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Cobalt 27 Capital Corp. (TSX.V – KBLT): Interview with Anthony Milewski, Chairman, CEO: A Pure-Play through Acquisition of Physical Cobalt Streams, Royalties and Interests in Mineral Properties

on 7/19/2017
Cobalt 27 Capital Corp. (TSX.V – KBLT) is one of the only minerals companies that offers pure-play exposure to cobalt, an integral element in key technologies of the future, including the rapidly growing electric vehicle market and energy storage applications. Cobalt 27 is building an asset base that will be underpinned by physical cobalt material and enhanced by growth opportunities from streams, royalties and interests in mineral properties containing cobalt. We learned from Anthony Milewski, Chairman, CEO, and Director of Cobalt 27 that they currently have approximately six cobalt royalties, and are actively in the market, looking for large cobalt streams as well as additional physical cobalt. According to Mr. Milewski, it is management's intention to execute on that growth strategy, in 2017 or early 2018. The company is run by a highly-experienced team with a background that encompasses every aspect of the mining, minerals and battery materials industries.



Dr. Allen Alper: This is Dr. Allen Alper, Editor-in-Chief of Metals News, interviewing Anthony Milewski, Chairman, CEO, and Director of Cobalt 27 Capital Corp. Anthony, could you give our readers/investors, an overview of your company?

Mr. Anthony Milewski: Sure, thank you very much for having me, and thank you for your time. I think it would be helpful to give you a little background on the idea, and the electric vehicle story in general. A couple of years ago, we were looking around the world, and thinking about what the future of mining would look like, and the future of metals. We were thinking about artificial intelligence and semiconductors, and we started to look at electric vehicles. At that time, they were in their infancy with almost no units out for sale except in Silicon Valley.

I test drove one and could see that this is something that has come of age. Electric vehicles aren't new. They've been around 100 years, from the turn of the century. Some of the first cars were electric vehicles. I wanted to understand exactly what this electric vehicle was, and as an investor in basic materials, what basic materials it would require.



I could immediately see that over time there is going to be an impact on copper and nickel, manganese, lithium and ultimately cobalt. As I looked at the different materials, nickel and copper are big liquid markets. Lithium already had a lot going on. I arrived at cobalt. Cobalt is largely a byproduct of nickel and copper mining, which makes it unique, because unlike other metals, it's very hard for the supply side to respond.

That captivated my attention and I immediately began trying to figure out how to invest in it. I looked at different options and I could see that the LME warrant was not very liquid. The mining companies were big cap companies with very little exposure to cobalt as relative to the overall size of the company.

There were a number of junior companies with a 5, or 10, 15 million dollar market cap that didn't really match my risk profile. It would either go way up or way down.

Having thought about it, I tried to figure out the best way to play it. Having experienced the uranium bull market, I recalled Uranium Participation Corp. Later, having experienced the gold bull market, I thought about Silver Wheaton. I thought, 'What if you put them together, Uranium Participation Corp and Silver Wheaton, and did it for cobalt?' That's the genesis of the idea.

This vehicle is a pure play on cobalt. It is underpinned by the largest physical cobalt position in the world outside of China. The Chinese government has a larger position. That NAV underpins our growth strategy, which is streams and royalties. We have approximately six royalties, which have right of first refusal to convert into streams. We're actively in the market looking for cobalt streams.



Dr. Allen Alper: That sounds like an excellent approach. Could you elaborate on some of these royalties and properties you have?

Mr. Anthony Milewski: Sure. A couple of them have produced historically. In some cases I'm talking about 50 or 60 years ago. One of them, although in Vietnam, actually produced as recently as 24 months ago, but I don't think that's what is interesting. As investors, you look at management's ability to transact, but I think where the real growth in scale will come is from large producing streams. That's where we’ll focus. Along the way we will buy additional physical cobalt, but when we think about scale, growth, and really making this work, we're thinking about adding in the large cobalt streams, which are available over time.



Dr. Allen Alper: Could you tell us a little bit about what your plans are for 2017- 2018?

