LME inventory levels fell last week, the most in 40 years. Nickel price forecasts all see higher nickel prices in the next decade.
Two nickel juniors that can do very well if nickel prices spike higher.
Risk and reward are both higher when investing in junior miners.
This article first appeared on Trend Investing on October 10, 2019; therefore all data is as of this date.
Two recent events have caused nickel prices to rise as inventories fall:
- The Indonesian nickel ore export ban set to begin January 2020.
- Nickel mining indefinitely suspended in southern Philippines. 27% of overall Philippine nickel ore exports are from this area.
Given that Indonesia supplies 28% and Philippines 17% of global nickel supply, these supply cuts are causing nickel prices to surge (up 50% in the past 3-4 months). Assuming nickel demand can hold strong, 2020 should see nickel in further structural deficit and inventory levels wind down even further. That should mean higher nickel prices ahead.
LME inventory levels fell last week, the most in 40 years
This past week, nickel inventories at the London Metals exchange have dropped dramatically as shown in the graph below. The drop was caused by some large purchases by China's Tsingshan Holding Group Co.
A Mining.com article states:
The move last week was surprisingly sharp - the nearly 25,000 tons that left the warehouses was the biggest decline in the four-decade history of the nickel contract... While the LME's warehouse network is designed as a last-resort source for exactly this type of supply crisis, the scale of buying could raise concerns about a potential shortfall if the drawdowns continue.
The LME's record of orders show that another 75,000 tons of metal are scheduled to be delivered out. People familiar with Tsingshan's deals declined to specify how much more metal the company may be seeking to withdraw.
Reading the above quote suggests we may be about to face a nickel supply crisis. If this were to be the case, nickel prices would spike further and move above US$10/lb. Promising nickel juniors could benefit the most as they become more economic with higher nickel prices.
In my September 5, 2019, article: "Nickel Is Hot Right Now - The Nickel Boom May Have Just Begun", I quoted:
Today LME nickel inventory is at 153,000 tonnes and has been falling steadily for some time now. The Indonesia export ban could easily send nickel inventories back below 50,000 tonnes in 2020 and cause another huge nickel price spike.
"Demand for nickel in the EV space is expected to total 36,000 tonnes in 2018…..That figure is expected to surge to 350,000-500,000 tonnes by 2025." That's more than a tenfold increase, in just 7 years. Wow! The best source of nickel sulphate will come from the nickel sulphide miners.
Nickel 5-year price chart
Nickel price forecasts all see higher nickel prices in the next decade
Two nickel juniors that can do very well if nickel prices spike higher
The two juniors below were chosen as they have large upside potential should nickel prices spike higher and if they advance to production quickly. Both are nickel sulphide ore, so CapEx to reach production should be lower than laterite ore projects. Also, costs of production to produce class 1 nickel sulphate should end up reasonable (helped by sulphide ore), depending on grades and by-product credits.
1) Amur Minerals Corp. [LSE:AMC] [GR:A7L] (OTCPK:AMMCF) - Price = 1.90 GBP
Amur Minerals Corp. ["AMC"] is an English company with large sized nickel-copper sulphide projects in Russia. Their flagship is the massive low grade (sulphide ore) Kun-Manie Nickel-Copper Project in the Amur Oblast region of Russia.
Amur Minerals massive Kun-Marie Nickel-Copper Sulphide deposit
The Project contains economic amounts of nickel, copper, cobalt, platinum, and palladium. The Company states:
- Average of 1.02% nickel equivalent grade (Ni, Cu, Co, Pl +Pd) based on 9 March 2018 metal pricing.
- The average nickel grade is 0.75%, copper is 0.21%, cobalt is 0.015%, platinum is 0.16 g/t and palladium is 0.17 g/t. Additional minor amounts of gold and silver will also be recovered but have not been estimated.
- 1,581,000 nickel equivalent tonnes.
- More than 76% of the resource is identified as Measured and Indicated.
- By sulphide nickel equivalent tonnage, the present MRE [Measured Resource estimate] places Amur within the 3 largest publically listed greenfield nickel sulphide resource companies in the world and the largest undeveloped nickel sulphide deposit immediately adjacent China, Korea and Japan."
The project is in the development stage and has a mining license to 2035 which can be extended.
The resource ranks AMC among the largest undeveloped nickel sulphide companies in the world having 155.1 million ore tonne resource contained within four deposits. Containing recoverable nickel, copper, cobalt, platinum and palladium, the average nickel equivalent grade is 1.02%. The total nickel equivalent tonnage is 1.58 million tonnes.
