I urge all of my fellow eCobalt shareholders to vote NO to a merger with Jervois Mining!
Hello, my fellow shareholders,
My name is Cory Groshek and I am a shareholder of Canadian cobalt exploration and mining company eCobalt Solutions, Inc. (TSX: ECS) (OTCQX: ECSIF) (FRA: ECO), with 18,023 shares currently in my name, and I am writing this open letter to encourage my fellow eCobalt shareholders to vote NO (i.e.: AGAINST) on not only the company’s proposed “Plan of Arrangement,” which would see it merge with Australia-listed junior mining company Jervois Mining Ltd. (ASX: JRV) (TSX-V: JRV), but on every other proposal in the company’s Information Circular (PDF) that I received a copy of via e-mail on 6/29/2019, for the following reasons:
First, the current “leadership” of eCobalt, which includes both “Directors” and “officers,” have interests that are clearly NOT aligned with those of the company’s other shareholders, as evidenced by their pathetic lack of “skin in the game,” which is detailed in the company’s Information Circular on several pages, including:
Page 1, which states: “All of the directors and officers of eCobalt, who together hold as of the date hereof, approximately 0.86% of the outstanding eCobalt Shares have entered into voting and support agreements with Jervois pursuant to which they have agreed to vote in favour of the eCobalt Arrangement Resolution.”
Page 30, which states: “As of June 12, 2019, the directors of the Company and executive officers who were employed with the Company, as a group, beneficially own or control 1,432,448 common shares or 0.86% of the shares.”
Page 99, which states: “To the knowledge of eCobalt, after reasonable enquiry, the directors and officers of eCobalt and their respective associates own or exercise control or discretion over an aggregate of 1,432,448 eCobalt Shares, representing 0.86% of the issued and outstanding eCobalt Shares.”
What these numbers make abundantly clear is that the current “leadership” of eCobalt, including their “Management” and the members of their Board of Directors, own next to NONE of the company’s shares. This, however, is not what the company has chosen to emphasize in its recent press releases, when it has touted the fact that “Jervois has entered into a Support Agreement with each of the directors and officers and certain Shareholders of eCobalt” (as stated on Pages 17, 19, 53, and 54 of their Information Circular).
For example, in its 4/1/2019 press released, entitled “Jervois Mining and eCobalt To Combine,” eCobalt stated the following:
“15.9% of eCobalt’s outstanding shares are committed to vote in favor of the Transaction, comprised of 11.4% of eCobalt shares under voting and support agreements and Jervois’ 4.5% of eCobalt’s shares”
“The Directors and executive officers of eCobalt along with Dundee, holding in the aggregate 11.4% of the outstanding eCobalt shares, have each entered into customary voting and support agreements in favour of the Arrangement. Holders of 39.3% of Jervois’ shares have provided Jervois with notice of their intention to support the Transaction.”
In light of the fact that eCobalt “Directors” and “officers” only own, as of 6/12/2019, 0.86% of eCobalt shares, it is safe to assume that they either sold many of their shares prior to 6/12/2019, or have never owned much of the company begin with. Either way, this means that in emphasizing the 14.6 number in its 4/1/2019 press release, while outright ignoring the 0.86 number, the company was being either dishonest or deceitful, as it clearly sought to misinform its shareholders as to how much “Support” their proposed merger with Jervois really has.
If we dig deeper into the Information Circular, we find, on Page 30, that Dundee Corporation of Ontario, Canada, owns 13.83% of eCobalt’s shares—23,019,600, to be exact—which means that Dundee represents a whopping 94.14% of the total 24,452,048 shares that have “agreed” to vote in support of the eCobalt-Jervois merger.
Translation? The only shareholders with any real “skin in the game” at eCobalt who are in support of this merger are Dundee. The “Directors” and “officers” of eCobalt own barely ANY shares of eCobalt. KEEP THAT IN MIND GOING FORWARD.
Second, the CEO of eCobalt and a resident of Coeur d’Alene, Idaho, Michael (or “Mike”) Callahan, who has only been the CEO since he replaced former CEO Marc on 10/1/2018, only owns 100,000 shares of eCobalt as of 6/12/2019 (as stated on Page 44 of the Information Circular), as well as 1,200,000 stock options (which he, of course, has not yet exercised, but is allowed to exercise, at a price of C$0.87, until 10/1/2023).