Mr. Anthony Milewski: Yeah, sure. For the balance of the year, we've just completed the offering. What we've done is we've settled the cobalt contracts and that means we actually own the physical cobalt. That cobalt sits, of course, in Baltimore in America and it sits in Antwerp and Rotterdam in Europe. It's in all LME bonded warehouses, fully insured. We've kind of completed that first leg of the strategy, which is securing that physical position. That's done. Now we are also seeing with the price today that we've finalized and executed on the royalties that we had talked about to investors. That part of the leg is done. Now to the balance of the year, I think we're looking at a number of transactions, in particular looking at streams. It's management's intention to actually execute on that growth strategy, hopefully in 2017, if not early 2018.

Dr. Allen Alper: That sounds very good. Could you tell me a little bit about your background, your team, your board?

Mr. Anthony Milewski: I'm the CEO and chairman. I've spent my career in the mining business, most of that time as an investor, most recently at a large private equity house, focused solely on metals and mining. Prior to that I was actually at a hedge fund in New York, focused on mining and energy.



My President COO, Justin Cochran, is a streaming expert, having spent the last 15 years in the streaming industry. In particular, Justin spent the last five years as head of corporate development at Sandstorm, executing on over 40 streams of royalties.

Then, one of my key directors, Nick French, has been trading cobalt for over 40 years and is widely respected as one of the most influential cobalt traders of his generation. Other directors include Frank Estergaard, 38 years veteran of KPMG, partner, audit partner, great guy to have on the board. We have John Kanellitsas, Vice Chairman of Lithium America, so I think he really understands financing these types of plays. Also, Jon Hykawy, a battery metals expert.

One thing which is unique about Cobalt 27 is our advisory board. What we've sought to do is keep the G&A extremely low. You're looking at a G&A of less than one percent, a G&A in line with an ETF. You're talking about having it lower than any of our peers. One of the ways we've been able to do that is through an advisory board which is filled with experts. You've got guys like Dr. Patil, the former CEO of LG Chem, one of the big battery makers. You have Ted Miller, senior manager at Ford, who is responsible for the energy storage and materials strategy. Vince Metcalf from Osisko, Neil Warburton, former CEO Barminco, built a number of mines.

We've put together a world class advisory board, but we don't have to pay them as part of the G&A. Instead, we are able to hire them on a consultancy basis when we need it. We've put together a world class group of individuals to execute our strategy.

Dr. Allen Alper: That seems like an excellent approach for the advisory board. You also have a very strong board and team, very experienced and very diverse. Sounds excellent. Could you tell me a little bit about your capital structure?

Mr. Anthony Milewski: Sure. It's very clean. We have zero debt and we only have regular ordinary issued shares. In other words, it's 100% transparent. I think we have approximately 24,000,000 shares out. We're taking a conservative approach. We don't have a leveraged balance sheet. We don't have a bunch of funky financial instruments. It's the intention of management to give people a leveraged play to cobalt and to the electric vehicle story. Let them focus on the thematic and not have to worry about the balance sheet.

When we were doing this, we looked at every auto maker in the world with a webpage in English. They all either had an electric vehicle or had one planned in the next couple years.

Of all those automakers, nearly every single one of them had one thing in common, a cobalt based battery. They were using nickel manganese, the NMC formulation or the Tesla formulation, which is NCA. If you're an investor it's hard to know. Do you buy Tesla? Tesla stock was flying and now it's off whatever, 15%, or by the way, is Ford going to be the winner, maybe Volvo. I just saw their announcement, 100% EV in 2 years. The answer is, 'I don't know', but what I do know is if you believe in the electric vehicle thematic, then you believe in cobalt, because cobalt is in every single one of those lithium ion batteries. It's a way to express an investment basis in electric vehicles and not have to determine which automaker, which battery maker is going to be the winner, because you just pick the winner by buying the main or one of the main elements or ingredients in that battery.

Dr. Allen Alper: That sounds excellent. Thank you for giving our readers/investors your insight on what's happening in the cobalt market now and in the future?

Mr. Anthony Milewski: Sure. The cobalt market has been a pretty boring market for a decade. It's been a market that services things like the battery in your cellphone. Cobalt also goes in to the super alloy industry, it goes into jet engines so that the jet parts don't actually crack. Out of nowhere a few years ago, the electric vehicle exploded. From a base of really almost zero a couple years ago to two million units in almost no time flat, you have an explosive demand for a commodity that no one cared about. A very unique dynamic!



