Proposed deal would see eCobalt shareholders
give away 53% of its Idaho Cobalt Project while getting nothing in
return
TORONTO, June 26, 2019 /CNW/ - First Cobalt Corp. (TSX-V:
FCC, OTCQX: FTSSF) ("First Cobalt") today sent an open letter to
the shareholders of eCobalt Solutions Inc. (TSX:ECS) ("eCobalt")
urging them to vote against eCobalt's proposed merger with Jervois
Mining Limited (ASX:JRV) ("Jervois").
The full text of the letter is below and has also been filed on
First Cobalt's website at www.firstcobalt.com.
Open Letter to Fellow eCobalt Shareholders
Dear eCobalt Shareholders:
The opportunity to vote on the proposed merger with Jervois at
the July 19 Special Meeting of
eCobalt is quickly approaching. We are reaching out to you to
express our deep conviction that this deal destroys value for
eCobalt shareholders – it is the wrong deal at the wrong price and
the wrong time.
As of the record date, First Cobalt owns 9,640,500 million
shares representing a 5.8% interest in eCobalt, making us one of
its largest shareholders.
We urge fellow shareholders to vote AGAINST the transaction
utilizing the proxy mailed to you by eCobalt.
As further explained below, First Cobalt opposes the Jervois
transaction for the following reasons:
- Incredibly Dilutive: eCobalt shareholders would give up
53% of the proforma company and would get nothing of value in
return.
- Fails to Advance the Idaho Cobalt Project: The proposed
Jervois transaction does not advance the Idaho Cobalt Project
("ICP"), either technically or financially.
- Introduces New Risks: The Jervois transaction introduces
a number of material new risks that should concern eCobalt
shareholders, notably unproven exploration land in the highly
unstable African country of Uganda, an undeveloped nickel project in
Australia, a management team based
half a world away from the ICP development project and a primary
stock listing in Australia.
- Sale Process Did Not Maximize Shareholder Value: The
eCobalt Board did not fulfil its fiduciary duty to explore all
other value-maximizing options before entering into an agreement
that triggers generous management severance payments and contains a
CAD$3 million break fee, which
impedes a superior offer.
- Circular Does Not Disclose All the Facts: We understand
that eCobalt received a letter from one of the industry's top
private equity funds interested in funding the entire capital
cost to build the ICP under different circumstances that would
preclude the Jervois transaction. Why was this critical piece of
information not disclosed to shareholders?
If, and when, shareholders reject the terms of this
ill-conceived, value-destructive transaction, we would prefer one
of two paths:
Option 1 – Remain independent. The cobalt market has
struggled over the past 12 months but this will pass and
experienced commodity investors understand that mining is a
cyclical business. Hard times are not an excuse to give up on your
shareholders. As the market improves (and it will), eCobalt
shareholders will be rewarded handsomely. Rather than pursue the
proposed at-market transaction, the company should complete its
long-anticipated updated feasibility study, continue to execute on
its strategic plan and be patient when considering strategic
transactions. We are in the early innings of an EV revolution the
likes of which have never been seen and the Idaho Cobalt Project
could become an operating mine at the perfect time.
Option 2 – Run a formal and competitive sale process. If
the eCobalt board insists on pursuing a sale, it has a duty to
conduct a proper auction. Invite Jervois to participate along with
all potential suitors and then work with the party that offers the
best consideration to eCobalt shareholders.
A vote for this transaction is a losing proposition: it burdens
eCobalt with substantially more geopolitical and operational risk
while unjustifiably giving away the upside of the Idaho Cobalt
Project, which belongs to the current shareholders.
Voting AGAINST the transaction is a WIN for
eCobalt shareholders. If the transaction fails to win the support
of eCobalt shareholders, our company can recover from the sharp
underperformance and can be in a stronger position to participate
in value accretive actions in the future. A renegotiation of the
Jervois transaction at materially better terms would also be a win
for eCobalt shareholders. There is no apparent downside in voting
AGAINST this deal.
