The merger, which is valued at approximately C$59.9 million, is facing opposition from majority shareholder First Cobalt.
At a time when battery and electric car makers continue to face challenges surrounding the security and transparency of cobalt supply, one of the most expected cobalt mergers of 2019 is now under the spotlight.
In April, Australian miner Jervois Mining (ASX:JRV) and Idaho-focused eCobalt Solutions (TSX:ECS,OTCQX:ECSIF) announced that they were set to combine to become a leading company in the cobalt space, but eCobalt’s majority shareholder First Cobalt (TSXV:FCC,OTCQX:FTSSF) has urged investors to vote against the transaction.
The merger is valued at approximately C$59.9 million — a 5.8 percent premium to eCobalt’s closing price on March 29.
First Cobalt, which currently owns a 5.8 percent interest in eCobalt, said the deal was “incredibly dilutive.” The company pointed to new risks associated with the combination, such as unproven exploration land in the “highly unstable” country of Uganda obtained through Jervois’ buyout of M2 Cobalt (TSXV:MC), as well as the Australian company’s undeveloped nickel project, the Nico Young asset, which is currently in the prefeasibility study stage.
“The eCobalt board did not fulfill its fiduciary duty to explore all other value-maximizing options before entering into an agreement that triggers generous management severance payments and contains a C$3 million break fee, which impedes a superior offer,” the open letter to investors read.
For First Cobalt, the sale process did not maximize shareholder value, with the company, which is developing the Iron Creek project in Idaho, claiming that eCobalt did not disclose all the facts. According to First Cobalt, eCobalt received a letter from a “highly respected mining private equity” firm indicating that it was interested in funding the entire capital requirement to build eCobalt’s Idaho cobalt project (ICP).
ECobalt was quick to respond to First Cobalt’s claims, and for its part urged shareholders to vote in favor of the deal, saying that First Cobalt’s press release was misleading and that it was self-serving.
“First Cobalt has failed to disclose what its true intentions are with respect to eCobalt,” the company said. “Its aggressive opposition to the proposed Jervois merger is a last-resort attempt to gain access to eCobalt’s superior quality asset base.”
ECobalt’s environmentally permitted ICP is located in the heart of the Idaho Cobalt Belt, with a resource of 45.7 million pounds of cobalt at 0.59 percent cobalt in the measured and indicated categories. Currently, a new feasibility study is underway to evaluate increasing the throughput rate from 800 tonnes per day to 1,200 tonnes per day at the future mine.
“The claim that superior offers were available is false,” eCobalt said. “Although eCobalt was in discussions with several parties, none were able to provide the funding needed to advance the Idaho cobalt project nor provided accretive alternatives for creating long-term shareholder value.”
Commenting about the future of the cobalt project, First Cobalt said the transaction did not advance the asset neither technically nor financially. For the company, which has received support from Glencore (LSE:GLEN,OTC Pink:GLCNF) to restart its cobalt refinery in Ontario, there are two options going forward for eCobalt if shareholders vote against the merger, either remain independent or run “a formal and competitive sale process.”
However, eCobalt emphasized that Jervois is committed to aggressively advancing the Idaho cobalt project.
“The merger agreement specifically states that Jervois will spend C$10 million on the ICP project over the next 18 months towards the completion of the feasibility study and into construction,” eCobalt replied in a release, adding that the CEO and chairman of eCobalt had agreed to go onto the board of Jervois to strengthen the team.
Jervois also added in a separate statement that it had the technical strength and access to capital needed in order to progress the ICP into production. “First Cobalt simply has neither,” the company said.
A meeting is set for July 18, during which Jervois shareholders will vote on the merger, while eCobalt investors will vote on July 19. Prior to announcing the deal, the arrangement agreement was unanimously approved by the board of directors of both Jervois and eCobalt.
On Tuesday (July 2), shares of Jervois Mining closed unchanged at AU$0.21 in Sydney; meanwhile, shares of First Cobalt closed up 3.33 percent at C$0.16 in Toronto.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: First Cobalt is a client of the Investing News Network. This article is not paid-for content.