Mr. Justin Cochrane reports
PALA INVESTMENTS TO ACQUIRE COBALT 27 FOR C$501 MILLION; CREATION OF NICKEL 28
Cobalt 27 Capital Corp. and Pala Investments Ltd. have entered into an agreement, pursuant to which Pala will acquire 100 per cent of Cobalt 27's issued and outstanding common shares, other than the approximately 19 per cent that Pala already owns, for total consideration of approximately $501-million on a 100-per-cent basis. Under the terms of the transaction, Cobalt 27 shareholders will receive $5.75 per common share, comprising $3.57 in cash plus $2.18 in shares of a newly listed company to be named Nickel 28 Capital Corp.
Nickel 28 will be created to hold Cobalt 27's joint venture interest in Ramu, a low-cost, long-life producing nickel-cobalt mine; its royalty portfolio on future projects, including the Turnagain royalty (a royalty over one of the largest undeveloped nickel sulphide projects globally) and the Dumont royalty (a shovel-ready nickel project in Canada); and certain equity positions, including in Giga Metals Corp. Nickel 28 will be financed with $5-million (U.S.) in cash at inception with no corporate debt. The company's management believes Nickel 28 will continue to provide shareholders with direct exposure to the electric vehicle market through nickel and cobalt exposure. Pala will retain a 4.9-per-cent interest in Nickel 28 and the current Cobalt 27 leadership team will continue as the board and management of Nickel 28.
The company believes this is a highly attractive proposal for shareholders of Cobalt 27 as:
The total consideration of $5.75 represents a 66-per-cent premium to Cobalt 27's closing price on the TSX Venture Exchange on June 17, 2019, of $3.47 and a 46-per-cent premium to Cobalt 27's 20-day volume-weighted average trading price on the TSX-V of $3.95 as at the same date.
Shareholders will retain exposure to the high-quality asset portfolio of Nickel 28.
Anthony Milewski, chairman and chief executive officer of Cobalt 27, commented: "We believe this is a highly compelling offer for Cobalt 27 as the transaction provides shareholders with a large upfront premium. It is also clear that nickel will be an increasingly critical component of the electric battery revolution, and the creation of Nickel 28 provides shareholders with significant incremental value and continued exposure to the strong fundamentals of battery metals."
Stephen Gill, managing partner of Pala, commented:
"As a long-term investor, this transaction is aligned with our strategy of building sustainable value chains around the raw materials that support a changing economy. We look forward to remaining a supportive shareholder of Nickel 28 as it goes forward with a clean balance sheet to continue building its asset base, in particular, by leveraging its recently acquired exposure to the producing Ramu nickel-cobalt mine."
Terms of the transaction
The transaction will be carried out pursuant to the arrangement agreement under a court-approved statutory plan of arrangement governed by the Business Corporations Act (British Columbia). Under the arrangement agreement, Pala will acquire all of the issued and outstanding common shares of Cobalt 27, other than the approximately 19 per cent that Pala already owns. Each common share of Cobalt 27 acquired will be exchanged for:
$3.57 in cash;
One new common share of Nickel 28 with an implied value of $2.18 per share.
Pursuant to the arrangement, certain assets of Cobalt 27 will be transferred to Nickel 28, the shares of which will be distributed to Cobalt 27 shareholders as part of the consideration. Effective on closing of the arrangement, the following key assets will be transferred to and held by Nickel 28:
An 8.56-per-cent joint venture interest in Ramu -- a producing, long-life, low-cost nickel-cobalt mine;
Royalties relating to the Dumont, Turnagain, Flemington, Nyngan, Triangle, Rusty Lake, Professor and Waldman, North Canol, and Sunset properties;
Certain equity stakes, including approximately 7.4 per cent of Giga Metals;
$5-million (U.S.) of cash to provide for initial working capital.
In addition, the approximately $6-million (U.S.) of cash previously financed in escrow by Cobalt 27 to satisfy certain contingent payment obligations related to the acquisition of Highlands Pacific Ltd. will be transferred to Nickel 28 if the contingent consideration does not become payable pursuant to the terms of such transaction.
Following the completion of the arrangement, Pala will retain a 4.9-per-cent interest in Nickel 28.
Transaction value highlights for Cobalt 27 shareholders:
Premium valuation: The offer price represents a significant premium to the share price of Cobalt 27 based on the total consideration of $5.75 per share; the cash component of that consideration (being $3.57 per share) itself represents a premium.
Significant cash component delivers immediate liquidity and value certainty: The transaction provides immediate liquidity and value certainty to shareholders at a time of significant market volatility and amidst an uncertain near-term outlook for the global economy. In particular, the transaction provides a significant cash component.
Nickel 28 to provide Cobalt 27 shareholders with continued exposure to the electric vehicle revolution through its concentrated portfolio of nickel and cobalt interests.
