The nickel price has copped a full dose of the virus, infecting producers’ share prices in the process. But today’s explorers and developers are set to emerge as big winners when the world rides out the other side - with electric vehicle numbers soaring and nickel inventories falling. Among those positioning for this journey are Chalice, Legend, Centaurus and Blackstone.
The nickel producers have been doing it tough ever since Wuhan turned the world on its head on January 23 by locking down its 11 million people to deal with the coronavirus.
The locals were set free from the 73-day lockdown earlier this week, which is nice to hear. But that has not mattered much to the nickel producers, or the rest of planet earth and its global economy.
Since Wuhan shocked global equity and commodities markets, the nickel price has given up 17% of its value to $US5.14/lb. In Aussie dollar terms, the fall has been a less severe 5% to $A8.37/lb.
Despite that cushioning effect, the nickel producers are still carrying heavy stock losses. Western Areas (WSA) is off by 31%, IGO Ltd (IGO) has shed 29%, and Panoramic (PAN) has plunged 66%.
The near-term outlook for the nickel price ain’t great either, notwithstanding the high-growth to come in future years as we all get cleaner and greener in a post-COVID-19 world by replacing emission-heavy internal combustion cars with electric vehicles.
EV’s are essentially a new market for nickel in addition to its traditional stainless market, with increasing nickel intensity in EV batteries a feature of the two main battery chemistries that will power the EV revolution.
For the near-term though, the COVID-19 chaos means the nickel price is expected to bounce around where it is for the next couple of years. Goldman Sachs has nickel falling from $US6.31/lb in (calendar) 2019 to $US5.39/lb in 2020, then recovering to $US6.18/lb in 2021.
All bets are off post 2021 as it about then that the switch to EV’s is expected to be on in earnest, swelling demand for nickel while growth in the stainless market chugs along at GDP growth rates.
The near-term COVID-19 impact on the exploration/development needed now to ensure the supply pipeline gets filled in the 2020s has made it more of a challenge than it already was.
Nickel Explorers and would be Developers:
While the nickel producers might be doing it tough for the foreseeable future, it is a different story for the nickel explorers and would-be developers.
As suggested here previously, exciting exploration discoveries and key advances in a development project’s progress are independent of the here and now.
The exciting discovery being made today gets priced on what its production potential might be in years to come. The same goes for advanced exploration/development projects.
While that holds across the commodities, it is particularly so for nickel currently because of the expected supply squeeze, one that near-term COVID-19 impacts will only make worse.
All that has been reflected in the handsome rewards that explorers Legend (LEG) and Chalice (CHN) have received thanks to their recent exciting discoveries.
Legend is trading at 16c for a market cap of $385m. It was a 4c stock before making last year’s Mawson nickel-copper discovery at its Rochford project in WA’s Fraser Range, the hope being it is on to another Nova-Bollinger (acquired by IGO in 2015 for $1.8bn through the takeover of Sirius Resources).
Chalice is trading at 56.5c for a market cap of about $155m. It was a 16c stock before last month’s Julimar nickel-copper-palladium discovery near Perth. The hope is that it is on to a new nickel province, in addition to its success in making virgin gold finds under cover to the north of Bendigo in Victoria.
It was mentioned here last August that probably the most significant announcement by a junior at Diggers & Dealers was the option deal by ASX-listed Brazilian specialist Centaurus Metals (CTM) to acquire the advanced Jaguar nickel sulphide project from Vale.
Jaguar came with a foreign resource estimate of a near-surface 40.4mt grading 0.78% nickel for a total of 315,000t of contained metal across a cluster of deposits, with lots of exploration upside.
It was a lot of nickel for a company with a $24m market at the time and it remains so for a company now priced at 11c after a 1-15 share consolidation for a market cap of $27m.
Centaurus has been busy advancing Jaguar ever since, and a diary note suggests that completion of the deal is not far off (it involves the upfront cash payment of $US250,000, the transfer of the Salobo West copper-gold exploration tenements to Vale, two deferred payments totalling $US6.75m and a production royalty of 0.75%).
The apparent knockdown price for Jaguar (the foreign resource estimate amounts to $US3.5bn of in-situ metal value) reflected Centaurus’ long-term presence in Brazil, and moves in the country to monetise projects sitting on the backburner for one reason or another.
More to the point is that a big drilling program since last August – on top of the 50,000m plus drilled by Vale – should lead to a maiden JORC-compliant resource estimate by mid-year.
While there is nothing wrong with 0.78% nickel in open cut positions – think of BHP’s Mt Keith operation in WA – the clear intent of the Centaurus drilling program has been to define higher-grade mineralisation at the project.
Previously reported multiple hits of better than 1.5% nickel over thick and shallow intersections suggests the mid-year resource update could be one to watch.
Having said that, the known but non-compliant foreign resource estimate alone is as good as it gets for an ASX-listed nickel junior.
Jaguar’s location in Brazil seems to be a valuation obstacle at the moment, particularly when Centaurus’ market cap is compared with the valuations of Legend and Chalice with their exciting but early-stage discoveries.
The mid-year resource update with its focus on higher-grade mineralisation just might turn that around in a hurry.
Blackstone Minerals (BSX):
Blackstone (BSX) is another that seems to suffer from the overseas location of its nickel project.
But others don’t see the Vietnam location as a reason to hold back, with Blackstone announcing this week that South Korea’s EcoPro - the world’s second biggest battery cathode materials manufacturer – would be taking up a $6.8m placement at 17c a share.
Blackstone was a 10.5c stock before the announcement. It is now 15.5c for a market cap of $27m. While Blackstone remains an exploration story, its Ta Khoa nickel project does leverage off the $US136m in infrastructure and plant left behind by the previous operator.
That backbone will come in to sharp focus when Blackstone delivers a maiden resource estimate in the third quarter, and as work between Blackstone and EcoPro on a downstream processing operation takes shape.
Take a look at the grind needed to get CTMs recoveries up. Vale sold this asset for a reason. Poor recoveries
Barry - good article and good reminder about the smaller end of the mining sector on the E-D-P journey. Chalice's past record seems to be an asset trader not a mine developer; if Mawson and Rochford keep revealing their riches, it will be a company-maker for LEG; and let's recall BSX only opportunistically picked up Ta Khoa….which is a long way from BC, Middle Creek and Silver Swan South....but good luck to them !