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Cobalt 27’s growth strategy is focused on building the Company’s portfolio of battery metals streams, royalties and direct interests which may include the acquisition of interests in producing mines, development projects or exploration properties. Direct interests may be pursued in both primary cobalt deposits, as well as properties in which cobalt is a by-product or co-product with other metals.  The Company believes investments in such properties could leverage the Company’s industry expertise and broaden the scope of potential growth opportunities. 

Highlands Pacific - On January 1, 2019, Cobalt 27 announced the friendly acquisition of Highlands Pacific to create a leading high-growth, diversified battery-metals streaming company.  Highlands’ key asset is its 8.56% interest in the long-life, world-class Ramu nickel-cobalt mine located near Madang on the north coast of PNG.  Following repayment of Highlands’ attributable Ramu construction and development loans, Highlands’ ownership would increase to 11.3%.

Cobalt 27’s proposed acquisition of Highlands Pacific implies an increase in attributable production to Cobalt 27 to over 600,000 pounds of cobalt and over 2,900 tonnes of nickel per annum (based on 2018 Ramu production guidance for Highlands’ 8.56% interest).  Upon repayment of Highlands’ attributable partner loans and increased interest in Ramu to 11.3%, implied attributable production to Cobalt 27 increases to over 800,000 pounds of cobalt and over 3,800 tonnes of nickel per annum.

Management believes that their collective experience in the areas of mining, mergers and acquisitions, accounting and corporate and financial management, together with the advice of expert consultants in the evaluation and exploitation of cobalt opportunities, will enable the Company to achieve its objective.

Transaction Highlights

Creation of a leading high-growth, diversified battery metals streaming and royalty company

Increases exposure to a large, long-life, low cost, high-growth nickel-cobalt mine (Ramu)

Expands and diversifies existing portfolio with increased nickel exposure

Accretive to Cobalt 27 shareholders

Attractive re-rating potential

Repayment of Ramu loans after closing will accelerate cash flow to Cobalt 27

Transaction Details

Transaction Summary

  • Total transaction value of US$70 million, of which US$61 million is anticipated to be funded with cash consideration(1)

Consideration

  • Base Purchase Price: All-cash consideration of A$0.105 per share of Highlands Pacific Limited (“Highlands”) that is not already owned by Cobalt 27 or by PanAust Limited (“PanAust”) (see below)
    • Represents a premium of 44% to Highlands’ closing price on December 24, 2018 and 30% premium to the 20-day VWAP
  • Contingent Consideration: A$0.010 per share if before December 31, 2019 the LME official closing cash settlement price for nickel is US$13,220 per tonne or higher for a period of 5 consecutive trading days

PanAust Buy-Back Agreement

  • PanAust would transfer to Highlands legal and beneficial ownership of 128,865,980 Highlands shares currently held by PanAust, and agree to the cancellation of any outstanding liabilities owed by Highlands to PanAust, in return for Highlands transferring to PanAust all of the shares in Highlands Frieda Limited and an estimated US$0.3 million in cash

Form of Deal

  • Scheme of Arrangement under Part XVI of the PNG Companies Act in Papua New Guinea (the “Scheme”)

Conditions

  • The Scheme will require approval by the requisite majority of Highlands’ shareholders under the PNG Companies Act(2)
  • Customary regulatory and court approvals

Other

  • The directors of Highlands (other than Anthony Milewski, because Anthony is also Chairman and CEO of Cobalt 27) have stated that they intend to vote shares that they own in favour of the Scheme in the absence of a superior proposal
  • Shareholders holding in aggregate of approximately 30% of Highlands’ shares outstanding have stated an intention to vote in favour of the Scheme, in the absence of a superior proposal
    • Comprise PanAust, funds associated with LIM Advisors Limited, and Tribeca Investment Partners Pty Ltd.
  • Reciprocal termination fees of A$1 million applicable in customary circumstances

Anticipated Timeline

  • The transaction is expected to close in Q2 2019

Footnotes

  1. Assumes PanAust Buy-Back Agreement is completed
  2. PanAust is ineligible to vote on the Scheme of Arrangement

Overview of Key Transaction Benefits to Cobalt 27 Shareholders

Consistent with strategy of gaining exposure to battery metals

  Greater nickel and cobalt exposure

  Lower transaction cost

  Significantly lower pro forma debt

Increased exposure to low-cost, long-life Ramu mine

Expands and diversifies existing portfolio with increased nickel exposure

Accretive to shareholders on a NAV basis(1)

