Cobalt 27 Capital Corp. (TSX.V – KBLT): Interview with Anthony Milewski, Chairman, CEO: A Pure-Play through Acquisition of Physical Cobalt Streams, Royalties and Interests in Mineral Properties
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By Dr. Allen Alper, PhD Economic Geology and Petrology, Columbia University, NYC, USA
on 7/19/2017
Cobalt 27 Capital Corp. (TSX.V – KBLT) is one of the only minerals companies that offers
pure-play exposure to cobalt, an integral element in key technologies of the future,
including the rapidly growing electric vehicle market and energy storage applications.
Cobalt 27 is building an asset base that will be underpinned by physical cobalt material
and enhanced by growth opportunities from streams, royalties and interests in mineral
properties containing cobalt. We learned from Anthony Milewski, Chairman, CEO, and Director
of Cobalt 27 that they currently have approximately six cobalt royalties, and are actively
in the market, looking for large cobalt streams as well as additional physical cobalt.
According to Mr. Milewski, it is management's intention to execute on that growth strategy,
in 2017 or early 2018. The company is run by a highly-experienced team with a background
that encompasses every aspect of the mining, minerals and battery materials industries.
Dr. Allen Alper: This is Dr. Allen Alper, Editor-in-Chief of Metals News,
interviewing Anthony Milewski, Chairman, CEO, and Director of Cobalt 27 Capital Corp.
Anthony, could you give our readers/investors, an overview of your company?
Mr. Anthony Milewski: Sure, thank you very much for having me, and thank you for
your time. I think it would be helpful to give you a little background on the idea, and the
electric vehicle story in general. A couple of years ago, we were looking around the world,
and thinking about what the future of mining would look like, and the future of metals. We
were thinking about artificial intelligence and semiconductors, and we started to look at
electric vehicles. At that time, they were in their infancy with almost no units out for
sale except in Silicon Valley.
I test drove one and could see that this is something that has come of age.
Electric vehicles aren't new. They've been around 100 years, from the turn of the century.
Some of the first cars were electric vehicles. I wanted to understand exactly what this
electric vehicle was, and as an investor in basic materials, what basic materials it would
require.
I could immediately see that over time there is going to be an impact on copper and nickel,
manganese, lithium and ultimately cobalt. As I looked at the different materials, nickel
and copper are big liquid markets. Lithium already had a lot going on. I arrived at cobalt.
Cobalt is largely a byproduct of nickel and copper mining, which makes it unique, because
unlike other metals, it's very hard for the supply side to respond.
That captivated my attention and I immediately began trying to figure out how to
invest in it. I looked at different options and I could see that the LME warrant was not
very liquid. The mining companies were big cap companies with very little exposure to
cobalt as relative to the overall size of the company.
There were a number of junior companies with a 5, or 10, 15 million dollar market
cap that didn't really match my risk profile. It would either go way up or way down.
Having thought about it, I tried to figure out the best way to play it. Having
experienced the uranium bull market, I recalled Uranium Participation Corp. Later, having
experienced the gold bull market, I thought about Silver Wheaton. I thought, 'What if you
put them together, Uranium Participation Corp and Silver Wheaton, and did it for cobalt?'
That's the genesis of the idea.
This vehicle is a pure play on cobalt. It is underpinned by the largest physical
cobalt position in the world outside of China. The Chinese government has a larger
position. That NAV underpins our growth strategy, which is streams and royalties. We have
approximately six royalties, which have right of first refusal to convert into streams.
We're actively in the market looking for cobalt streams.
Dr. Allen Alper: That sounds like an excellent approach. Could you elaborate on some
of these royalties and properties you have?
Mr. Anthony Milewski: Sure. A couple of them have produced historically. In some
cases I'm talking about 50 or 60 years ago. One of them, although in Vietnam, actually
produced as recently as 24 months ago, but I don't think that's what is interesting. As
investors, you look at management's ability to transact, but I think where the real growth
in scale will come is from large producing streams. That's where we’ll focus. Along the way
we will buy additional physical cobalt, but when we think about scale, growth, and really
making this work, we're thinking about adding in the large cobalt streams, which are
available over time.
Dr. Allen Alper: Could you tell us a little bit about what your plans are for 2017-
2018?
