although future demand is primarily driven by electric vehicle adoption, we discovered that there is a lot of lithium in the world - sufficient future lithium reserves and scheduled production to meet projected future demand. This is in stark contrast to cobalt because cobalt is a byproduct of nickel and copper mining; approximately 99% of cobalt produced is as a byproduct of nickel and copper production. And, with massive new forms of demand for cobalt represented by electric vehicles and energy storage systems, unlike copper and lithium, significant supply side constraints exist where cobalt is concerned. When we thought about new investment opportunities for new technologies, we realized that the battery which globally, for electronics and electric vehicles, is a cobalt based battery, is going to be in higher demand and we thought it would be an interesting way to play it, to put together an investment vehicle that was solely focused on cobalt without taking mining or exploration risk, and we formed Cobalt 27.


CEOCFO: Would you tell us about cobalt in general and where it comes into play with the battery, why it is a good material and if there is something that could replace it?

Mr. Milewski: What is critical about cobalt is that we take a step back and understand what we are trying to achieve. For the electric vehicle in particular, we need an energy-to-weight ratio that works. In other words, we cannot have a massive heavy battery because it will not be able to sustain the automobile. You need this really unique spot where you have a battery that is efficiently powerful to go farther than the average commuter commutes in a day and, at the same time, you have to have consistency and the ability to recharge. All of those things were quite hard to find in the battery world, rolled into one battery technology. The only battery technology that really works today, whether it be from a price point, weight point or performance point, is the lithium/ion battery. That battery has a chemistry today which is the nickel, manganese, cobalt chemistry. There are two such battery chemistries. There is NMC and the NCA. The NCA is the nickel, cobalt aluminum chemistry, which is widely used at TESLA, while most of the other electric vehicle manufacturers are using the NMC chemistry, the nickel, manganese, cobalt chemistry. What you have with these batteries is stability and energy, with energy density added to the battery when you have cobalt. Over time, we have seen that chemistry initially started at 1/1/1, evolved into today with a 5/3/2 chemistry. The generation that is rolling out currently is a 6/2/2, six parts nickel, two parts manganese and two parts cobalt. A future chemistry will probably be and 8/1/1, eight parts nickel, one part manganese, one part cobalt. What scientists have found is they are unable to have the safety and stability inside of the batteries without having the cobalt as you discharge and recharge the battery.


CEOCFO: Where is cobalt found today?

Mr. Milewski: Roughly 65% of cobalt produced today comes out of the Congo. With that, there are many associated issues. I think the one issue that you read about most frequently is artisanal mining and the associated child labor issues. Outside of the Congo, you have a few other jurisdictions with Russia, Cuba, Canada and Australia the next primary cobalt producers. Today, the market is about 100,000 metric tonnes with roughly half of that demand going into the chemicals industry, another 20% going into the aerospace industry, the aerospace industry being the jet engines that power your airplane. After that, the remaining supply is spread across a number of different industries. With cobalt you have a unique situation with strong market fundamentals. Specifically, we are seeing 8% growth in aerospace as well as growth in other areas of the market. Then out of nowhere, a couple of years ago, you have the electric vehicle come into the mix with tremendous demand potential for cobalt and an impact on the market which is completely unanticipated. To put the numbers into perspective, today the cobalt market is approximately 100,000 metric tonnes. If in 2025, there was 15% penetration of electric vehicles, which is now starting to be on the mid to low side of Wall Street’s consensus view of electric vehicle penetration, then by 2025, we would need somewhere between 200,000 and 300,000 metric tonnes of cobalt just for electric vehicle consumption alone. That does not take into account the demand that may come from grid energy storage systems, chemicals, aerospace, etc. You have a very unique supply and demand side dynamic. It is not a commodity situation where you just have half of the equation but here you have a very constrained supply side and an exploding demand side.


CEOCFO: How are you involved with cobalt?

Mr. Milewski: Cobalt 27 has acquired approximately 3,000 metric tons of physical cobalt housed in LME-certified warehouses in Amsterdam, Rotterdam and Baltimore. Those LME warehouses are fully bonded and fully insured. That underpins our NAV. When you buy a share in Cobalt 27 today, you are trading around the NAV based on the company’s physical cobalt stores. That is a very unique aspect of Cobalt 27 in the first instance. We had an IPO, the largest IPO in Canada since 2012, in June 2017. We raised a few hundred million dollars and then in December of 2017, we raised another ninety seven million dollars, each time adding to our physical cobalt position. The next steps for the company, the growth steps, are through cobalt metal royalty and streaming transactions where we are seeking access to larger volumes of cobalt exposure.  In March 2018, we raised an additional $200 million in equity financing to fund the acquisition of cobalt metal streams and royalties.  We have built the company, the balance sheet and our current physical cobalt position now provides the company with a strong asset base to access debt markets. We have built that part of the company and now the next phase is the growth phase of acquiring cobalt metal streaming and royalty assets from producing and construction-ready mining companies.


CEOCFO: Are there any challenges in storing cobalt?

