Cobalt 27 Capital has signed a scheme implementation agreement (SIA) to acquire all of the issued ordinary shares in Highlands Pacific which it does not already own through a scheme of arrangement (SoA).
With an interest of around 13%, Cobalt 27 is the largest holder of shares in Highlands.
As per the terms of the SoA, shareholders of Highlands will receive A10.5 cents of cash for every share, provided all applicable conditions are being met or waived and the scheme is being implemented.
This consideration, which represents a premium of 43.8% over the closing price of Highlands shares of A7.3 cents on 24 December 2018, takes the equity value of Highlands to around A$115m ($80.9m).
The consideration will increase by A1.0 cents of cash for every share to A11.5 cents, provided before the end of this year, the closing spot price of nickel touches more than $13,220 per tonne over a period of five consecutive trading days.
This SoA will need the approval of 75% of shareholders of Highlands who are entitled to vote. Voting will take place at a shareholder meeting, which is expected to be held in mid to late April this year.
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Additionally, the scheme will have to be approved by the Papua New Guinea’s (PNG) National Court.
The major asset of Highlands is its 8.56% interest in the Ramu nickel-cobalt mine (Ramu), located near Madang in PNG.
After repayment of Highlands’ attributable construction and development loans for the Ramu project, its ownership will increase to 11.3%.
Ramu is majority-owned and operated by Metallurgical Corporation of China (MCC).
MCC holds a 67.02% stake in MCC-JJ Mining that owns all of MCC Ramu NiCo (MCC – Ramu), which inturn holds 85% joint venture interest in Ramu.
The Government of PNG and local landowners own 6.44% stake in Ramu. This stake would increase to 8.7% following repayment of construction and development loans.
MCC financed and constructed the Ramu mine for $2.1bn.
Cobalt 27 chairman and CEO Anthony Milewski said: “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.
“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.”
In October 2018, Highlands announced that MCC is exploring a potential expansion of the Ramu mine, which could cost around $1.5bn. The details with regard to a potential expansion, however, have not been finalised yet.
Cobalt 27 expects to have the opportunity to take part in any potential expansion and boost its attributable production through its purchase of Highlands following the SoA.
Highlands has interests in the Star Mountains Copper Gold exploration project in PNG and is reviewing the Sewa Bay laterite nickel project in PNG alongwith Sojitz Group, a Japanese trading firm.
Cobalt 27 plans to review strategic alternatives with regard to these non-core assets.