Besides having almost no “skin in the game,” insofar as the company he runs is concerned, this man, who is listed on the Information Circular, on Page 224, as “President, CEO and Executive Director of eCobalt (2018 to present),” is simultaneously named on Page 9 of Jervois’ Corporation Presentation dated June 2019 as a current member of Jervois’ Board of Directors, specifically as a Non-Executive Director, with the following description of him:
Ex CEO eCobalt Solutions
Now, as an eCobalt shareholder, I find this description to be extremely alarming, because, first of all, there has never been an announcement or press released put out by eCobalt stating that Callahan as resigned or otherwise been removed from his position as the CEO of eCobalt. Despite this, he is clearly listed in Jervois’ most recent Corporation Presentation as the eCobalt’s “Ex CEO,” which makes it appear as though his departure from eCobalt is a foregone conclusion and as though this eCobalt-Jervois merger is nowhere near as much of an “arm’s length deal” as eCobalt and Jervois “leadership” have been making it out to be.
17Digger, an apparent eCobalt shareholder on Stockhouse.com’s ECSIF (eCobalt) message board, asked a very poignant question relative to the above, when, in a post dated 6/30/2019, he posed the question, “Is Callahan already working for Jervois before the Vote?”
In their post, 17Digger also asks the following:
“I wonder when he became an “Ex CEO of eCobalt Solutions” and a Director of Jervois? Good luck at Jervois Mike, or is their June 28, 2019 Presentation inccurate?”
If, as 17Digger has suggested, Callahan has begun working for Jervois prior to Jervois’ merger with eCobalt being given shareholder approval, then this is a major conflict of interest, and renders this merger a very unethical, NON-arm’s-length deal, which is potentially illegal (and almost assuredly in violation of Callahan’s fiduciary duty to eCobalt shareholders).
At this point, eCobalt “leadership” (and Callahan especially) have some major answering to do, and I, for one, demand to know when exactly it was that Callahan became an “Ex CEO of eCobalt Solutions” and a “Non-Executive Director” of Jervois, especially where the information provided in this most recent Jervois Corporation Presentation is in direct conflict with the information provided to eCobalt shareholders in the eCobalt Information Circular. And until those questions are answered, no eCobalt shareholders should even be considering voting YES to this merger.
For the record, eCobalt itself acknowledges, on Page 102 of the Information Circular, the following:
“In considering the recommendation of the eCobalt Board with respect to the eCobalt Arrangement, eCobalt Shareholders should be aware that certain members of eCobalt’s senior management and the eCobalt Board have certain interests in connection with the eCobalt Arrangement that may present them with actual or potential conflicts of interest in connection with the eCobalt Arrangement.”
My fellow shareholders, don’t say that I and eCobalt didn’t warn you.
Third, Canadian cobalt explorer/miner, First Cobalt, which purchased 9,640,500 common shares of eCobalt, by way of a private share purchase agreement on or around 5/1/2019, and is thus an owner of nearly 6% of eCobalt (and therefore far more of the company than all of eCobalt’s “leadership” team combined), has urged their fellow eCobalt shareholders to vote NO to the eCobalt-Jervois merger, in an open letter entitled “First Cobalt Urges Fellow eCobalt Shareholders to Vote Against Value-Destroying Jervois Transaction” and dated 6/26/2019.
In the letter, First Cobalt, which is a company that many eCobalt shareholders believe would make much more sense for eCobalt to merge with than Jervois, makes several excellent points, which all eCobalt shareholders should take into account before voting in favor of the eCobalt-Jervois merger.
Most notably, the letter calls out eCobalt “leadership” for failing to advise eCobalt shareholders of the fact that there were other options available for eCobalt to move forward, besides a merger with Jervois, which would quite possibly have been far more favorable to the company and its shareholders, including a potential deal with a “highly respected mining private equity firm” that had shown interest in funding the entire capital requirement to build the Idaho Cobalt Project, contingent upon eCobalt merging with First Cobalt (which, for those who don’t know, owns a cobalt refinery in Ontario, Canada capable of processing the ICP’s arsenic-containing ore).
