BHP not turning fickle on beaten-up nickel

Investors have clearly been rattled by the 40% slump in the nickel price year-to-date to a two year low. The trashed share prices of the ASX-listed producers, developers and explorers reflects ongoing nervousness over where to next for the stainless steel and battery material.

So it is sector in need of a confidence boost. It came in fashion from BHP’s chief development officer Johan van Jaarsveld at a luncheon presentation to the Melbourne Mining Club on Thursday.

Given BHP has nickel, along with copper (and the fertiliser potash), as “future facing” metals in which it wants to grow, and given the West Musgrave nickel-copper project was a big chunk of the value in its OZ Minerals takeover, Jaarsveld was asked if BHP’s commitment to nickel was wavering.

Not at all was his response, although like everyone else, he is watching the surge in Indonesia production which has undercut the nickel market at a time when sentiment in the broader market is weak as a result of things economic.

BHP views nickel as being plugged in to the mega-trends of decarbonisation, population growth and urbanisation. The mega-trends have not gone away because of the current market fog. As Jaarsveld noted, BHP expects that electric vehicles on the road will grow from the current 16m to 400m by the end of the decade.

The copper, nickel, lithium, manganese etc needed to make that happen is off the charts. So yes, BHP remains keen on copper and nickel (but not lithium).

Nickel is never going to be a big part of BHP. But it does harbour plans to grow nickel output from the current 80,000tpa from its Nickel West operation to perhaps more than 200,000tpa by adding in West Musgrave and the Kabanga project in Tanzania.

Stavely:

Talking about things nickel, hopes are building that the IGO/Buxton joint venture is opening up a new magmatic nickel province in the West Kimberley region.

The pair reported a 6.57m hit during the week of visually logged copper and nickel sulphides at the Dogleg prospect, about 13km along strike from their Merlin nickel-copper-prospect where high-grade hits within the Ruins dolerite have previously been encountered.

Assays from the Dogleg intersection are likely in 4-8 weeks’ time. Always best to wait for assays no matter how good the core looks. But it has to be said that in a better nickel market, there would have been a bigger celebration in the share price of a junior like Buxton (20.5c) than there has been.

Watching the Dogleg/Merlin work with keen interest is Chris Cairns’ Stavely Minerals (ASX:SVY and trading at 7.5c). Better known for its ongoing hunt for big-time copper in western Victoria, Stavely decided a while back that winter downtime in Victoria could be offset by having a WA project.

That led it to its Hawkstone project, the boundary of which sits about 1km along strike from Merlin. Stavely reckons Hawkstone contains 30km of easterly strike continuation of the Ruins dolerite. The idea is that there could be multiple mineralised positions along the Ruins.

Stavely has got moving on all of the things needed to be done to work up drill targets on its side of the fence.

S2 Resources:

It can pay for investors to have patience and to pick their timing when it comes to the exploration approvals process in Victoria.

S2R Resources (ASX:S2R) is today’s example. Led by executive chairman Mark Bennett of Sirius/Nova-Bollinger fame, S2R picked up one the hottest blocks of gold exploration ground way back in 2021.

The block in question (Block 4) surrounds the high-grade Fosterville gold mine, now owned by Canada’s Agnico Eagle after its takeover of a fellow Canadian, Kirkland.

Kirkland would dearly loved to have bagged Block 4 to find life extending extensions for Fosterville but was left with the second prize of three other blocks that did not have the outright appeal of Block 4.

It was the discovery in 2015/16 discovery of ultra high-grade gold at Fosterville by Kirkland that was to make the former poor mine Australia’s most profitable gold operation.

Fosterville remains fabulously profitable but production has fallen from the heights of more than 500,000oz annually. Still, forecast production for CY2023 of 305,000oz at a total cash cost of $US457 an ounce remains special.

To maintain it Tier 1 status, Agnico has exploration potential on its mining lease and elsewhere in the broader area. But not on the prized Block 4 which rests with S2R.

Having said all that, it has been two full years before S2R could think about rolling up the drilling rig to find the next Fosterville, or extensions of what is on Agnico’s Fosterville ground.

That happened this week with the government issuing an exploration licence, with initial drilling by S2R now possible in about three weeks. S2R shares popped 23% higher to 21c in response.

The real enabling event was back in July when S2R signed a landmark agreement with the traditional owners for exploration, a prerequisite for the licence to be issued. S2R was a 14c stock then, which goes to the opening point about the timing of investments.

S2R has inherited $25-$30m worth of data – airborne and ground geophysics, geochemistry, and some drilling data – that Kirkland had collected on Block 4 but had to let go.

Known geochemical anomalies through to drill intercepts like 20m at 6g/t gold from the data set are waiting to be followed up. Needless to say it will one of the most watched gold exploration programs in recent memory.

CZR Resources:

Talking about feted explorers, Mark Creasy is closer than ever to becoming an iron ore producer, albeit boutique.

His 53%-owned CZR Resources is poised to deliver the definitive feasibility study into the development of its Robe Mesa iron ore project in the Pilbara.

The DFS into a proposed 3.5Mtpa operation has been promised for this month, and here we are. It is boutique all right compared with what its neighbour Rio Tinto does from its adjacent Robe River operations.

But 3.5Mtpa will do nicely thank you very much for CZR with its $34 million market cap (14c a share).

Ahead of the DFS release, CZR has indicated that at a base case of $US90/t for iron ore, Robe Mesa would generate free cash flow of $A260m and an internal rate of return of 70%.

Assume a $US106/t iron ore price and free cash takes off to $A604m and IRR to 149%.

Despite the best efforts of all the experts to talk down the iron ore price in the past couple of years, it is still banging asway at $US115/t. Even with all the gloom elsewhere in commodities, the price is just off its average for the 2023 June half year of $US118/t.

So while it might be a small fish up there in the Pilbara, it has the makings of being a particularly sweet one. Its modest market cap is pretty much covered by its other interests, including a gold project up near De Grey’s Hemi project.

It could be argued then that the iron ore comes for free. The stock was trading at 25c in the opening months of the year.