Improved exposure to high-quality assets: Nickel 28 will provide shareholders with exposure to high-quality assets, including the low-cost, long-life Ramu joint venture. The asset portfolio of Nickel 28 will comprise a number of high-quality royalties that have potential to add substantial cash flow once the underlying assets reach production. The creation of Nickel 28 is also accretive to shareholder pro rata ownership of the assets held by Nickel 28 as Pala will retain a 4.9-per-cent interest, versus the approximately 19 per cent it currently holds of Cobalt 27.
Potential to unlock significant value through a well-financed Nickel 28 and enhanced exposure to nickel: Nickel 28 shareholders will benefit from a broad portfolio of nickel-focused assets, a strong balance sheet and the proven record of Cobalt 27's management team. With the implied value of Nickel 28 shares in the offer calculated based largely on the acquisition values paid by Cobalt 27 for each asset plus a strong balance sheet with no corporate debt, the Cobalt 27 management team sees significant potential upside for shareholders of Nickel 28.
Cobalt 27's board of directors established a special committee of independent directors to review and oversee the negotiation of the arrangement agreement. The special committee obtained a fairness opinion from its independent financial adviser to the effect that, subject to the assumptions, qualifications and limitations contained therein, as at June 17, 2019, the consideration is fair, from a financial point of view, to the shareholders of Cobalt 27 (other than Pala). The special committee unanimously recommended to the board that the arrangement agreement be approved.
The board obtained a fairness opinion from Cobalt 27's financial adviser to the effect that, subject to the assumptions, qualifications and limitations contained therein, as at June 17, 2019, the consideration is fair, from a financial point of view, to the shareholders of Cobalt 27 (other than Pala). The board has unanimously determined, based on, among other things, the recommendation of the special committee and the company fairness opinion, that the arrangement agreement is in the best interests of Cobalt 27 and its shareholders and will recommend that Cobalt 27 shareholders vote in favour of the arrangement. Directors and senior officers of Cobalt 27 holding in aggregate approximately 2 per cent of the issued and outstanding common shares of Cobalt 27 have entered into voting and support agreements with Pala, pursuant to which they have agreed to vote their shares in favour of the arrangement.
The transaction is subject to the approval of Cobalt 27 shareholders by a two-thirds vote (and a majority vote excluding votes of Pala and certain other interested persons) at a meeting expected to be held in August, 2019. The transaction is expected to close by late August, 2019, following receipt of all shareholder, court, regulatory and TSX-V approvals.
Pursuant to the terms of the arrangement agreement, Cobalt 27 is subject to customary non-solicitation covenants and has the benefit of customary fiduciary-out provisions. In the event a superior proposal is made to Cobalt 27, Pala has a five-business-day right to match such proposal and, under certain circumstances where the board changes its recommendation or the arrangement agreement is terminated, Cobalt 27 has agreed to pay a termination fee of $15.5-million to Pala. In certain other circumstances where the transaction is not completed, Cobalt 27 has agreed to reimburse Pala's expenses up to an amount of $1.5-million.
Advisers and counsel
Cobalt 27 has engaged Scotiabank and Regent Advisors as its financial advisers and Stikeman Elliott LLP as its legal adviser in connection with the arrangement. The special committee engaged TD Securities Inc. to provide an independent fairness opinion in connection with the arrangement.
Pala has engaged Goldman Sachs as its financial adviser and Torys LLP and White & Case LLP as its legal advisers in connection with the arrangement.
Pala has mandated and received financing commitments from Societe Generale and ING Capital LLC as joint lead arrangers for loan facilities related to the transaction.
About Cobalt 27
Cobalt 27 is a leading battery metal streaming company offering exposure to metals integral to key technologies of the electric vehicle and energy storage markets. Cobalt 27 holds an 8.56-per-cent joint venture interest in the long-life, world-class Ramu mine, which currently delivers near-term attributable nickel and cobalt production. Cobalt 27 also manages a portfolio of 11 royalties. Cobalt 27 also owns physical cobalt and a cobalt stream on the Voisey's Bay mine.
Further information regarding the arrangement will be included in the information circular that Cobalt 27 will prepare, file and mail in due course to shareholders in connection with its special meeting to be held to consider the arrangement. The arrangement agreement will be filed on the SEDAR profile of Cobalt 27 on the SEDAR website.
The $2.18 implied value of each Nickel 28 share is based on the value ascribed to each asset by Cobalt 27, being the price paid at the time each was acquired, with the exception of the Dumont royalty, which is valued at 0.4 times NAV (net asset value) at 8-per-cent cost of capital based on the Dumont 2019 feasibility study, as disclosed by Royal Nickel Corp. on May 30, 2019, plus cash on balance sheet and market value of shares held.
We seek Safe Harbor.
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