$150m deal on PNG cobalt

$150m deal on PNG cobalt

• PAUL GARVEY

12:00AM May 24, 2018

Supplied Editorial Fwd: NiW images


Forgotten nickel and cobalt miner Highlands Pacific has cashed in on the hype surrounding the cobalt sector, securing a $150 million cash injection that will see it up its stake in the big Ramu mine in Papua New Guinea.

Under a complex streaming agreement announced yesterday, Brisbane-based Highlands Pacific has secured an upfront $US113m deposit from Canada’s Cobalt 27 Capital.

The deal will entitle Cobalt 27 to 55 per cent of Highlands’ future cobalt production from Ramu, as well as 27.5 per cent of its future nickel output from the mine, in what is effectively a bet on future prices for the two metals.

Cobalt 27 will also spent $15m buying a 13 per cent stake in Highlands, which will make it the company’s single biggest shareholder.

The cash injection will allow Highlands to repay all remaining debt it owes to Ramu’s operator Metallugical Corp of China, triggering a clause that increases Highlands’ stake in the project from 8.56 per cent to 11.3 per cent.

Highlands managing director Craig Lennon said the deal would completely change the company’s financial situation.

“It puts us in a much stronger financial position than we were going to be in under our previous arrangement, particularly over the next four or five years where we were going to have to use a significant amount of our cash to pay down debt,” Mr Lennon told The Australian.

Shares in Highlands surged as much as 55 per cent yesterday on the back of the news, shooting from 9.3c to as high as 14.5c. The stock closed at its highest level since June 2015, while the volume of shares traded was the highest in a single day since November 2014.

Ramu is capable of producing around 33,000 tonnes a year of nickel and around 3,000 tonnes a year of cobalt, although it has been operating above its nameplate capacity in the past year.

Cobalt was the best-performed metal of 2017, soaring on the back of growing demand for the commodity from the electric vehicle industry. The Democratic Republic of Congo is the world’s dominant source of cobalt, but concerns about the use of child labour in the DRC and recent regulatory volatility in the historically strife-torn nation have prompted cobalt buyers to look for alternative sources of supply.

While Highlands has a relatively small stake in Ramu, it is one of the few ways for investors to gain exposure to the cobalt theme.

Nickel prices have also started to lift off their lows in the past year in part thanks to expectations of growing demand from the battery sector.

Mr Lennon said he hoped the involvement of Cobalt 27 in Highlands would help wake up investors to the cobalt leverage in the company.

“What we were struggling to get the market to recognise in the past was that we were a producer of both nickel and cobalt, one of the few on the ASX,” he said.

The deal may also help Highlands in its negotiations with China’s Guangdong Rising Assets Management over the proposed development of the Frieda River copper-gold joint venture.

https://www.theaustralian.com.au/bu...t/news-story/f1d770f87a97d24980e3825d2f15fa77