In a Sept. 26 research report, analyst David Talbot laid out Eight Capital's investment thesis for initiating coverage on Cobalt 27 Capital Corp. (KBLT:TSX.V; CBLLF:OTC; 27O:FSE) with a Buy rating.
"We believe the premium valuation is warranted given 1) current and long-term cobalt market dynamics. . .2) reduced conventional mining risk typically associated with exploration and development mining companies, and 3) management's perceived ability and relationships to source potential streaming opportunities," Talbot stated.
Describing the company, which "intends to acquire and hold physical cobalt, and manage and grow a cobalt-focused portfolio of income streams, royalties and direct interests in mineral properties containing cobalt," Talbot wrote that "Cobalt 27 offers an alternative investment vehicle for those interested in direct ownership of physical cobalt. This new company allows for investor participation in the electric vehicle (EV) renaissance and increasing demand for lithium ion batteries, while limiting risks typically associated with mining, development, exploration, permitting and geopolitical uncertainty."
Cobalt 27 also possesses "potential upside from streaming deals and royalties," according to Talbot, who mentioned the company's "portfolio of royalties covering eight exploration-stage projects." Because Cobalt 27's management "has a mandate to pursue income stream or royalty arrangements with advanced developers and producers," the company may generate "attractive returns while limiting risk. It may provide a non-dilutive source of financing to potential stream/royalty partners in what could be a win-win relationship."
Shareholders include Pala Investments and Portola Enterprises, Talbot added, as well as members of Cobalt 27's upper management.
Talbot also elaborated on the potential of the cobalt market as an investment vehicle. "We anticipate a US$3B spend on cobalt development and expansion projects over the next 5-10 years," he wrote. "This, along with the +50 mines that are currently producing cobalt, gives credence to a large appetite for the commodity, and that streaming/royalty deals in cobalt have a place in the broader mining community of streams and royalties."
"We do expect the company to transition into a hybrid physical commodity and streaming company, offering financing to advanced developers and producers," he added.
Eight Capital initiated coverage with a share price target of CA$10.90. Cobalt 27 stock is currently trading at ~CA$9.45 per share.
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1) Tracy Salcedo compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She owns, or members of her immediate household or family own, securities of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
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Disclosures from Eight Capital, Cobalt 27 Capital Corp., Initiating Coverage, Sept. 26, 2017
Conflicts of Interest: Eight Capital has written procedures designed to identify and manage potential conflicts of interest that arise in connection with its research and other businesses. The compensation of each Research Analyst/Associate involved in the preparation of this research report is based competitively upon several criteria, including performance assessment criteria, the quality of research and the value of the services they provide to clients of Eight Capital. The Research Analyst compensation pool GFG Resources Inc. includes revenues from several sources, including sales, trading and investment banking. Research analysts and associates do not receive compensation based upon revenues from specific investment banking transactions.
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Company Specific Disclosures: Eight Capital and/or its affiliated companies have provided investment banking services to Cobalt 27 Capital Corp. in the past 12 months.