In other words, had eCobalt “leadership” simply agreed to merge with First Cobalt, as opposed to Jervois, potentially months ago, the company could have already had construction of its mine started and been well on the way to not only producing cobalt concentrate, but the higher-margin cobalt chemicals that the First Cobalt refinery is capable of producing. But alas, the company is not any closer to production today than it was when Callahan took over last October, nor does it appear that it will be as a result of a merger with Jervois.
Fourth, as First Cobalt’s letter has stated, and as the Information Circular makes clear, the proposed merger with Jervois does nothing to move the ICP any closer to production, despite eCobalt and Jervois management’s repeated assurances that Jervois has committed to spending C$10 million to advance the project.
First of all, on Page 23 of the Information Circular, we are told that as of 12/31/2018 eCobalt had $4,637,856.00 of working capital, and then, on Page 52, that the company still had $2,174,111.00 on hand as of 3/31/2019, either amount of which should have been more than enough for the company to survive another year or two, while it waits for cobalt prices to recover and for a more attractive merger or acquisition offer to come to the table. Accordingly, I find it quite ridiculous that one of the arguments that both eCobalt and Jervois management are making in support of this merger is that eCobalt would become significantly stronger, financially-speaking, as a result of the merger, because this argument is in direct contradiction to what is stated on Page 11 of Jervois’ Corporation Presentation for June 2019, which is that Jervois currently has only A$4.6 on hand themselves.
Of course, on this same page, Jervois plays up the A$3.5 million they’re supposed to get from their “Franco Royalty sale” and another A$15 million they’re supposed to get from an equity raise they’re currently working on, in addition to the A$2.8 million (plus interest) they think they’re going to get from eCobalt in a merger, but none of these amounts are guaranteed.
The only amount that is guaranteed to come to the eCobalt table in this merger is the A$4.6 that Jervois currently has on hand, which isn’t anywhere near enough to get the ICP into production. This means that Jervois will have to raise far more money, post-merger, just to keep the new, Pro Forma company afloat, let alone get the ICP into construction. All of this, unfortunately, would mean more equity sales and dilution for shareholders who have, in my opinion, already suffered far enough.
Compounding this issue is a rather scandalous financial development that is brought to light on page 51 of the eCobalt Information Circular, which revealed a complete failure on Jervois’ part to raise an amount of A$20 million in support of a potential eCobalt-Jervois merger.
Apparently, what happened exactly was that on 3/13/2019, after Jervois committed to spending C$10 million to advance the ICP within 18 months of closing the merger transaction—whatever that means—Jervois told eCobalt that they would raise A$20 million as a condition precedent to the signing of a definitive merger/acquisition agreement. But then a strange thing happened on 3/28/2019—just 15 days later—when Jervois informed eCobalt that due to “external issues” they would be unable to raise this money “at closing.”
As far as I’m concerned, this should have caused merger talks to completely collapse, because Jervois would have just proven itself unable to keep its word and incapable of raising the funds necessary to move the ICP forward, yet for whatever reason eCobalt management appears to have given Jervois a “free pass,” because as Page 52 of the Information Circular states, it “was unanimously agreed that moving forward with the Jervois merger was still the most favourable alternative for the IC Project and the shareholders of eCobalt.”
Being that eCobalt had, as of 12/31/2018, about the same amount of cash on hand as Jervois apparently had as of 6/28/2019, being that it only took eCobalt three months to burn through more than half of it, and being that the “New Jervois” management would include two of the eCobalt “leaders” responsible for this gross financial mismanagement, I can only assume that the A$4.6 million Jervois has right now, when combined with the C$2.5 million eCobalt has left, would last about nine months, give or take a few months. Accordingly, the so-called “New Jervois” that would come out of this proposed merger would be nowhere near as financially-fit as the “leadership” teams of the two companies are trying to convince us that it would be.
On top of all that, the “assets” that Jervois has, which include an undeveloped nickel-cobalt project in New South Wales that doesn’t even have a feasibility study done for it and some properties in Uganda that don’t even have a resource estimate completed for them, are far inferior to the ICP, which is the only near-term, environmentally permitted primary cobalt project in the United States. Accordingly, even if we were to take into account the potential cash value of Jervois’ “assets,” and especially if we were to take account the value of eCobalt’s, eCobalt would still be on just about the same financial footing as Jervois, if not far better off, especially whereas only 7% of eCobalt’s highly prospective property has been drilled to date.