Mr. Anthony Milewski: Yeah, sure. For the balance of the year, we've just
completed the offering. What we've done is we've settled the cobalt contracts and that
means we actually own the physical cobalt. That cobalt sits, of course, in Baltimore in
America and it sits in Antwerp and Rotterdam in Europe. It's in all LME bonded warehouses,
fully insured. We've kind of completed that first leg of the strategy, which is securing
that physical position. That's done. Now we are also seeing with the price today that we've
finalized and executed on the royalties that we had talked about to investors. That part of
the leg is done. Now to the balance of the year, I think we're looking at a number of
transactions, in particular looking at streams. It's management's intention to actually
execute on that growth strategy, hopefully in 2017, if not early 2018.
Dr. Allen Alper: That sounds very good. Could you tell me a little bit about your
background, your team, your board?
Mr. Anthony Milewski: I'm the CEO and chairman. I've spent my career in the
mining business, most of that time as an investor, most recently at a large private equity
house, focused solely on metals and mining. Prior to that I was actually at a hedge fund in
New York, focused on mining and energy.
My President COO, Justin Cochran, is a streaming expert, having spent the last 15 years in
the streaming industry. In particular, Justin spent the last five years as head of
corporate development at Sandstorm, executing on over 40 streams of royalties.
Then, one of my key directors, Nick French, has been trading cobalt for over 40
years and is widely respected as one of the most influential cobalt traders of his
generation. Other directors include Frank Estergaard, 38 years veteran of KPMG, partner,
audit partner, great guy to have on the board. We have John Kanellitsas, Vice Chairman of
Lithium America, so I think he really understands financing these types of plays. Also, Jon
Hykawy, a battery metals expert.
One thing which is unique about Cobalt 27 is our advisory board. What we've sought
to do is keep the G&A extremely low. You're looking at a G&A of less than one percent, a
G&A in line with an ETF. You're talking about having it lower than any of our peers. One of
the ways we've been able to do that is through an advisory board which is filled with
experts. You've got guys like Dr. Patil, the former CEO of LG Chem, one of the big battery
makers. You have Ted Miller, senior manager at Ford, who is responsible for the energy
storage and materials strategy. Vince Metcalf from Osisko, Neil Warburton, former CEO
Barminco, built a number of mines.
We've put together a world class advisory board, but we don't have to pay them as
part of the G&A. Instead, we are able to hire them on a consultancy basis when we need it.
We've put together a world class group of individuals to execute our strategy.
Dr. Allen Alper: That seems like an excellent approach for the advisory board. You
also have a very strong board and team, very experienced and very diverse. Sounds
excellent. Could you tell me a little bit about your capital structure?
Mr. Anthony Milewski: Sure. It's very clean. We have zero debt and we only have
regular ordinary issued shares. In other words, it's 100% transparent. I think we have
approximately 24,000,000 shares out. We're taking a conservative approach. We don't have a
leveraged balance sheet. We don't have a bunch of funky financial instruments. It's the
intention of management to give people a leveraged play to cobalt and to the electric
vehicle story. Let them focus on the thematic and not have to worry about the balance
sheet.
When we were doing this, we looked at every auto maker in the world with a webpage
in English. They all either had an electric vehicle or had one planned in the next couple
years.
Of all those automakers, nearly every single one of them had one thing in common, a
cobalt based battery. They were using nickel manganese, the NMC formulation or the Tesla
formulation, which is NCA. If you're an investor it's hard to know. Do you buy Tesla? Tesla
stock was flying and now it's off whatever, 15%, or by the way, is Ford going to be the
winner, maybe Volvo. I just saw their announcement, 100% EV in 2 years. The answer is, 'I
don't know', but what I do know is if you believe in the electric vehicle thematic, then
you believe in cobalt, because cobalt is in every single one of those lithium ion
batteries. It's a way to express an investment basis in electric vehicles and not have to
determine which automaker, which battery maker is going to be the winner, because you just
pick the winner by buying the main or one of the main elements or ingredients in that
battery.
Dr. Allen Alper: That sounds excellent. Thank you for giving our readers/investors
your insight on what's happening in the cobalt market now and in the future?
Mr. Anthony Milewski: Sure. The cobalt market has been a pretty boring market for
a decade. It's been a market that services things like the battery in your cellphone.
Cobalt also goes in to the super alloy industry, it goes into jet engines so that the jet
parts don't actually crack. Out of nowhere a few years ago, the electric vehicle exploded.