We urge shareholders not to allow complacency to permit
eCobalt's board to sneak this flawed deal through. Shareholders
requiring any assistance in executing their proxy or voting
instruction form, can contact First Cobalt Corp. proxy solicitation
agent Gryphon Advisors Inc. at: 1-833-335-6118 or 1-416-661-6592 or
inquiries@gryphonadvisors.ca.
The Facts
The Idaho Cobalt Project is a permitted North American cobalt
project and one of precious few primary cobalt assets outside the
DRC. The ICP is also a very high-grade project by global standards
and CAD$135 million has been spent to
date developing the project. Putting the ICP into production would
provide America with an ethical source of U.S-based cobalt and help
ensure that the country's national security and economic interests
are secure for years to come.
In September 2017, eCobalt
announced the results of a feasibility study that estimated a total
capital cost to build the ICP at US$187
million, comprised of US$63
million for the mine and mill and US$124 million to build a cobalt refinery in
Idaho. Shortly after the release
of the study, eCobalt decided that it would forego the cost of
building a cobalt refinery and instead seek to sell a lower value
cobalt-copper-arsenic concentrate to a third party refiner.
eCobalt embarked upon a global marketing effort to identify a
refinery capable of treating elevated levels of arsenic but to no
avail. During this period, First Cobalt approached eCobalt with a
proposal to recommission First Cobalt's hydrometallurgical refinery
in Canada as it was permitted to
treat high levels of arsenic and had a successful operating
history. Based on the published results of eCobalt's feasibility
study and a First Cobalt refinery scoping study, First Cobalt
believed at that time eCobalt could eliminate most of the
US$124 million in capex of a new
refinery by using the First Cobalt refinery.
On September 27, 2018,
Michael Callahan was appointed as
new CEO of eCobalt. On January 16,
2019, the two company CEOs had the first of several
strategic discussions. First Cobalt offered to "give" the refinery
to eCobalt for future consideration, in the belief that a
commercial arrangement would be of significant benefit of both
companies' shareholders. Discussions intensified, culminating in a
meeting on February 16 and 17 to
discuss the benefits of merging the two companies to capture the
vertical integration synergies by combining the ICP and the First
Cobalt refinery. Discussions focused on the benefits of creating a
North American pure-play cobalt company by bringing together the
ICP, the refinery, First Cobalt's Iron Creek Project in
Idaho and First Cobalt interests
in the Canadian Cobalt Camp.
eCobalt and First Cobalt signed a non-disclosure agreement with
a standstill clause, which prevented either party from making an
unsolicited bid for the other company. Thereafter, repeated
requests to advance due diligence and exchange confidential
information were ignored by eCobalt.
We understand that other parties have expressed an interest in a
corporate transaction and that some of them also signed
non-disclosure agreements with a standstill provision but that no
serious discussions ensued. It is our understanding that those
parties who signed a non-disclosure agreement with eCobalt were
never approached to table an offer that could have created more
value for eCobalt shareholders.
Instead, the board agreed to support the Jervois transaction
with a Lock Up Agreement and under penalty of a CAD$3 million "break fee" if they failed to
recommend that shareholders approve the deal. The board of eCobalt
also failed to file the Lock Up Agreement with securities
regulatory authorities as is required by law. By failing to do so,
potential suitors were placed at an additional disadvantage and the
eCobalt board further impeded any opportunity for shareholders to
maximize value for their shares.
Objection #1: Incredibly Dilutive
eCobalt shareholders are being asked to give away a crown jewel,
the Idaho Cobalt Project. Shareholders would own just 47% of the
combined company while the owners of 53% are contributing nothing
of concrete value. The proposed transaction defies any business
rationale and does not in any way move the Idaho Cobalt Project
closer to production. Why should eCobalt shareholders give away 53%
of a permitted North American cobalt project in a deal that lacks a
formal valuation? In the 2017 feasibility study, the ICP had a
reported project net asset value of US$136
million after tax whereas the company is being sold for
US$44.8 million as of the date of the
announcement. By contrast, the value of Jervois' nickel project and
early-stage African copper exploration prospects are far from clear
and both Jervois assets detract from eCobalt's appeal as a
pure-play cobalt company.
