‘Guy on Rocks’ is a Stockhead series looking at the significant happenings of the resources market each week. Former geologist and experienced stockbroker Guy Le Page, director, and responsible executive at Perth-based financial services provider RM Corporate Finance, shares his high conviction views on the market and his “hot stocks to watch”.


Market Ructions: Nickel goes bananas

Another wild week on the metals markets with nickel going into the next galaxy, stopping at US$80,000 per tonne on Tuesday as Tsingshan Holding Group Co (the world’s largest nickel and stainless-steel producer) found themselves with their pants down on the wrong side of the trade — i.e. shorting nickel in a rising market.

Apparently, they have managed to plug the hole with loans from a syndicate of banks to settle the margin call.

No doubt some long faces in Beijing on the back of this one. Nickel trading remained suspended as of Monday with a big spread of US$17.32 – 21.04/lb.

nickel mines asx nic
Figure 1: 1 year nickel price chart (source: www.kitcometals.com).

In terms of volatility gold wasn’t far behind after touching US$2,070 (first time over US$2,000 since August 2020) during the week and closing at US$1,991/oz up US$157 over the last month.

No doubt developments in the Ukraine and the Federal Reserve meeting on Wednesday will have some bearing on where the gold price will go next (95% chance of a 25-basis point rate hike according to the market) with the US Consumer Price Index up a whopping 7.9% in February representing a new 40-year high.

Capital Economics is projecting a minimum of five interest rate hikes this year and four next year.

This would see interest rates at between 2.25% and 2.50% so not the end of the world but enough to slow things down on the broader economic front.

nickel mines asx nic
Figure 2: 1-year gold price chart (source: www.kitco.com).

So where to from here?

In a risk-off environment funds have been pouring into both the US$ and gold (figure 3), a trend that is likely to continue for the foreseeable future.

Assuming the Ukraine situation is resolved in the near term (and there remains considerable uncertainty around this), the main focus is likely to be on inflationary pressures, particular energy prices that have been exceptionally volatile.

nickel mines asx nic
Figure 3: US dollar index v gold price chart (source: https://www.macrotrends.net/1335/dollar-vs-gold-comparison-last-ten-years).

The ongoing discussions between Ukraine and Russia appear to be progressing on more favourable terms according to Mykhailo Podolyak, an adviser to the Ukraine President, suggesting that the Russian and Ukraine delegation are making good progress.

Even the Russian delegate Leonid Slutsky believed documents could be signed within the coming days.

Given the Russian economy is on the brink of collapse and the Russian government is now preventing Government debt repayments in hard currency, I am not sure who is more motivated to see an end to the hostilities – Ukraine or Russia?

One thing for sure, if this keeps going, the new Russian Banana Republic will be asking North Korea for humanitarian aid.

Even Peppa Pig has been thrown under the bus and its trademark is no longer recognised in Russia. Who thought Peppa Pig would be a casualty of war?


New Ideas

Figure 4: Nickel Mines 2-year share price chart (Source: CMC Markets, 14 March 2022).

If you like bottom feeding and don’t mind a bit of risk, have a look at Nickel Mines (ASX:NIC) (figure 4) which has been a short-term casualty of the nickel madness, with its share price falling 34% since market open on 8th March 2022 to $1.15 per share.

Tsingshan, via its subsidiary Shanghai Decent, is NIC’s largest shareholder with a 18.7% stake and sole offtaker.

Concerns in the market are that Tsingshan have maintained their short position and are funding their margin calls via new debt facilities, with some of Tsingshan’s Indonesian assets (that are partnerships with NIC) pledged as collateral.

Alternatively, the Chinese state could provide a soft bail-out for the company by exchanging lower-grade nickel that Tsingshan produces for refined metal held in China’s state reserves, which could then be delivered against its short position at the LME.

Figure 5: Nickel producers Mines 2-year share price chart (Source: NIC, BMO Conference Presentation, 2022).
Figure 6: Nickel Mines’ Indonesian operations (Source: NIC, BMO Conference Presentation, 2022).

Not only may Tsingshan be too big to fail within China, but it seems that the LSE deems it too big to fail too with their decision to suspend trading of nickel.

Regardless, NIC is a top 10 nickel producer (figure 5) with projected production of over 40Kt of nickel over 2021 from a suite of Indonesian assets (figure 6) that are integral to Tsingshan’s business model.

I expect that all other alternatives will be exhausted in order to restructure their balance sheet before the white flag comes up.

This could even involve delivery from the mythical reserves that some market participants have speculated Tsingshan has accumulated.

According to Ord Minnett (9th March, 2022), NIC is currently trading at 0.71 x P/NPV13. I think a 13% discount rate is reasonable for the relatively opaque partnership and Indonesian risk premium, so a 29% discount to NPV for a producer is attractive to me.

Overall, NIC’s fundamentals have not changed, and I believe that Aussie punters have overestimated the probability that Tsingshan goes under — so go on and have a go you mug.


At RM Corporate Finance, Guy Le Page is involved in a range of corporate initiatives from mergers and acquisitions, initial public offerings to valuations, consulting, and corporate advisory roles.

He was head of research at Morgan Stockbroking Limited (Perth) prior to joining Tolhurst Noall as a Corporate Advisor in July 1998. Prior to entering the stockbroking industry, he spent 10 years as an exploration and mining geologist in Australia, Canada, and the United States. The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.


Stockhead has not provided, endorsed, or otherwise assumed responsibility for any financial product advice contained in this article.