Now, for the record, I am aware that Jervois has, as of 6/28/2019, executed an “oversubscribed” capital raising, which is supposed to bring in another A$16.5 million to the company’s coffers, but I am also aware that this money is 100% contingent upon the merger with eCobalt going through. This means that as of right now, Jervois is still nowhere near as well-off as they portray themselves to be, and the fact that they couldn’t pull off this most recent fund-raising without using the ICP as a lure should tell eCobalt shareholders everything they need to know about the value (or lack thereof) this company brings to the table.
Fifth, neither eCobalt nor Jervois made the approval of an American OTCQX listing for Jervois a prerequisite to this merger going through, which means that current American shareholders of eCobalt, who bought their shares of the company on the OTC market, via the ticker symbol ECSIF, are going to lose their ability to trade their shares, when/if this merger goes through, assuming that Jervois doesn’t obtain an OTC ticker symbol prior to the merger being approved.
As stated on Page 79 of the eCobalt Information Circular:
“eCobalt’s Shares are listed on the on the OTCQX. On April 4, 2019, Jervois announced that it would seek approval to list the Jervois Shares on the OTCQX. There is no assurance that Jervois will obtain such approval. If such approval is not obtained, the ability of US holders of Jervois shares to trade their shares may be impaired.”
Translation? Neither eCobalt nor Jervois “leadership” gives a damn about eCobalt’s American shareholders, and if this merger gets the green light on 7/19/2019, American shareholders like me are literally going to see the ECSIF ticker and all of shares associated with it disappear from our brokerage accounts, to be replaced with nothing.
Sure, Jervois and eCobalt say we’re supposed to receive 1.65 shares of the “New Jervois” for every 1.0 share of eCobalt we own, but if those shares don’t show up inside our brokerage accounts because they can’t, for lack of an OTC ticker symbol, then for trading purposes we don’t own any shares of the “New Jervois.”
Even if we American shareholders were to receive physical/printed certificates from Jervois stating that we own such-and-such an amount of “New Jervois” shares post-merger, the fact is, without the ability to actively trade the shares, we would be “up the creek without a paddle” when it comes to wanting to sell our shares( or buy more). Accordingly, as an American eCobalt shareholder, with my ECSIF shares traded through E-trade, I will have no choice but to sell my ECSIF shares prior to 7/19/2019, if, for whatever reason, a Jervois OTC listing is not approved before then, because otherwise the loss of my ability to trade said shares as of that date will represent a worse financial hit for than me than if I were to my 78%+ loss before then, which would at least allow me to recover and maintain control over some of my money.
Sixth, Page 79 of the Information Circular also brings to light another very disturbing development, which has not been mentioned in any way, shape, or form by either eCobalt or Jervois in any of their announcements relative to this merger, which is the fact that Jervois has sought no approval from CFIUS, which is The Committee on Foreign Investment in the United States, in respect of the acquisition of eCobalt By Jervois.
As stated in the Information Circular:
“CFIUS is an interagency committee authorized to review certain transactions involving foreign investment in the United States (“Covered Transactions”), in order to determine the effect of such transactions on the national security of the United States… If CFIUS finds that a Covered Transaction presents national security risks and that other provisions of law do not provide adequate authority to address the risks, then CFIUS may enter into an agreement with, or impose conditions on, parties to mitigate such risks or may refer the case to the President for action… Cobalt is used in several critical technology sectors, including aircraft manufacturing and aircraft engine and engine parts manufacturing, and guided missile and space vehicle manufacturing. Cobalt mining is not, however, itself a covered critical technology industry. A voluntary application to CFIUS, if made and granted, would provide assurance that CFIUS would not take action in the future in respect of the transaction. Because an application to CFIUS has not been made in respect of the eCobalt Transaction, the President of the US has the authority, even after closing, to go to federal court to force divestment or otherwise unwind the transaction and that authority is not limited in time. An order to force divestment of, or otherwise unwind, the eCobalt transaction could result in Jervois realizing significant losses as a result.”