If you think about it, it's a 100,000 metric ton market today. About 50% of cobalt goes into lithium ion batteries in some form. Depending on who you believe, if you look at 2025 and you think the electric vehicle penetration rate is going to be 14%, which is on the low end of the numbers out there, you're going to need at least twice as much cobalt as we have today. You're going to need a couple hundred thousand metric tons, double the size of the market, with 100% of it going into electric vehicles, not even talking about cellphones now. We both know that's probably not practical or possible even, but what it does show you is the explosive demand and dynamic. In my view, what's going to happen in the coming couple years, is cobalt is no different than every other commodity. There's an incentive price, the market will reach that incentive price and new mines will be built. I happen to think that incentive price is a lot higher. I also think that when we reach that incentive price, what you're going to find is that technology will change a little bit and there will be innovations out of the lithium ion battery and they may be able to reduce the amount of certain basic materials. This is all positive, because sometimes people spin this as negative and I spin this as positive because demand picture and story is so overwhelming for cobalt that you really need some additional production and you really need some technological innovation to take pressure from what's really an industrial revolution.

I think you have to put into context Volvo's announcement last week. 100% in 2019 of their vehicles, according to the announcement, are going to be electric. That's amazing if you think about it. Then you start talking about France announcing 100% electric by, I think, it was 2040. India by 2030. China saying by 2019 a certain percentage. It's an overwhelming demand story and I think really, it's not a question of price, it's not a question of demand, it's a question, if you're an end user, of 'Where are we going to get this material in the interim years until we reach this incentive price and see the market respond and actually put some more units out there?'

Dr. Allen Alper: I appreciate your insight and your information. Sounds like there's going to be a great demand for cobalt and a shortage of supply.

Mr. Anthony Milewski: We're all familiar with the uranium and the rare earths story. That story really is, 'The sky is falling, all these reactions are coming, uranium goes to the moon and crashes'. The rare earths, same thing. Magnets this, magnets that, and then 20 minutes later it crashes. There's one very critical differentiator between those stories and the electric vehicle stories. It's very simple. The electric vehicle is real.

The industrial infrastructure to build these vehicles is being built. Many gigafactories are already underway. You saw within the last few weeks another announcement for a battery factory in China with Daimler Chrysler. Depending on your numbers there is between 10 and 40 billion dollars of infrastructure, either built or under construction as we speak. This is really industrially driven. The end use is there. People are buying EVs. That is a major differentiator from the uranium and rare earths story. That was more Field of Dreams, if you build it, they will come. Here, they have already built a lot of EV infrastructure and they continue to build it and/or have built it and that's important to understand.

Dr. Allen Alper: That's a very good analysis. I think that would be useful for our readers/investors. What are the primary reasons our high-net-worth readers/investors should consider investing in Cobalt 27?

Mr. Anthony Milewski: If you believe in electric vehicle adoption, in grid storage and battery storage, then I think you need to look at Cobalt 27.



Our NAV is underpinned by a physical asset that has a specific value. We have 2,158 metric tons of cobalt that has a defined value.

Cobalt could go down in price. We can't say it's definitely going up, although I believe it is, what's it going to go down, 20%? Okay, you're downside is 20/30%, say. Your upside is a multiple. That's an asymmetric risk profile that you're not going to get in a lot of other mining companies. If my upside is 5 times, theirs might be 10 or 15, their downside is 100%. That's not the case here.

I think this is a way to play the story if you believe in the story and to do it in a more risk adjusted manor than some of the other options available. I also think it's a lot easier to pick the basic materials that are going to be part of the electric vehicle revolution, rather than trying to pick who the winner in the actual EV space is going to be.

Dr. Allen Alper: That sounds like a very strong reason to consider investing in your company. Is there anything else you would like to add Anthony?

Mr. Anthony Milewski: I really appreciate your time and your reader's time. I'm happy to answer any questions.

Anthony Milewski
Chairman, CEO & Director
416.504.3978 Ext 226

http://www.co27.com





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