hmmm bucket of cold water over my enthusiasm.....(businesskorea...

hmmm bucket of cold water over my enthusiasm.....

(businesskorea . co . kr)

Due to Drop in Cobalt Prices

SK Innovation Hesitant to Acquire Stake in Australian Mines

·        SK Telecom is unlikely to exercise its option topurchase a stake in Australian Mines as global cobalt prices havefallen sharply.

·        SK Innovation is reportedly reconsideringacquiring a stake in Australian Mines (AM) which produces electric vehiclebattery materials as global cobalt prices have sharply dropped.

·        Petrochemical industry watchers say that SKInnovation is unlikely to exercise its option to purchase 19.9 percent ofAM’s common stock for 0.12 Australian dollars per share. The company obtainedthe option in February of last year when it signed a seven-year contract withAM to import a large volume of cobalt sulfate and nickel sulfate.

·        Under its agreement with AM, SK Innovation hasto decide whether or not it will exercise the option within three months fromNov. 20, when AM disclosed a banking feasibility study (BFS) on Sconi Mine inQueensland in Australia. The total acquisition price will amount to 67.72million Australian dollars.

·        The problem is that AM’s stock price has sincefell sharply. The stock dropped from 0.135 Australian dollar a share in Januaryof 2018 to 0.035 Australian dollar this month. There is no reason for SKInnovation to exercise the option.

·        The fall of the AM stock price is closely linkedto resource prices including cobalt. According to the London Metal Exchange(LME), cobalt prices more than doubled to US$81,000 per ton in February lastyear, but fell to US$41,500 per ton this year. The drop in cobalt prices isattributed to a surge in cobalt production by the Democratic Republic of Congo,the world's largest producer of cobalt. Market analysts forecast a glut ofabout 25,000 tons of cobalt next year. AM faces an uphill battle to raise itsstock price.

·        Despite these circumstances, AM seems to behoping that SK Innovation buys its stake. "SK Innovation can afford toacquire a stake in our company," said Benjamin Bell, CEO of AM. "Evenif SK Innovation does not buy a stake in AM, the two companies will movetowards attaining their shared goals." AM says that the future value ofits shares is huge. The BFS released by AM estimates the value of Sconi Mine at697 million Australian dollars (550 billion won). AM also plans to raiseprofitability by mining nickel and cobalt from Takaringa and Flemington inaddition to Sconi.

·        SK Innovation has not made its stance clearregarding its option.