First Cobalt strikes amended loan deal with giant Glencore; to pay off debt with shares

First Cobalt Corp (CVE:FCC) (OTCQX:FTSSF) (FRA:18P) announced it had struck a deal with commodities giant Glencore PLC (LON:GLEN) (OTCMKTS:GLCNF) (FRA:8GC), which will allow it to repay the latter an outstanding debt of around US$5.5 million in shares.  The transaction to amend the debt agreement struck in 2019 will eliminate all First Cobalt's corporate debt ahead of a financing package being negotiated for an expansion to its cobalt refinery in Ontario and frees up the security package associated with the facility, the junior said.  READ: Cantor Fitzgerald initiates coverage on First Cobalt with a Buy rating and C$0.60 price target In the summer of 2019, First Cobalt struck the loan deal with Glencore so it could fund engineering studies, metallurgical test work and permitting activities to expand the refinery to produce battery-grade cobalt sulfate. The loan bears interest at LIBOR plus 5% and included the right for Glencore to convert all or a portion of the balance owed into First Cobalt shares at a 15% discount to the market price of the shares on the maturity date of August 23, 2022. First Cobalt could also prepay the loan prior to that date. Now, the amended deal expressly permits First Cobalt to repay the loan by issuing shares on broadly similar terms to that conversion right. The company and Glencore have agreed that First Cobalt can repay the loan representing an outstanding debt of US$5,505,830 by issuing 23,849,737 of its shares at a deemed price of C$0.29 per share, which represents a 15% discount to the closing price of the shares on the Toronto Venture Exchange on March 24, 2021. The US dollar-denominated debt was converted into Canadian dollars using an exchange rate of US$1 to C$1.2562. "We are appreciative of Glencore's ongoing support for our strategy of producing the world's most sustainable cobalt and establishing First Cobalt as the only North American producer of cobalt for the EV market," said Trent Mell, CEO of First Cobalt, in a statement. "This transaction will eliminate all corporate debt ahead of a financing package that is being negotiated for the refinery expansion and frees up the security package associated with the refinery. Glencore has been a valuable partner and a significant contributor to the success of First Cobalt to date and we are excited to deliver value to them as shareholders of the company moving forward." The company also highlighted that it had raised "significant" funds to date via a $10 million joint investment from the Government of Ontario and the Government of Canada, a $10 million equity raise, a $4 million asset sale, and more than $7 million in early warrant exercises. "The financing process for the debt portion of the refinery financing plan is in progress, remains on schedule, and is expected to provide the remaining funding required for the project to be fully financed," it said. The company is the owner of North America’s only permitted cobalt refinery located in Ontario, Canada, which could produce over 25,000 tonnes of cobalt sulfate per year from third-party feed. Cobalt refining is a critical component in the development and manufacturing of batteries for electric vehicles (EVs). Its main cobalt exploration project is the Iron Creek Cobalt project in Idaho, USA, which has a higher confidence indicated resource of 2.2 million tonnes at 0.32% cobalt equivalent. Contact the author at giles@proactiveinvestors.com