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Experts
MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.
Today we hear from VP Capital co-founder and portfolio manager John So.
According to Bloomberg, The London Metal Exchange entered 2023 with the smallest available warehouse stockpiles in at least 25 years.
Shortages were also witnessed over at Chinese ports as the country moved towards a reopening, causing the nickel price to jump from $22,000 a tonne to $28,000 a tonne.
VP Capital’s John So says this trajectory is likely to continue.
“China’s reopening is going to keep gaining momentum and as a result, that is going to underpin demand for the biggest battery users in the nickel space which is electric vehicles,” he says.
“We are also seeing the same momentum in Europe, which has never really dropped off to begin with.
“Meanwhile, China is stimulating its construction sector by reducing fiscal and monetary constraints around lending and holding of real estate stock and soon enough the property market will stabilise.”
From his point of view, when this happens the demand for nickel is going to soar as companies start to re-engage suppliers for purchasing material such as stainless steel.
“All of this is positive and is going to have an effect on driving prices higher, making it more and more scarce,” he adds.
In terms of exposure from a stock market perspective in Australia, So belives investors in the near term should consider companies that are either producing or under the ‘near-term’ fully ramped up producers umbrella.
“The ASX doesn’t have too many standalone nickel producers that have exposure to the LME nickel price – to my mind, there are only really three or four,” he says.
“The biggest one is IGO Group – one of the most premium nickel producers in Australia – and at the smaller end there are companies like Mincor and Panoramic who both have projects in Western Australia.
“Mincor and Panoramic are both doing small scale production at the moment with the view of doubling or tripling that in some cases by the middle of this year because they are going through a ramp up phase,” So explains.
“I think both these companies are going to be positioned to take advantage of this nickel shortage and sudden burst in demand from Europe and China.”
IGO has a proven history of operating a very successful mine – the Nova Bollinger nickel mine.
At these current nickel and lithium prices, So says the company trades on a pretty inexpensive cashflow multiple of less than 10x.
“IGO also has partnerships with companies that are completely tied to the production of batteries through its joint venture in Greenbushes, which is its lithium asset.
“The company is one of the safest and most mature standalone nickel companies. It also increased its reserves significantly last year when they took over Western Areas – probably the other larger mid cap nickel producer – now it basically holds two or three premium nickel mines in Australia.”
A current small-scale producer, MCR has offtake with BHP Billiton Nick West, a subsidiary of the world’s second-biggest mining company, where some of its material is processed.
“The company underwent a capital raise in December 2022 to get the final piece of capital to ramp up to full production by the second quarter of 2023,” So says.
“Mincor currently trades at a pretty inexpensive single digit cashflow multiple with exploration upside in the northern part of its operations, which is largely unexplored and around the 15x resource of its current operating asset.”
PAN is also producing but not quite at capacity, So says.
“It needs to ramp up over the next nine months in order to get to production targets.
“This brings its valuation fairly in line with Mincor’s in terms of a market cap on cash flow multiple,” he says.
“It is worth noting that Panoramic is also in Western Australia – a good jurisdiction, where we’ve seen a lot of consolidation happening in the nickel space with Western Areas IGO, and now BHP is focusing on Nickel West.”
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