Superior platform in Australasia to review and invest in regional opportunities

Simplifies the ownership and future funding mechanism for Ramu

Footnotes

  1. Based on street NAV estimates

Highlands Pacific Overview

Corporate Overview

  • Highlands Pacific (“Highlands”) is an ASX-listed battery metals producer and developer
  • Primary assets are an 8.56% interest in the Ramu Mine and a 20% interest in the Frieda River Copper-Gold Project, both located in Papua New Guinea
    • Ramu interest will increase to 11.3% upon repayment of partner loans to MCC
    • Also holds interests in the Star Mountains copper-gold exploration project and the Sewa Bay laterite nickel project in PNG
  • Ramu partner loans are non-recourse and have a balance of US$115 million(1)

Ramu Expansion

  • Ramu’s operator, the Metallurgical Corporation of China (“MCC”), is investigating a ~US$1.5 billion expansion of the mine
    • Cobalt 27 will have the opportunity to participate in the expansion and increase its attributable production

Non-core Assets

  • The proposed transaction entails the sale of Highlands’ interest in Frieda River to PanAust
  • Cobalt 27 to acquire interests in Star Mountains and Sewa Bay and will evaluate strategic alternatives

Asset Locations

Footnotes

  1. As at June 30, 2018

Ramu Overview

  • Ramu is a producing, open-pit nickel-cobalt mine located on the coast of the Bismark Sea in the Madang Province of Papua New Guinea (“PNG”)
    • In 2017, PNG’s total population was ~8.3 million and its total GDP was ~US$21 billion
  • Constructed in 2008 and commissioned in 2012 with ~US$2.1 billion in capital expenditures invested
  • Joint venture between the following:
    • Metallurgical Corporation of China Ltd. (85% ownership) – Operator
    • Highlands (8.56% ownership, Highlands has the option to repay the partner loans and increase its ownership to 11.3%)
    • PNG Government and local landowners (6.44% ownership, have the option to repay partner loans and increase its ownership to 8.7%)
  • 2018 forecast production of 3,300 tonnes of cobalt and 34,000 tonnes nickel (in concentrate)
    • Now achieving record production rates
  • Potential to deliver 30+ years of mine life
  • Resource: 136 Mt(1) @ 0.9% Nickel and 0.1% Cobalt
  • Reserve: 56 Mt @ 0.9% Nickel and 0.1% Cobalt

Images (click to view larger)

Photo of the Ramu site

Ramu Site

Core Infrastructure Location

Core Infrastructure Location

Ramu mine location

Mine Location

Footnotes

Source: World Bank, Highlands

  1. Resources are inclusive of reserves

Ramu Production Overview

Cobalt Production in Concentrate (100% Basis)

Tonnes

Cobalt Production in Concentrate (100% Basis)

Nickel Production in Concentrate (100% Basis)

Tonnes

Nickel Production in Concentrate (100% Basis)

Global Nickel Cost Curve (2017)

US$/lb Nickel

Footnotes

Source: Highlands Pacific Corporate Presentation dated September 21, 2018, S&P Market Intelligence

Scientific and Technical Information
The majority owner and operator of Ramu is MCC Ramu Nico Ltd., a 67.02% owned subsidiary of MCC, and is operated by Ramu NiCo Management (MCC) Limited, a wholly-owned subsidiary of MCC. MCC is listed on the Hong Kong Stock Exchange (Stock Code “1618”) and on the Shanghai Stock Exchange, and has a market capitalization of approximately US$12 billion. The scientific and technical information, as well as additional material scientific and technical information with respect to the Ramu project, has been prepared by MCC in its capacity as operator of Ramu and disclosed by MCC and Highlands and is available on MCC’s HKEX profile at http://www.hkexnews.hk/index.htm as well as on Highlands Pacific’s website at http://www.highlandspacific.com/asx-announcements.

All estimates of mineral reserves and mineral resources in respect of Ramu are presented in compliance with the 2012 Australasian Code for Reporting of Exploration Results, Mineral Reserves and Ore Reserves established by the Australasian Joint Ore Reserves Committee (the “JORC Code”).

Disclosures of a scientific or technical nature have been reviewed on behalf of Cobalt 27 by Mr. Robert Osborne P.Eng., geologist and President of Osborne Laterite Geology Service Inc., an independent consultant to Cobalt 27 and a “Qualified Person” as defined by Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”).