Cobalt 27 Capital Corp. has entered into a friendly acquisition agreement with Highlands Pacific Ltd. to buy all the shares of Highlands it does not own in a transaction valued at A$115 million ($80.5 million). Highlands’ key asset is its 8.56% interest in the Ramu nickel-cobalt mine located near Madang on the north coast of Papua New Guinea. Following repayment of Highlands’ attributable Ramu construction and development loans, Highlands’ ownership would increase to 11.3%. Ramu is majority-owned and operated by Metallurgical Corp. of China Ltd. (MCC).

“The acquisition of Highlands will allow Cobalt 27 to gain a direct interest in the Ramu nickel-cobalt mine and materially increase its attributable exposure to the mine’s nickel production from 27.5% to 100% and cobalt production from 55% to 100%, relative to the previously announced Ramu Cobalt Nickel Stream,” said Anthony Milewski, chairman and CEO of Cobalt 27. “It does so at nearly half the cost of the previously announced Ramu Cobalt Nickel Stream, provides increased balance sheet flexibility, and enhances value for Cobalt 27 shareholders. It also brings cash flow to our business, something we have told our shareholders was important from the beginning.”

MCC is evaluating a $1.5 billion expansion of the Ramu mine. Cobalt 27 would have the opportunity to participate in any potential expansion and increase its attributable production through its acquisition of Highlands.

Highlands also holds interests in the Star Mountains Copper Gold exploration project in Papua New Guinea and is evaluating the Sewa Bay laterite nickel project in conjunction with Japanese trading house Sojitz Group. Cobalt 27 intends to evaluate strategic alternatives with respect to these non-core assets.

The transaction is expected to close in the second quarter of 2019, subject to approval by Highlands shareholders, court approval, regulatory and applicable stock exchange approvals, and certain other closing conditions customary in transactions of this nature.

During May, Cobalt 27 announced a stream transaction with Highlands to purchase the equivalent of 55% of the cobalt and 27.5% of the nickel from Highlands’ attributable share of Ramu production for $113 million. Under the stream transaction, Cobalt 27’s implied production exposure would have amounted to approximately 450,000 lb of cobalt and approximately 1,000 metric tons (mt) of nickel, based on 2018 Ramu production guidance for Highlands’ pro forma 11.3% interest in Ramu. By comparison, the acquisition of Highlands would imply an increase in attributable production to Cobalt 27 to more than 600,000 lb of cobalt and more than 2,900 mt of nickel (based on 2018 Ramu production guidance for Highlands’ 8.56% interest). Upon repayment of Highlands’ attributable partner loans, Highlands’ interest in Ramu would increase to 11.3%, which would imply 2018 attributable production of more than 800,000 lb of cobalt and more than 3,800 mt of nickel.