Objection #2: Fails to Advance the Idaho Cobalt
Project
Once the eCobalt board abandoned the idea of building a cobalt
refinery in late 2017 in an effort to reduce the capital cost, the
primary obstacle has been to identify a refinery willing to buy the
mine concentrate. For the past 18 months, management traveled to
every corner of the earth but has not secured an offtake contract
due to very high levels of arsenic in its concentrate.
Any transaction involving eCobalt must do at least one of two
things: (1) offer technical solutions to de-risk the ICP and/or (2)
result in a significant capital injection. The proposed transaction
is a share-for-share exchange that does nothing to bring the ICP
closer to production.
There is a refinery in Canada
that is permitted and has a history of treating arsenic cobalt
concentrates that has attracted interest from some of the world's
largest cobalt miners. eCobalt refused to even consider the option,
not as a result of due diligence or a technical review but because
it was perceived as a threat to the incumbent board and management
team. Management of eCobalt considered building and permitting a
roasting facility in Idaho to
remove the arsenic but the process is unproven, results in
additional capital requirements and would still result in eCobalt
giving away an important part of the value chain to a third party
refiner.
The proposed Jervois transaction does nothing to solve critical
technical obstacles to developing the Idaho Cobalt Project and the
company's cash balance is insufficient to advance the project. More
dilution is to be expected from this deal as Jervois will be forced
to pursue a dilutive equity offering under any scenario. That means
our 47% interest will drop even further if this deal is
approved.
Objection #3: Introduces New Risks
The Jervois transaction brings with it a number of material new
risks that should concern eCobalt shareholders. Jervois just
completed a transaction to acquire unproven copper exploration
properties in the highly unstable African country of Uganda. Their other asset is an undeveloped
nickel project in Australia with
cobalt as a by-product for which Jervois is seeking a joint venture
partner. The proposed transaction would result in a global
collection of disparate assets with no synergies. The primary stock
listing and the management team would be based in Australia, too far away from an Idaho mine development project that requires a
dedicated team nearby. The eCobalt meeting circular fails to
present a compelling transaction rationale and is totally at odds
with eCobalt's most attractive investment attributes: a pure-play
cobalt development company controlling a permitted critical mineral
project in the USA that America
desperately needs.
Objection #4: eCobalt Directors Did Not Run a Sale Process,
Contrary to the Fiduciary Duties they owe Shareholders
It is our understanding, confirmed by the eCobalt meeting
circular, that no parties other than Jervois were given an
opportunity to make an offer for eCobalt prior to entering into an
agreement with Jervois that includes an egregious CAD$3 million break fee in the event of a
superior offer. Over the past two years, eCobalt signed several
non-disclosure agreements with companies interested in discussing a
merger or strategic relationship. The eCobalt board had other
options so why wouldn't they want to explore them?
Just six months after joining eCobalt, incoming CEO Michael Callahan and the board threw in the
towel in a tough commodities market, triggering generous severance
payments. No effort was made to similarly look after the owners of
the company by maximizing shareholder value through a competitive
sale process.
TD, who is an advisor to eCobalt's board, has a target price of
CAD$0.45 per share, which is 20%
above the implied offer. Other sell-side covering analysts have
stock price targets that range from CAD$0.90–$1.70, all significantly higher than the
CAD$0.36 implied by the deal on the
day of announcement.
We are disappointed that the directors of eCobalt, who
collectively own only 1,145,608 shares or about 0.69% of eCobalt,
have chosen to move forward with such an inadequate transaction. It
appears to us that the board abrogated its duty to shareholders by
agreeing to a deal that is extremely favorable to Jervois at the
expense of the current shareholders. The proposed transaction gives
away control of the ICP without getting paid adequately. The
transaction is not in the best interests of shareholders and should
not be approved at the Special Meeting.
