Brazil’s Vale on Monday unveiled a US$690 million financing to expand a Canadian nickel mine, agreeing to sell unmined cobalt from Voisey’s Bay as a booming electric vehicle market propels demand for the critical battery ingredient.
Vale said it would sell cobalt mined after 2021 as a by-product from the mine in Canada’s northern Labrador region to Wheaton Precious Metals Corp and Cobalt 27 Capital Corp in a so-called stream financing deal.
The transaction is the world’s biggest cobalt stream to date, a form of alternative financing that allows an investor to make an upfront payment in exchange for future production at a discounted price.
From an obscure minor metal and salt probably best known for dyeing porcelain blue, cobalt has stormed to the forefront of the mining industry due to its importance in prolonging battery life and providing stability to rechargeable batteries used in electric vehicles and electronics.
Cobalt prices have soared fourfold over the past two years to close to US$100,000 a ton on expectations of demand spiking for limited supply that is mostly mined as a by-product of copper mines in Democratic Republic of Congo, a perpetually politically unstable country.
Reuters reported in January that Vale was seeking to sell un-mined cobalt worth hundreds of millions of dollars from Voisey’s Bay as expectations mount that the metal is headed for a shortage.
“By unlocking the value of the cobalt by-product at Voisey’s Bay through this streaming deal, Vale has found a way to resume substantive work on the underground project,” Eduardo Bartolomeo, Vale’s base metals executive officer, said in a statement.
The financing will help Vale fund the US$1.7 billion underground expansion of Voisey’s Bay and its associated infrastructure. The premier of Newfoundland and Labrador said on Monday that construction of the underground mine will start this summer after Vale last year slowed development due to weak nickel prices and a company-wide assets review.
Vancouver-based Wheaton will pay US$390 million and Toronto-based Cobalt 27 US$300 million upfront in cash for a combined 75 percent of future cobalt from Voisey’s Bay. They will also pay on average 20 percent of cobalt prices on delivery of the metal.
“While our focus has been, and always will be on precious metal streaming, we welcomed the opportunity to invest in another low-cost, long-life asset with a partner of Vale’s caliber,” Wheaton Chief Executive Randy Smallwood said in a statement.
Update: Cobalt 27, a battery metals streaming and royalty company, is backed by Swiss mining private equity firm Pala Investments.
(Reporting by Nicole Mordant in Vancouver; Editing by Sandra Maler and Leslie Adler)
(This story has been edited by Kirk Falconer, editor of PE Hub Canada)