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Toronto-listed First Cobalt has acquired US Cobalt in an all-share deal valued at C$149.9 million. The deal is expected to close in May.
First Cobalt (TSXV:FCC) has acquired US Cobalt (TSXV:USCO) in an all-share deal valued at C$149.9 million as it aims to potentially become a cobalt supplier outside the Democratic Republic of Congo (DRC).
Both companies are exploring for cobalt, a key element in the lithium-ion batteries used to power electric cars. As part of the deal, First Cobalt will add US Cobalt’s exploration properties in Idaho and Utah to its assets in Cobalt, Ontario.
“The Idaho project is at a more advanced stage than our work in the Cobalt camp in Ontario. The appeal to us is that it is a faster pathway to production,” First Cobalt Chief Executive Trent Mell told Reuters.
As demand for electric cars continues to increase in the coming decades, supply for cobalt will need to reach 180,000 tonnes by 2026 from just 48,000 in 2016, Benchmark Mineral Intelligence says.
“We foresee a shortage of cobalt over the next five years yet there are few companies doing significant work to identify new sources of supply,” Mell said.
More than 60 percent of cobalt is mined in the DRC, a politically unstable country where mining has often been linked to human rights abuses and child labor.
Most analysts agree that the DRC will continue to be the main source of cobalt for the electric car revolution, but cobalt production outside the African country could help bring transparency and address responsible sourcing issues in the supply chain.
“We can execute on something outside the Congo and outside China. There are no concerns about unethical sourcing,” Mell said, adding that the company’s Ontario refinery could potentially be “a hub for North American cobalt production.”
However, there are currently no mines producing cobalt in Canada, and although US Cobalt’s projects in Idaho are more advanced than First Cobalt’s properties, production is not expected immediately.
“It’s still a few years away, certainly three years, but it gives us a clear path,” Mell said of US Cobalt’s timeline to production.
Mell also said he would like to refine future supply from Idaho at the company’s refinery in Ontario. “The opportunity here is to have cobalt mining and refining right here in North America.”
The transaction, which represents a 61.8-percent premium to US Cobalt’s closing price on Tuesday (March 13), has yet to be approved by shareholders, but is expected to be completed by the end of May.
On Wednesday (March 14), shares of First Cobalt plunged 5.45 percent, closing in Toronto at C$1.04. Meanwhile, shares of US Cobalt jumped 23.76 percent to close in Toronto at C$1.25.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