Objection #5: Circular Does Not Disclose All the
Facts
Prior to announcing the transaction with Jervois, we understand
that 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 the Idaho Cobalt
Project. The multi-billion dollar fund's interest was premised on
eCobalt merging with First Cobalt in order to capture the synergies
of a vertically integrated North American pure-play cobalt company
by giving eCobalt ownership over the only North American refinery
capable of treating arsenic-rich mine concentrate. The belief,
supported by published studies, was that this combination could
eliminate up to US$95 million in
capital expenditures from eCobalt's September 2017 feasibility study estimates.
We are confused and frustrated that no effort was made to even
assess this option or consider a win-win relationship in the face
of a potential complete funding solution and despite repeated
invitations to the eCobalt management team to assess the permitted
refinery as a viable, regional processing option. In the interim,
Glencore, the world's largest cobalt miner, signed a non-binding
agreement with First Cobalt to process its cobalt feedstock through
First Cobalt's refinery but eCobalt management has dismissed the
facility out of hand. A strategic relationship between First Cobalt
and Glencore does not close the door on the opportunity for eCobalt
to participate in this commercial venture but eCobalt has thus far
refused to even consider the option because it is perceived as a
threat to the incumbent board and management team.
It is shocking to us that the eCobalt board ignored the funding
letter and failed to mention it in its proxy disclosure to
shareholders. At a minimum, the directors as fiduciaries were
obligated to consider the possibility of a superior offer before
locking up with Jervois – and to disclose all the facts.
What You Can Do
We are extremely disappointed that eCobalt's board of directors
has chosen to move forward with such a transaction and we urge you
to VOTE AGAINST the plan of arrangement all of the proposals
to be voted upon at the Special Meeting.
The proposed transaction relative value is unbelievably lopsided
in Jervois' favor. Jervois stock for eCobalt stock is simply a bad
deal for eCobalt shareholders.
There are far better options for eCobalt than this
value-destructive transaction. The company will not collapse if the
deal is voted down. On the contrary, it can prosper in an improving
market.
This proposed transaction requires the support of
662/3% of total votes cast at the eCobalt
Special Meeting and the deadline to vote is July 17, 2019 at 10:00 am
Pacific time.
DON'T GIVE UP CONTROL OF eCOBALT FOR INADEQUATE CONSIDERATION.
PLEASE VOTE.
EVEN IF YOU HAVE ALREADY VOTED ON THE PROXY CARD SENT TO YOU BY
eCOBALT, YOU CAN STILL CHANGE YOUR VOTE BY SIMPLY RECASTING YOUR
VOTE. ONLY YOUR LATEST DATED PROXY CARD WILL COUNT.
If you have any questions, or need help voting, contact Gryphon
Advisors Inc. at: 1-833-335-6118 or 1-416-661-6592 or email
inquiries@gryphonadvisors.ca. There is a team standing by to assist
you.
About First Cobalt
First Cobalt is a North American cobalt company and owner of the
only permitted primary cobalt refinery in North America. The Company is exploring a
restart of the First Cobalt Refinery in Ontario, Canada, which could produce over
5,000 tonnes of contained cobalt in sulfate per year from third
party feed. First Cobalt's main cobalt project is the Iron Creek
Cobalt Project in Idaho, USA,
which has an inferred mineral resource estimate available on the
Company's website. The Company also controls a significant land
package in the Canadian Cobalt Camp, spanning over 100
km2 which contains more than 50 past producing
mines.
On behalf of First Cobalt Corp.
Trent Mell
President & Chief Executive Officer
Neither TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in policies of the TSX Venture
Exchange) accepts responsibility for the adequacy or accuracy of
this release.
Information in Support of Public Broadcast
Solicitation
First Cobalt is relying on the exemption under section 9.2(4) of
National Instrument 51-102 – Continuous Disclosure
Obligations ("NI 51-102") to make this public broadcast
solicitation. The following information is provided in accordance
with securities laws applicable to public broadcast
solicitations.
This press release and any solicitation made by First Cobalt in
advance of the Special Meeting is, or will be, as applicable, made
by First Cobalt and not by or on behalf of the management of
eCobalt.