February 2019 Preliminary Feasibility Study [PFS] results
The February 2019 PFS presented two options:
- Toll Smelt [TS] Option - Post tax NPV (10%) $614.5 million, post tax IRR 29.3%. C1 cash cost US$3.87/lb. Initial CapEx US$570m. LOM 15 years.
- Furnace Flash Smelter [FFS] Option - Post tax NPV (10%) $987.4 million, post tax IRR 34.7%. C1 cash cost US$2.45/lb. Initial CapEx US$695m. LOM 15 years.
Market cap is GBP 14m. 4-Traders shows an estimated 2019 debt of $12.1m. I was unable to find an analyst price target. Due to their location and somewhat lower grade, the market cap is very low. However, as nickel prices rise, the project's viability grows rapidly giving excellent nickel price optionality. Also, the by-products give a reasonably low cost of production. CapEx is reasonable especially given that the possibility of mine life can be extended. Production start up is aimed for 2023, so some patience required.
Recent significant insider buying by Non-Executive Director Tom Bowens of 7,527,604 new ordinary shares for GBP 162,972 (at GBP 2.165) is also very encouraging.
Nickel sulphide projects with >20,000t p.a. likely to come into production over the next 5 years
Source: Amur Minerals Corp. company presentation
You can view the latest company presentation here.
I like Amur Minerals due to their very low market cap and optionality to a higher nickel price. Also that they have an advanced project which is 'among the largest undeveloped nickel sulphide' resources globally, located close to Asia. Risk is high due to the somewhat earlier stage (post-PFS) and Russian location. I rate Amur Minerals as a strong speculative buy.
2) Garibaldi Resources Inc. [TSXV:GG] (OTC:GGIFF) - Price = CAD 1.61
Garibaldi Resources made British Columbia's [BC] exploration history in 2017 with the discovery of NW British Columbia's first magmatic nickel massive sulphide featuring 7 metals - nickel, copper, cobalt, platinum, palladium, gold, and silver. Garibaldi owns 200 sq km in the Eskay Camp region known for large gold discoveries. Their flagship project is the Nickel Mountain Project. Garibaldi also has several other projects (Canada - King, Palm Springs Property, Red Lion, Grizzly; Mexico - La Patilla, Rodadero, Tonichi, Iris) as you can read here.
About the Eskay Camp region where Garibaldi's Nickel Mountain Project is located
Garibaldi's Nickel Mountain Project has had high-grade drill results to date and shows plenty of potential.
- Dill hole EL-17-14 - 8.3% nickel, 4.2% copper, 0.19% cobalt, 1.96 g/t platinum, 4.5 g/t palladium, 1.1 g/t Au, and 11.1 g/t silver over 16.75 meters starting just 100.4 meters downhole, within a broader 40.4-meter core length highlighted by 3.9% nickel and 2.4% copper.
- Drill hole EL-18-33 - 7.7% nickel and 2.95% copper over 4.8 meters within a broader interval of 49 meters grading 1.34% nickel and 0.89% copper (core length) plus cobalt, platinum, palladium, gold, and silver.
- Drill hole EL-19-53, filling a gap on the northwest part of the Lower Discovery Zone [LDZ], has cut 30.2 meters of 4.74% nickel and 3.22% Cu (plus cobalt and precious metals) including 18.2 meters of 7.04% nickel and 3.81% copper within a broader intercept of 86.5 meters (65 m to 151.5 m) averaging 1.88% nickel and 1.32% copper (true width estimated at 69.2 meters).
Nickel Mountain Project in British Columbia Canada
Market cap is CAD 182m, with 113m shares outstanding. Being in the exploration stage, there are no earnings.
Valuation is difficult to assess due to the early stage; however, the market cap seems a bit high given the early stage. This is most probably due to the gold and palladium potential, good grades, poly-metallic deposit, and multiple project potential.
I like Garibaldi Resources due to their extensive portfolio of exploration projects in high-quality locations such as the Eskay Camp. I also like that they have sulphide ore deposits in a safe jurisdiction (Canada), and their deposits are mostly poly-metallic (plenty of by-product credits when they reach production). Early drill results are promising with good grades of nickel and copper, as well as cobalt, platinum, palladium, gold, and silver.
I rate Garibaldi Resources as a speculative buy on significant dips.
Other top-tier nickel juniors to consider
- RNC Minerals [TSX:RNX] (OTCQX:RNKLF) - Owns 28% of the massive low-grade Dumont Nickel-Cobalt Project in Canada and 100% of the Beta Hunt Gold-Nickel Mine in Australia. Sulphide ore.
