Compare Voisey's Bay Stream from Pala and Ramu from ConicThe last news release from the Chairman of Conic Metals on January 12th, 2021 (future Nickel 28) is very interesting and informative. It sums up the investment case for Conic Metals perfectly.
But the fact remains: Due to the (not beyond all doubt) takeover of Cobalt 27 by Pala Investement and the spin-off of Conic Metals (old / new Nickel 28), there were inconsistencies and many disappointed shareholders at Cobalt 27. In addition, Anthony Milewski was Chairman and CEO of Cobalt 27 primarily responsible for the deal; at Conic Metals he is now Chairman.
After many months later and up and down, it is worth analyzing the takeover and the current situation with a fresh look.
The general conditions of the transactions (takeover / spin-off) 2019 were as follows:
- 4 CAD Cash CAD per Cobalt 27
- Implied value for Conic Metals 1.92 CAD
- 83.3m shares
- Pala: 2'900t Co physical and Voisey’s Bay Cobalt Stream
- Conic: Highlands Pacific Ltd with Ramu Direct Investment, 9 Royalties, 3.98m Share Giga Metals and 5m USD Cash.
Today the situation is as follows ($ = USD):
Pala Investment with the assets of Cobalt 27:
- Purchase price / investment: 4 CAD x 83.3 = 333m CAD, resp. 262m $ (US)
- 2,900t Co at 37k $ / t: 107m $
- Voisey’s Bay Cobalt Stream from 2021: 32.6% of 2.6kt Co at a price of 7k / t (18%) with a value of 30k / t: 0.85kt x 30k / t = 25.5m $ p.a.
Conic Metals:
- Current market capitalization at 83.3m shares and price of 0.54 CAD: 45m CAD resp. 36m $ (US)
- Ramu Direct Investment: Debt $ 105m, estimated cash flow p.a. 25m
- Giga Metals sold, around $ 4m in cash
- Royalties: 9
- Highlands Pacific sold, $ 5m open and 1% NSR on Star Mountains.
About the royalties from Conic Metals:
Only Dumont is actually worthwhile. Because ready for construction. There is also no other option to invest in Dumont, as it is privately held, than through Conic Metals with 1.75% NSR. Scandium International should also be mentioned; but that should be a small scale production. The rest is not valuable: Giga Metals is still many years away from production and Fleming is currently practically worthless, as Australian Mines, Sconi develop primarily and not Fleming.
So we simplify the whole thing and compare the Voisey’s Bay Cobalt Stream owned by Pala Investment and the direct investment Ramu with 8.56% respectively. 11.3% share of Conic Metals.
The following parameters, all in USD and Co at 37k / t, Ni at 8 $ / lb:
a) Pala Investment with Voisey’s Bay Cobalt Stream
- Net purchase price for investment: $ 155 (acquisition price of 262m minus 2'900t Co at $ 107m)
- Cash flow around 25.5 p.a. from 2021
b) Direct Investment Ramu from Conic
- Current market capitalization: 36m $ (83.3m, 0.54 CAD)
- Debt $ 105m (25m Operating Debt and 80m CAPEX Debt)
- Free cash flow at Nickel 8 $ / lb: 25m $ p.a. at 8.56%
- From 2022: 35% share of free cash with $ 8.8m p.a.
- From 2026/27: 100% free cash share at 11.3%: 33m $ p.a.
Conclusion
Vale’s Voisey’s Bay is a super mine in Tier 1 jurisdiction. But Pala only has a stream on Cobalt. Voisey’s Bay has a LoM until around 2034 and from the 12th year the conditions will worsen and the free casflow for Pala will more than halve, as of today.
Ramu is primarily a nickel mine. Nickel is THE battery metal for the future. Nothing works without nickel. Cobalt could always be replaced. As soon as the full debt of 105m $ plus interest has been repaid, the free cash increases to 33m $ / p.a. Ramu's LoM is at least 30 years from now, that is until at least 2041. The Conic royalties are still a goodie; especially from Dumont and to a limited extent from Scandium (Nyngan), I expect additional cash flow this decade.
From today's point of view with today's valuation, Conic Metals' investment in Ramu is more valuable than Pala Investment's Voisey’s Bay Stream. On the one hand, this is related to the conditions; But the key factor is that the price of nickel - unlike cobalt - has recovered over the long term.
Ramu Direct Investment from Conic Metals is (as of today) more sustainable than the Voisey’s Bay Stream from Pala Investment.
urai5