From a base of really almost zero a couple years ago to two million units in almost no time
flat, you have an explosive demand for a commodity that no one cared about. A very unique
dynamic!
If you think about it, it's a 100,000 metric ton market today. About 50% of cobalt goes
into lithium ion batteries in some form. Depending on who you believe, if you look at 2025
and you think the electric vehicle penetration rate is going to be 14%, which is on the low
end of the numbers out there, you're going to need at least twice as much cobalt as we have
today. You're going to need a couple hundred thousand metric tons, double the size of the
market, with 100% of it going into electric vehicles, not even talking about cellphones
now. We both know that's probably not practical or possible even, but what it does show you
is the explosive demand and dynamic. In my view, what's going to happen in the coming
couple years, is cobalt is no different than every other commodity. There's an incentive
price, the market will reach that incentive price and new mines will be built. I happen to
think that incentive price is a lot higher. I also think that when we reach that incentive
price, what you're going to find is that technology will change a little bit and there will
be innovations out of the lithium ion battery and they may be able to reduce the amount of
certain basic materials. This is all positive, because sometimes people spin this as
negative and I spin this as positive because demand picture and story is so overwhelming
for cobalt that you really need some additional production and you really need some
technological innovation to take pressure from what's really an industrial revolution.
I think you have to put into context Volvo's announcement last week. 100% in 2019
of their vehicles, according to the announcement, are going to be electric. That's amazing
if you think about it. Then you start talking about France announcing 100% electric by, I
think, it was 2040. India by 2030. China saying by 2019 a certain percentage. It's an
overwhelming demand story and I think really, it's not a question of price, it's not a
question of demand, it's a question, if you're an end user, of 'Where are we going to get
this material in the interim years until we reach this incentive price and see the market
respond and actually put some more units out there?'
Dr. Allen Alper: I appreciate your insight and your information. Sounds like there's
going to be a great demand for cobalt and a shortage of supply.
Mr. Anthony Milewski: We're all familiar with the uranium and the rare earths
story. That story really is, 'The sky is falling, all these reactions are coming, uranium
goes to the moon and crashes'. The rare earths, same thing. Magnets this, magnets that, and
then 20 minutes later it crashes. There's one very critical differentiator between those
stories and the electric vehicle stories. It's very simple. The electric vehicle is real.
The industrial infrastructure to build these vehicles is being built. Many
gigafactories are already underway. You saw within the last few weeks another announcement
for a battery factory in China with Daimler Chrysler. Depending on your numbers there is
between 10 and 40 billion dollars of infrastructure, either built or under construction as
we speak. This is really industrially driven. The end use is there. People are buying EVs.
That is a major differentiator from the uranium and rare earths story. That was more Field
of Dreams, if you build it, they will come. Here, they have already built a lot of EV
infrastructure and they continue to build it and/or have built it and that's important to
understand.
Dr. Allen Alper: That's a very good analysis. I think that would be useful for our
readers/investors. What are the primary reasons our high-net-worth readers/investors should
consider investing in Cobalt 27?
Mr. Anthony Milewski: If you believe in electric vehicle adoption, in grid
storage and battery storage, then I think you need to look at Cobalt 27.
Our NAV is underpinned by a physical asset that has a specific value. We have 2,158 metric
tons of cobalt that has a defined value.
Cobalt could go down in price. We can't say it's definitely going up, although I
believe it is, what's it going to go down, 20%? Okay, you're downside is 20/30%, say. Your
upside is a multiple. That's an asymmetric risk profile that you're not going to get in a
lot of other mining companies. If my upside is 5 times, theirs might be 10 or 15, their
downside is 100%. That's not the case here.
I think this is a way to play the story if you believe in the story and to do it in
a more risk adjusted manor than some of the other options available. I also think it's a
lot easier to pick the basic materials that are going to be part of the electric vehicle
revolution, rather than trying to pick who the winner in the actual EV space is going to
be.
Dr. Allen Alper: That sounds like a very strong reason to consider investing in your
company. Is there anything else you would like to add Anthony?
Mr. Anthony Milewski: I really appreciate your time and your reader's time. I'm
happy to answer any questions.
Anthony Milewski
Chairman, CEO & Director
416.504.3978 Ext 226
http://www.co27.com
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