Vale SA agreed to sell a total of 75% of cobalt production from the Voisey's Bay copper-nickel-cobalt complex to Wheaton Precious Metals Corp. and Cobalt 27 Capital Corp. for a total of US$690 million, beginning in 2021.
Wheaton said in a June 11 release that it will make an upfront payment of US$390 million to Vale upon closing of the cobalt stream by using amounts drawn from its US$2 billion revolving credit facility.
The company will be entitled to receive a 42.4% of cobalt output from the mine until the delivery of 31 million pounds, and 21.2% of cobalt production for the life of mine. Attributable cobalt production is forecast to average 2.6 million pounds per annum for the first 10 years and 2.4 million pounds for the life of mine.
The company expects to generate an average operating cash flow at current cobalt prices of more than US$75 million per annum for the first 10 years.
Separately, Vale inked a US$300 million streaming deal with Cobalt 27, which entitles the latter to receive about 32.6% of the cobalt production from Voisey's Bay until a total of around 23.8 million pounds has been delivered. The company will receive around 16.3% of cobalt production thereafter.
Cobalt 27 expects the cobalt stream to significantly increase its cash flows starting 2021.
In addition to the upfront payments, Wheaton and Cobalt 27 will make ongoing production payments set at 18% of cobalt spot prices, increasing to 22% upon the balance of upfront consideration being reduced to zero.
In connection with the streaming deal, Cobalt 27 entered into a deal with a syndicate of underwriters for the purchase of 30.8 million company shares at C$9.75 per share for a total of around C$300 million, with closing anticipated by June 27.
Cobalt 27 also granted the underwriters an option to purchase up to an additional 4.62 million shares at the same issue price for 30 days following closing. In the event that the option is exercised in its entirety, the company will pocket about C$345 million.
The company will fund the US$300 million payment for the cobalt stream using the net proceeds from the offering, along with its recently announced US$80 million revolving credit facility and cash on hand.
The news came as Vale announced plans to move ahead with a US$2 billion expansion of the Newfoundland and Labrador-based mine. Reuters cited Newfoundland and Labrador Premier Dwight Ball as saying that construction of the underground mine will start this summer.