Mr. Milewski: The company owns approximately 3,000 tonnes of physical cobalt metal and it can basically store forever. And, it is incredibly inexpensive to store. We have the single largest cobalt position in the world outside of China. We believe there is significant strategic value in our current physical cobalt holdings. That position only costs the company around $150,000 dollars a year to store. Relative to its current value of approximately US$250 million, based on February 21, 2018 cobalt prices which range from US$38.73 for low-grade to US$38.80 for high- grade cobalt, our current costs to store cobalt are, by comparison, very inexpensive.


CEOCFO: How do you know when it is time to sell?

Mr. Milewski: My impression, just from speaking with strategic battery makers and automakers, is that inevitably what we may see is someone will come to us and make us an offer. I am a shareholder myself, and we believe at some point an industry stakeholder with strategic demand for cobalt, will make the shareholders an offer that makes sense. I think instead of us picking the time, you will see the market will determine the time to exit.

CEOCFO: How are you executing on the next phase of your strategy?

Mr. Milewski: In the growth of the company, the streaming and royalty phase is a function of M&A activity. We are currently active in, and will continue to enter into, all of the processes that are run by investment banks to acquire metal streaming and royalty assets using decades’ long relationships. We are actively soliciting producing mining companies and working with them on various proposals. I think what you will see is we are very active in the market and in all the numerous ways that you would expect for a company looking to do these types of deals.


CEOCFO: What are your criteria for adding a cobalt stream or royalty?

Mr. Milewski: For cobalt metal streaming acquisitions, we are looking for mining companies with long life assets, who have been around and been producing so that we are not taking ramp-up risks. We are looking for assets that are de-risked and known to the market. On the royalty side, we are looking for world class assets. We are looking for large, long- life assets that are going to be built. On the royalty side, we’re looking at world class assets and, on the streaming side, we’re looking for long-life, known assets, so that people feel comfortable around not taking development risk.


CEOCFO: Are there political considerations these days?

Mr. Milewski: I think the key ones for us are the DRC. We feel that with all of the complexity around artisanal mining, that we are steering clear of the Congo, I think for us, that is the key political risk factor on our radar, that we try to avoid buying material from the Congo or doing deals in the Congo at this time. We believe, given the current geopolitical risks in the Congo, it would be pretty tough for us to go down that road at the moment.


CEOCFO: Would you tell us more about the IPO? Who is looking at Cobalt 27? Does the general public understand the potential?

Mr. Milewski: As a publicly traded company, we believe Cobalt 27 is a significant potential investment opportunity for retail shareholders. We believe this is a case of institutional investors being ahead of the story. I think the average individual investor maybe behind the story however, catching up very quickly. If you look at our IPO, it was overwhelmingly an institutional-driven IPO with huge demand out of all the major institutions; the biggest funds in the world that participated in that offering and ended up supporting us in subsequent raises. We are talking about a structural change in two of the most important markets in the world, namely the automotive market and the energy market. Fifty percent of all crude is used in the automobile. There are laws in certain countries and jurisdictions, where you have to be 100% electric in the coming decade. What it means is the impact of the electric vehicle on every market is going to be material and is going to be swift, we expect a complete remaking of the automotive industry.  We are confident the average person is fully aware and appreciates the order and magnitude of the change that is underway and I think institutional investors in particular, have been very quick to adopt that and are on the share registry now. We believe smart retail investors understand that it may be time to gain exposure to the electric vehicle and energy storage systems thematic.  I think what Cobalt 27 offers that is different from other potential investments in this space is a risk-adjusted product; in short, a pure-play cobalt investment vehicle where you actually have the NAV of the company underpinned by an asset, namely, the physical cobalt asset and, eventually, a producing cobalt metal stream or a royalty. It is a very different risk profile and we believe if you are a retail investor, you may be actively looking for exposure to what is potentially, a huge change in the global market.

CEOCFO: What if anything might a potential investor overlook about Cobalt 27?

Mr. Milewski: I think understanding the risk profile associated with Cobalt 27 is very important. We are not a mining company. We are a unique type of vehicle where you are not taking the same risks that you take when you invest in a mining stock. That is a critical difference between us and investing in a mining company. That is not to say that you should not invest in mining, it is just that the risk profile for investing in Cobalt 27 is unique and different from what people may be normally used to.


In the end, battery metals used in electric vehicles and energy storage systems are going to be one of the themes that drive the next decade. We believe it is going to be a new supercycle in mining. If you think about it, if you believe in the adoption of the electric vehicle, you have to ask yourself who the winner is. Is it TESLA? Is it Ford? We do not know who is going to win that race, however we believe cobalt, a critical battery material with highly favorable supply and demand dynamics, is certainly well ahead of the pack.


All amounts are in Canadian dollars unless otherwise indicated.


“To put the numbers into perspective, today the cobalt market is approximately 100,000 metric tonnes. If in 2025, there was 15% penetration of electric vehicles, which is now starting to be on the mid to low side of Wall Street’s consensus view of electric vehicle penetration, then by  2025,  we would need somewhere between 200,000 and 300,000 metric tonnes of cobalt just for electric vehicle consumption alone.”- Anthony Milewski


Cobalt 27 Capital Corp.




Betty Joy LeBlanc, BA, MBA


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