Translation? Unlike Canada’s First Cobalt, which sought (and received) CFIUS approval from the United States relative to its merger with US Cobalt, which owned the Iron Creek cobalt project in Idaho, Jervois has behaved extremely imprudently and put its own shareholders’ capital at risk, in one of the gravest breaches of fiduciary duty imaginable, by NOT seeking CFIUS approval for its proposed merger with eCobalt, which, like US Cobalt, owns cobalt assets in Idaho.
In doing this, Jervois has created a situation wherein shareholders of New Jervois, post-merger (assuming, of course that the eCobalt merger goes through), could literally have the ICP stripped from them on national security grounds by the President of the United States himself, being that cobalt is one of the 35 minerals that has been deemed critical to United States national and economic security. And if this were to happen, according to eCobalt and Jervois “leadership,” which apparently believe that the ICP would make up at least 45-46% of the asset value of the “New Jervois,” the company would lose about half of its value overnight, and quite possibly, any chance it could have at becoming a profitable company, which would almost assuredly lead to the company becoming insolvent shortly thereafter.
Simply put, there is absolutely no good reason for Jervois “leadership” to have not sought CFIUS approval for the eCobalt merger, and the fact that it didn’t tells me that this entire transaction is a “rush job,” with the intent of Jervois and eCobalt “leadership” being to ram it through as quickly as possible.
Now, the only reason I can think of for why a company would ram a merger or acquisition through this quickly is for the sake of certain people (i.e.: Directors and executive officers, and “certain other shareholders,” such as Dundee) getting rich quick, while leaving everyone else, including retail shareholders like me, holding the proverbial bag.
Based on what I’ve seen recently and read to date, coming from both eCobalt and Jervois, in both their press releases and this Information Circular, I can tell you that there is a very good chance, especially whereas the eCobalt CEO clearly has no allegiance to eCobalt or its shareholders, that as soon as this horrible merger is, God forbid, approved, the so-called “leadership” of the New Jervois would be headed for the doors and selling their shares as fast as they can. Either that, they’ll immediately begin looking to pawn off their new plaything onto a “greater fool” who is stupid enough to believe what they say, which is something you, my fellow eCobalt shareholder, should stop doing right now, right before you vote NO to this terrible deal.
In conclusion, if we shareholder say YES to this deal, and if the eCobalt-Jervois merger becomes effective on 7/23/2019, we are going to end up with less than 47% ownership of the combined company, which is like losing 54% of our stock value overnight, on top of the 70%+ that most of us have already suffered in the form of unrealized losses since the beginning of 2018, when cobalt prices really began to drop.
The bottom line is, we can do better than a merger with Jervois, even if we do nothing but bide our time until cobalt prices perk back up and a better, more cashed-up suitor, whose goals are in much better alignment with ours, shows up, which I’m sure they eventually will, as the electric vehicle revolution is just getting started, and especially whereas American automakers Ford, GM, Chrysler, and Tesla haven’t even announced any cobalt offtake deals yet.
For the reasons above, as well as many others I’m sure I’ve forgotten to mention, as well because of the fact that the United States government is just now beginning to take its domestic critical minerals deposits seriously, I encourage you, my fellow eCobalt shareholders, to vote NO (i.e.: AGAINST) this extremely unfair, lopsided, and legally dubious merger with Jervois. Furthermore, I encourage you to vote AGAINST or WITHHOLD on everything else on the ballot as well, because we don’t just need a better partner than Jervois, we need better “leadership,” REAL leadership, that can actually get the ICP into production, and with our votes for 7/19/2019, we have the opportunity to really clean house here and start anew.
Thank you for reading, and please note that I voted AGAINST and WITHHOLD across the board already, as of earlier today, 7/1/2019.
If you need any more information from me, or would like to get in touch, you can find me on Twitter (@CoryGroshek), and if you would like to see what your fellow eCobalt shareholders think about this merger, I suggest you visit the following message boards/forums, in addition to doing a search for “$ECS” on Twitter.
Stockhouse eCobalt bullboard: https://stockhouse.com/companies/bullboard?symbol=ecsif&postid=29876966
Yahoo eCobalt community: https://finance.yahoo.com/quote/ECSIF/community/
InvestorsHub eCobalt bullboard: https://investorshub.advfn.com/eCobalt-Solutions-Inc-ECSIF-17100/
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