The Challenge of Cobalt Exposure and the Cobalt 27 Business Model
The battery industry is at a tipping point, with explosive demand increases from both the automobile industry and grid storage industry. With strong, anticipated growth in the coming years, battery metals represent an exciting and rewarding investment opportunity. As with all commodities, the harder a metal is to acquire, the greater the value, and when it comes to being hard to come by, cobalt is the king of the battery metals.
If you’ve read my previous posts on why Cobalt is getting so much attention and vulnerabilities of cobalt supply you’ll know that the majority of cobalt is produced as a by-product of copper and nickel mines. Some of the world’s largest mining companies produce cobalt, however, because they are not pure plays on the metal, they expose investors to a number of other commodities, which may not be related to the electric vehicle thematic. In addition, the world’s largest reserves are located in the DRC (Democratic Republic of Congo) – a particularly difficult and dangerous mining jurisdiction.
The challenge as an investor, therefore, is getting exposure to cobalt without opening yourself up to very high levels of sovereign risk. These are some of the challenges that Cobalt 27 was set up to successfully address. Namely, to create an investor-friendly vehicle designed to maximize exposure to the electric vehicle thematic by allowing the investor to invest directly in cobalt, without the exploration, concentration or jurisdictional risk.
The Cobalt 27 business model is designed to isolate cobalt for investors and to do so in a way that offsets the risks commonly associated with this vital battery metal. Let’s take a look at our approach:
Physical Cobalt. We purchase and hold physical cobalt. This is not as simple as sounds. In fact, many funds are unable to buy and hold the material. We have constant disclosure on how much cobalt we are holding at any given time and you can even price it yourself using metals bulletin. We currently hold 2,158 metric tons of cobalt (1,487 high grade and 671 of standard grade).
Now, it’s important to note here that we do not actively speculate on short-term, day-to-day cobalt pricing activity. Cobalt’s importance as a battery metal, and the associated supply challenges, mean we are focused on appreciation in value, over the long term, of our physical cobalt inventory. One of the great strengths of this approach is that, when an investor holds our stock, they know the value is underpinned by our physical cobalt holdings.
Streams/royalties. With a “stream” or “royalty”, you’re essentially paying for the commodity for a fixed period of time (ideally life of mine) at a fixed price. In a strong market such as cobalt, this can provide excellent exposure over an extended period by locking in quantity, quality and price. In the short time since launching, we have already acquired a number of net smelter return (NSR) royalties on exploration-stage properties that contain cobalt. We have an agreement in place for another royalty and are in negotiations with several other companies, including producers, near-term producers and exploration companies. Below, you will find our current list.
|North Canol Properties*||Golden Ridge Resources Ltd.||Yukon||2% Co NSR|
|Triangle Property||New Found Gold Corp.||Ontario||2% Co NSR|
|Rusty Lake Property||New Found Gold Corp.||Ontario||2% Co NSR|
|Professor & Waldman Properties*||New Found Gold Corp.||Ontario||2% Co NSR|
|Sunset Mineral Property||Three individual owners||British Columbia||2% Co NSR|
Mineral Properties. In the near-to-medium term, our focus will remain on physical cobalt and streams/royalties. As we expand, however, we may also acquire interests in producing mines and/or exploration and development projects. Successful M&A, particularly in a bull market, requires the right team. This sort of experience – identifying the right projects, conducting detailed due diligence and negotiating the right deal – is something our team possesses a great deal of. In fact, if you’ve not done so already, I recommend taking a look at our Management Team and Board of Directors.
My overall objective in this blog post is more than just providing an overview of our three-pronged, pure-play approach to cobalt. The vulnerabilities inherent in cobalt supply represent a potentially very high level of risk for investors. If you need convincing, spend some time googling “Democratic Republic of Congo” or read my earlier blog post on the subject. Our business model is specifically built around minimizing those risks, while maximizing exposure to the incredible upside for cobalt, which is coming from the battery boom. Moreover, it is a business model being implemented by one of the most experienced teams in the cobalt sector.
In the coming weeks, I’ll be discussing individual elements of our business and the industry in more detail. In the meantime, if you have any questions, be sure to get in touch.
Anthony Milewski, Chairman of Nickel 28
About Anthony Milewski
Mr. Anthony Milewski has spent his career in various aspects of the mining industry, including as a company director, advisor, founder and investor. In particular, he has been active in the commodities related to decarbonization and the energy transition, including nickel, cobalt, copper and carbon credits. Anthony has served on the London Metals Exchange Cobalt Committee, which includes representatives from the largest mining and commodities companies globally, to represent the interests of the industry to the board of directors the LME. Mr. Milewski holds a B.A. in Russian history from Brigham Young University, an M.A. in Russian and Central Asian Studies from the University of Washington, and a J.D. from the University of Washington. Anthony Milewski has been interviewed by numerous Media outlets, including BNN, The Financial Times, Bloomberg, The Northern Miner and many others. Most recently, Anthony Milewski has written op-ed articles for leading mining publications including The Northern Miner. Anthony Milewski predicted the surge in nickel demand as early as 2017.
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