- Ardea Resources [ASX:ARL] (OTCPK:ARRRF) - Has a huge low-grade nickel-cobalt project in Australia. Laterite ore.
- Australian Mines [ASX:AUZ] (OTCQB:AMSLF) - 3 nickel-cobalt projects in Australia. Laterite ore.
- Clean TeQ [ASX:CLQ] [TSX:CLQ] (OTCQX:CTEQF) - Sunrise Nickel-Cobalt Project in Australia. Laterite ore.
- Poseidon Nickel [ASX:POS] (OTC:PSDNF) - Owns a high-grade nickel project in Australia with plans to soon restart the Black Swan operations.
- Cassini Resources [ASX:CZI] (OTC:CSSQF) - The West Musgrave Project is the largest undeveloped nickel-copper project in Australia.
- St George Mining Ltd [ASX:SGO] [GR:SOG] - Mt Alexander Nickel-Copper Sulphide Project.
- Giga Metals [TSXV:GIGA] (OTCPK:HNCKF) - The Turnagain Nickel-Cobalt Sulphide Project is a large low-grade nickel-cobalt project in British Columbia Canada.
- Nickel prices falling. Nickel juniors have much higher upside and downside as nickel prices move higher or lower. Lower grade or high CapEx projects are generally more vulnerable to lower nickel prices.
- Mining risks - Production risks, exploration risks, funding risks, permitting risks, project delays. Nickel laterite projects typically require a large start-up CapEx. Many nickel sulphide mines are underground.
- Management and currency risks.
- Sovereign risk - Highest in poorer corrupt countries.
- Stock market risks - Dilution, lack of liquidity (best to buy on local exchange), market sentiment (the trade war and a China/global slowdown can cause nickel prices to fall as nickel is mostly used in stainless steel).
Note: A lower risk approach is to buy the low cost nickel producers. The standout here continues to be Norilsk Nickel (LSX: MNOD) (OTCPK:NILSY).
- Nickel Monthly News For The Month Of September 2019
- Nickel Is Hot Right Now - The Nickel Boom May Have Just Begun
- Top 5 Nickel Producers And Other Smaller Producers To Consider
- Top 5 Nickel Sulphide Miners To Consider
Rapidly declining LME nickel inventory is indicating further strength ahead for nickel prices. Should this occur, the more speculative nickel juniors can perform very well. The reverse is also true.
Two nickel junior spec plays with upside potential are Amur Minerals and Garibaldi Resources. Amur has a lower grade large poly-metallic deposit that should be economic now but becomes more economic with higher nickel prices ("nickel price optionality"), is located in Russia, a solid PFS completed (quite low C1 cash costs due to by-product credits), and has a very low market cap. Garibaldi offers a safer location, early stage, poly-metallic project with higher grades, but the market cap is a lot higher.
Added to this list to round a top 5 would be RNC Minerals, Ardea Resources, and Australian Mines (who I have written on several times before). All have very large and quite advanced projects, but generally with lower grade nickel and cobalt (RNC being sulphide ore and Ardea and Australian Mines being laterite ore).
Risk and reward are always higher when choosing the junior miners, so investors should size their investment cautiously. In this case, risks are higher due to early stage/location [Amur] and early stage/higher market cap [Garibaldi]. Upside is also higher than usual should the nickel price move above US$10/lb as now looks quite possible in 2020.
Conservative investors would be best sticking with a nickel ETF or Norilsk Nickel as it is by far the lowest cost nickel producer.
As usual, all comments are welcome.
Thanks for reading the article. If you want to sign up for Trend Investing for my best investing ideas, latest trends, exclusive CEO interviews, chat room access to me, and to other sophisticated investors. You can benefit from the work I've done, especially in the electric vehicle and EV metals sector. You can learn more by reading "The Trend Investing Difference", "Subscriber Feedback On Trend Investing", or sign up here.
Latest Trend Investing articles:
Disclosure: I am/we are long NORILSK NICKEL [LSE:MNOD], GLENCORE [LSX:GLEN], RNC MINERALS [TSX:RNX], AXIOM MINING (ASX:AVQ), ARDEA RESOURCES [ASX:ARL], AUSTRALIAN MINES [ASX:AUZ], POSEIDON NICKEL [ASX:POS], AMUR MINERALS [LN:AMC]. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The information in this article is general in nature and should not be relied upon as personal financial advice.