Centaurus free to deal its hotly-demanded nickel sulphides after breaking offtake shackles

It was mentioned here back in August 2019, around Diggers & Dealers time, that when it came to handing out the Dealer Award, or at least the Best emerging Company Award, Brazilian nickel specialist Centaurus (ASX:CTM) should have been a short-priced favourite.

The basis for that suggestion was the deal Centaurus cut at the time with Brazil’s mining heavyweight Vale over the Jaguar sulphide nickel deposit in the Carajas which came with a ‘’historical” resource of 315,000t of nickel.

Centaurus was a $25 million company at the time and its market cap has since grown to $392m (92c a share) in response to it more than tripling the resource to a JORC-compliant 950,000t, and putting it on a development pathway to become a 20,000tpa nickel sulphate producer for the battery industry.

Still no D & D awards, and there probably won’t be either. The Carajas is a long way from Kalgoorlie after all.

As much as Centaurus has been kicking goals, there have been three things holding the market back from it giving full value for Jaguar, one of the biggest undeveloped sulphide nickel deposits in the world and one geared to the booming battery market.

The first is the nickel price. The price has been weakening off to less than $US10/lb in response to global recession fears and the strong growth in nickel production in Indonesia from Chinese-controlled nickel pig iron operations.

What can be said there is that the current nickel price ($US9.60/lb) is still a good price and that nickel sulphate attracts premium prices, which is why BHP went down the sulphate route at its Nickel West operations.

And perhaps more important, Jaguar is set to have one of the lowest carbon emissions in the industry thanks to Brazil’s 80% hydro power base, and it’s good grade for an (initial) open cut operation.

The coal-based powered Indonesian pig iron operations are off the charts with their emissions. It might not seem important because end users are generally thought to seek out the lowest cost supplies each and every time.

But the world is changing and things like Scope 3 emissions and the ethical/transparent/sustainable sourcing of metals are increasingly of concern to end-users and their investor base.

The second issue holding back Centuarus has been a delay due to the general squeeze on global supply chains in skills as much as anything else. It has meant a delay in the release of a definitive feasibility study into the development of Jaguar.

But its rejigged release of late in the December quarter really is just around the corner.

The third issue has been a legacy of the original deal with Vale on Jaguar – the existence of offtake rights in Vale’s favour. But that has just been resolved, with Centaurus securing 100% rights to deal with Jaguar’s production.

It has come at a cost – an increase in Vale’s net operating royalty over the project (1.2% for nickel sulphate product and 1.25% for nickel concentrate).

Macquarie - which has a $1.55 price target on the stock – reckons the royalty increase will cut earnings by 3% from CY2026 onwards.

It is small price to pay (it’s non-cash) for gaining control, and optionality over future marketing, of Jaguar’s output.

As the company put it, “it significantly broadens the strategic pathways to Centaurus to fund and further de-risk the development of Jaguar against the backdrop of robust demand growth for nickel sulphate projects”.

Macquarie reckons bringing in a partner for Jaguar’s development makes sense from a reduced capex for Centuarus standpoint.

“Potential partners could include, but are not limited to OEMs, battery manufacturers, and traders,” Macquarie said.

All very true, and something not possible as long as Vale owned the offtake rights.

Lithium:

Without looking at the market, it can be said that it has been a good week for the hard-rock and standard brine lithium producers and explorers.

The statement is based on the news from Lake Resources that first production from its Kachi direct leach extraction (DLE) project from brines in Argentina’s Catamarca region would be delayed until 2029.

What’s more, initial production would be half of the originally planned 50,000tpa of lithium carbonate, and even that would come at a capital cost that has ballooned out to somewhere between $US1.1-$1.5bn.

Lake shares have crashed as result, falling 35% since Monday to 30.5c. It was $1.60 last August, so it can be said doubts about its Kachi and DLE ambitions set in a long time ago.

The DLE method of brine extraction and reinjection has been hailed as a low-cost and environmentally friendly processing route for lithium-bearing brines. But is has yet to be proven in any meaningful way.

But that has not stopped big name investment banks and forecasters plugging in big chunks of lithium from DLE into their assessments of future lithium supplies i.e. they have been talking down the market because of a “wave”’ of DLE production coming.

Well it is not, not in a hurry anyway, and certainly not at the capital intensity suggested. So watch out for a retake of just what DLE is capable of delivering to the market this side of 2030. Not a lot it seems, which is why it has been a good week for the hard-rock and standard brine lithium producers.

Having said that, it has got to be wondered what Rio Tinto makes of the Kachi situation having spent $US825m last year for the undeveloped Rincon project in Argentina, one promoted by its previous private equity owners as a DLE dream.

Ontario:

Talking about things lithium, there has a delay in the ability of the ASX-listed juniors that made their way to Ontario’s lithium exploration hotspots to get cracking with the drill bit.

Fair enough too as the delay has been due to the need to first secure agreement with First Nation people.

The First Nation people haven’t been difficult on the subject of exploration agreements. It’s just that they have been swamped by the rush of lithium explorers seeking permission to get started.

The recent IPO Battery Age Minerals (ASX:BM8) announced on Thursday that it had executed an “early exploration agreement” with Whitesand First Nation.

BM8 is now finally drilling away at its highly-rated Falcon Lake project where outcropping pegmatites form the typical “whaleback” at surface that excite explorers and investors alike about what might be to come.

Despite its maiden drilling program finally being underway, the stock traded steady in Thursday’s market at 45c.

Meanwhile, Critical Resources (ASX:CRR) – trading at 4c a share - has signed an in principle agreement with the Wabigoon Lake Ojibway Nation covering ongoing exploration and development activities at the flagship project in its Ontario lithium portfolio - Mavis Lake (8Mt at 1.07% from drilling 2% of the project area since its acquisition last year).

DevEx:

A diary note says that DevEx (trading at 31.5c) flagged in its March quarterly that it would be kicking off its 2023 drilling program at its high-grade Nabarlek uranium project in the Northern Territory’s Alligator Rivers uranium province in the June quarter.

No word yet but it can’t be far off given where we are in the month of June. High-grade uranium exploration results always excite, even more so when the uranium price is in the early stages of what could be a major break-out to the upside.