First Cobalt has filed a copy of this press release containing
the information required in section 9.2(4) of NI 51-102 on
eCobalt's company profile on SEDAR at www.sedar.com. All costs
incurred for any solicitation will be borne by First Cobalt,
provided that, subject to applicable law, First Cobalt may seek
reimbursement from eCobalt of First Cobalt's out-of-pocket
expenses, including proxy solicitation expenses and legal fees,
incurred in connection with the Special Meeting. The anticipated
cost of First Cobalt's solicitation is estimated to be CAD$30,000 plus disbursements and customary
fees.
First Cobalt has retained Gryphon Advisors Inc. ("Gryphon") as
its proxy solicitor. Gryphon's responsibilities will principally
include providing strategic advice and advising First Cobalt with
respect to any solicitations made by or on behalf of First Cobalt
in relation to the Special Meeting. Any proxies solicited by or on
behalf of First Cobalt, including by Gryphon, may be solicited by
way of public broadcast, including through press releases, speeches
or publications and by any other manner permitted under applicable
laws. A proxy may be revoked by instrument in writing executed by a
shareholder or by their attorney authorized in writing or, if the
shareholder is a body corporate, by an officer or attorney thereof
duly authorized or by any other manner permitted by law.
First Cobalt is not currently proposing any transaction with or
involving eCobalt. However, First Cobalt has in the past proposed,
and may in the future propose, a transaction with or involving
eCobalt.
The head office of eCobalt is 1810-999 West Hastings Street,
Vancouver, British Columbia,
Canada.
Important Disclosure Information
This press release contains our current views on the value of
securities of eCobalt and Jervois. Our views are based on our own
analysis of publicly available information and assumptions we
believe to be reasonable. There can be no assurance that the
information we considered and analyzed is accurate or complete. The
actual performance and results of eCobalt and Jervois may differ
materially from our assumptions and analysis. Our views and our
holdings could change at any time. We may sell any or all of our
position or increase our exposure by purchasing additional
securities. We may take any of these or other actions regarding
eCobalt and Jervois without updating this letter or providing any
notice whatsoever of any such changes (except as otherwise required
by applicable law). The information contained above is not and
should not be construed as investment advice and does not purport
to be and does not express any opinion as to the price at which the
securities of eCobalt and Jervois may trade at any time. Investors
should make their own decisions regarding eCobalt and Jervois and
their prospects based on such investors' own review of publicly
available information. Neither First Cobalt nor any of its
affiliates accepts any liability whatsoever for any direct or
consequential loss howsoever arising, directly or indirectly, from
any use of the information contained above.
Cautionary Note Regarding Forward-Looking Statements
This letter and news release may contain forward-looking
statements and forward-looking information (together,
"forward-looking statements") within the meaning of applicable
securities laws. All statements, other than statements of
historical facts, are forward-looking statements. Generally,
forward-looking statements can be identified by the use of
terminology such as "plans", "expects", "estimates", "intends",
"anticipates", "believes" or variations of such words, or
statements that certain actions, events or results "may", "could",
"would", or "might" "occur" or "be achieved". In this press
release, forward-looking statements include, but are not limited
to, statements concerning the benefits to First Cobalt of merging
or otherwise engaging in a business transaction with eCobalt.
Forward-looking statements involve risks, uncertainties and other
factors that could cause actual results, performance and
opportunities to differ materially from those implied by such
forward-looking statements. Factors that could cause actual results
to differ materially from these forward-looking statements are set
forth in the management discussion and analysis and other
disclosures of risk factors for First Cobalt, filed on SEDAR at
www.sedar.com. Although First Cobalt believes that the information
and assumptions used in preparing the forward-looking statements
are reasonable, undue reliance should not be placed on these
statements, which only apply as of the date of this news release,
and no assurance can be given that such events will occur in the
disclosed times frames or at all. Except where required by
applicable law, First Cobalt disclaims any intention or obligation
to update or revise any forward-looking statement, whether as a
result of new information, future events or otherwise.
SOURCE First Cobalt Corp.