Guy on Rocks: The tide is turning for nickel, these 2 stocks should be on the radar
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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”.
There is more money flowing from North America and the UK into gold.
“On resources generally around the world, we’re starting to see a lot more interest in London-listings and New York as people sort of move away from the TSX, which has sort of proved a bit problematic,” he said.
“I think this shows Australia’s gold sector has moved ahead of the rest of the world and they’re catching up.
“I think you’re going to see a lot more money coming out of North America and the UK in the next six months, particularly with regard to gold.”
And the case for the gold price to continue heading north is strong.
“Gold is going up with ETF holdings and that hasn’t abated, but also the primary financial rationale is the real interest rates and the US dollar,” Le Page said.
“We’ve got real yields at sort of -1.02 per cent in the last month. We’ve got the Federal Reserve meeting coming up. They’re putting forward the case for more stimulus, so I think medium-term outlook for gold still looks pretty strong.
“The case for it moving well above $US2000 ($2781) remains very good.”
Commodity markets in general are rising, particularly for precious and base metals.
“You’re seeing palladium forecasts hit $US2500. Copper is projected to hit $6,800 a tonne within a few months,” Le Page said.
“You’re seeing some very bullish sentiment around aluminium. Iron ore is at nearly $US130 a tonne and that’s in spite of weekly shipments up by 0.7 per cent from Vale, Rio, BHP, Fortescue and Roy Hill over the last week.
“We’ve seen nickel up around $US14,500. I think that broader lift in resources is flowing over.
“If you look at some of the projections on the larger cap stocks, I think they are really interesting and would definitely flow through to the small to medium end of the market.
“Morgan Stanley are talking about spot prices across commodities could drive a 50 per cent upside to 2021 EBIDTA expectations for the likes of Rio. So that’s a pretty bullish sentiment.”
Fenix Resources (ASX:FEX) continues to tick the boxes, taking it closer to production, this time with the completion of a $15m capital raising at 14.5c. It’s currently sitting at 15.5c.
“That looks like that project is fully funded,” Le Page said. “So that’s some fairly positive news.
“And certainly at current prices, Fenix’s market cap is less than one-year’s EBITDA.
“So we still see a lot of upside there and I think the news flow coming up is looking pretty good.”
Le Page’s two new hot picks for this week have projects in a nickel fertile region of Western Australia.
“They’ve got just under 400,000 tonnes of contained nickel,” Le Page said.
“They’ve got Lake Johnston and Windarra, but probably more interesting in recent days have been the results they’ve got from Black Swan.
“It’s got a 2.2-million-tonne processing plant, around 16,000 tonnes of contained nickel at about 9.5 per cent, so very high grade.”
Poseidon announced this week it had hit high-grade massive sulphide mineralisation at its Golden Swan deposit, which sits adjacent to its Black Swan prospect.
“You’ve obviously got Silver Swan next door to it which was mined quite deep and is very high-grade,” Le Page said.
“You’ve got the disseminated body just to the north of it. But to the south is where they’ve been targeting this massive sulphide.”
The first hole drilled into Golden Swan in March this year returned a hit of 23m (13.3m true width) at 4 per cent nickel and 0.4 per cent copper, including 7m (4.3m true width) at 8.8 per cent nickel.
Le Page said that was a “phenomenal result”.
This week Poseidon reported a second hit of 9m (4.5m true width) at 10.46 per cent nickel, including 4.6m (2.3m true width) at 13.8 per cent nickel, on the basal contact.
“This looks like they could have a repeat of Silver Swan. So very bullish,” Le Page said.
“It’s got a market cap of about $120m. A pretty experienced team on board, so I think that’s definitely one to watch over the next six months and as we move into the recovery in base metals.”
Next up is Estrella Resources (ASX:ESR), which has nickel projects further to the north of Poseidon.
The company picked up an unloved project called Carr Boyd, north of Kalgoorlie, back in 2017. It was a past producing mine that was discovered in the late 1960s and mined by Great Boulder Mines and WMC from the early to late 70s.
“It had a lot of different owners who have really not sort of done the project justice,” Le Page noted.
Carr Boyd is similar geology to Nova-Bollinger in the Fraser Range, the famous discovery that rocketed explorer Sirius Resources from penny stock to $1.8bn takeover target in just three years.
“It’s a layered intrusion, similar to Nova-Bollinger but a different age. It’s Archean rather than Proterozoic,” Le Page explained.
“Estrella has only been working on this since 2017, but had some pretty encouraging reverse circulation drill results.
“Historical production was around about 200,000 tonnes at just under 1.5 per cent nickel and 0.5 per cent copper.”
Modern geophysics or any meaningful exploration has been practically non-existent for over 20 years, according to Le Page.
The focus for Estrella is the promising T5 target, where the company hit 11m of a mineralised basal contact zone.
Estrella has so far drilled four holes that returned hits such as 8m at 1.11 per cent nickel and 0.36 per cent copper, including 4m at 1.6 per cent nickel and 0.31 per cent copper, and 1m at 0.61 per cent nickel and 0.57 per cent copper.
The mineralisation extends over 400m strike and is open to the north, south and at depth.
“Where you’ve got an EM (electromagnetic) conductor and those sort of assays at surface I think that’s pretty encouraging,” Le Page said.
Estrella has a market cap of just under $10m at its current share price of 1.5c. Le Page places its enterprise value (market cap + debt – cash) at around $9m.
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.