Cobalt Blue Holdings has reclaimed a greater chunk of the Thackaringa cobalt project from partner Broken Hill Prospecting and says its stake now stands at 93.68 per cent.

The increase in ownership comes after Broken Hill (ASX:BPL) opted not to sink any more cash into the next round of exploration, Cobalt Blue (ASX:COB) says.

The relationship soured in October, when Cobalt Blue refused to rush final feasibility studies on its Thackaringa project in NSW to meet a mid-2019 deadline — forfeiting the chance to grab full ownership of the project from its JV partner Broken Hill.

Cobalt Blue said it concluded that the risk of attempting to condense the bankable feasibility study work into a period of only 12 months, to meet the timetable under the JV agreement, would “significantly impair the project and pose undesirable risk”.

This left Cobalt Blue with 70 per cent ownership and Broken Hill with the remaining 30 per cent.

But now that Broken Hill has decided not to contribute further to exploration work its interest has been watered down to 6.32 per cent, says Cobalt Blue, which is acting as interim joint venture manager.

The news edged Cobalt Blue shares up 11.6 per cent on Tuesday to an intra-day high of 24c. Broken Hill shares, meanwhile, added 3 per cent to trade at 3.5c.

Cobalt Blue Holdings (ASX:COB) shares over the past year.
Cobalt Blue Holdings (ASX:COB) shares over the past year.

“When no monies were received from BPL, the joint venture manager issued a non-payment notice to BPL following which BPL notified COB that it does not wish to contribute to joint venture activities,” Cobalt Blue told investors.

“As this is an optional dilution notice, the interest of BPL in the joint venture must be diluted and the JV manager is required to recalculate and notify the joint venturers of their respective interests.”

Cobalt Blue has requested Broken Hill transfer the 23.68 per cent interest in the Thackaringa project to give effect to the dilution.

The company believes Broken Hill’s stake will fall further — to below 5 per cent — once the drilling spend for November and December has been incurred.

Cobalt Blue expects this will happen in late January 2019.

It says if Broken Hill’s interest falls below 5 per cent it is deemed as having withdrawn from the JV.

But Broken Hill disagrees and has initiated two further disputes over the Thackaringa project.

The company is arguing that Cobalt Blue cannot dilute its stake in the project, and neither company can “meaningfully determine” the joint venture interests if a dilution event was to occur.

Broken Hill said previously that because Cobalt Blue’s position as manager of the project under the joint venture had ceased, any project work done without its approval remains at the sole risk and cost of Cobalt Blue.

The second dispute initiated by Broken Hill relates to the calculation of its royalty.

“BPL contends that COB has incorrectly applied the terms of the Thackaringa royalty agreement and, as a result, the royalty payable to BPL under that agreement is understated,” Broken Hill told investors yesterday.

Stockhead is seeking comment from Cobalt Blue and Broken Hill.