As EVs boom the junior nickel market has cashed-up private equity firms circling
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Nickel M & A is back on the agenda, with private equity leading the charge in a massive bet on the future of electric vehicles and the battery market.
Last year Andrew Forrest’s Wyloo Metals pipped BHP (ASX:BHP) to Canada’s Noront Resources, now known as Ring of Fire Metals, a frontier explorer seeking to develop a major new nickel, copper, cobalt and chromium district in remote northern Ontario.
Despite its early stage nature, the company came in at a value of around C$600 million, a taste of the big dreams privateers have for nickel’s future as a major driver and beneficiary of decarbonisation.
As early as 2018 US-based Black Mountain Metals led a push to secure ownership of Kalgoorlie explorer Poseidon Nickel (ASX:POS) via a $67 million bid (Poseidon is now worth ~$150m).
It failed amid major shareholder Twiggy’s resistance to the takeover offer, helping back a capital raising to set Poseidon back on a positive path, though Forrest has curiously largely sold out of Poseidon in recent years.
BMM has kept an interest in the Goldfields via its $15 million purchase of the Lanfranchi mine around the same time from Panoramic Resources (ASX:PAN). Rhett Bennett’s BMM sold a 50% stake to fellow PE group Tembo Capital in a bid to progress the historic Kambalda nickel mine last year.
Now a new player has entered the scene, with Cannon Resources (ASX:CNR) directors accepting a 45c per share takeover offer from critical minerals focused PE fund Kinterra Battery Metals Mining Fund and its susidiary Kedalion Nickel.
The deal will see Kedalion secure Cannon’s Fisher East and Collurabbie projects, collectively containing 134,100t of class 1 nickel metal 200km northeast of Leonora and within trucking distance of BHP Nickel West’s Mt Keith and Leinster concentrators.
Valuing Cannon at $45 million CASH, a 58% premium to its 30-day VWAP when the deal was announced on October 31, the deal highlights the elevated status of the nickel junior in a world where the metal will be essential for the great challenge of our time, the energy transition.
Mining advisory firm RFC Ambrian, in a report released yesterday, estimated between 0.7 and 1.1Mt of additional class 1 nickel in the form of nickel sulphate will be required to satisfy the growth of the battery market by 2030.
By that point total demand for nickel in RFC Ambrian’s assessment will increase from 2.4Mt in 2020 to between 3.8-4.8Mt by 2030, a CAGR of 4.6-6.9%.
While between 7-9% of demand for nickel came from batteries in 2020, by 2030 26% will come from the growing market segment, taking market share from stainless steel.
Mined supply will increase from 2.5Mt in 2020 to 4.6Mt in 2030, but that will largely be reliant on NPI and HPAL projects in Indonesia processing large laterite resources.
RFC’s David Bird and Cian Caffrey say existing nickel sulphide producers will add around 121,000t to the market through expansions, with new greenfields nickel sulphide projects potentially adding 224,000t.
But there remain risks to the outlook. High cost nickel matte conversion from Indonesian nickel pig iron, traditionally regarded as ‘class 2 nickel’ for the stainless steel sector, will become the “swing source” of class 1 nickel. But there is as yet not enough data to say how much could be supplied by 2030.
Stainless steel demand is growing as well, with some class 1 nickel required to meet quality specifications, particularly in the US and Europe.
There are risks from potential sanctions on Russian metal (20% of class 1 and 9% of total global nickel supply) and the fact projects often face unforeseen challenges.
“There are risks to the supply forecasts because not all the projects are guaranteed to come on stream,” RFC says. “The new nickel sulphide projects hold risks in terms of potential long lead times and financing availability (given the generally relatively unexciting forecast returns).
“HPAL projects have had a poor track record in terms of achieving targeted production levels and ramp-ups in production have been slow. NPI projects currently hold significant ESG risks, although the pace of expansion has been exceptional.”
In this context, nickel M & A has been heating up, especially in Australia, where the 35,000tpa $1.7 billion West Musgrave development is one of the prizes BHP is targeting in a recent bid for OZ Minerals (ASX:OZL).
And we’ve already seen some serious price action this year. Having dropped as low as US$7600/t in the downturn six years ago, LME nickel prices surged briefly to US$100,000/t earlier this year during an unusual short squeeze before moderating with some market intervention from the exchange.
LME nickel is fetching US$27,352/t on the three-month contract, a price which makes most sensible nickel sulphide operations highly profitable.
There is plenty of nickel floating around, but good nickel, free of the ESG challenges posed by mining Indonesian laterites and with an obvious path to market, is harder to find.
That explains why, in a world where nickel demand could double, private equity, mining majors and billionaires like Twiggy Forrest and Elon Musk are so keen on the commodity.
But Cannon is hardly the end of the opportunities for any big-pocketed investor looking to get into the ASX nickel space. This interesting chart from Cannon’s last presentation at the Australian Nickel Conference shows there are several juniors of similar size and scale still on the market.
Ignoring larger, production or development stage options like Poseidon and Mincor Resources (ASX:MCR), we’ve picked out another seven nickel sulphide juniors with a market cap of under $100 million and substantial resources that could turn the head.
Mark Creasy backed Azure has been diligently exploring its 60-40 owned (with the Creasy Group) Andover project in the Pilbara for the past couple years.
Since acquiring its stake in July 2020, Azure has delivered a maiden resource of 4.6Mt at 1.11% nickel, 0.47% copper and 0.05% cobalt, with a high grade component of 2Mt at 1.41% Ni, 0.49% Cu and 0.06% Co.
All in all that’s around 51,700t of contained nickel, 21,700t of contained copper and 2290t of cobalt, three metals with big end uses in electric vehicles.
Additional drilling at the main Ridgeline deposit has set the stage for further resource growth, with recent results including 31.8m at 1.41% Ni, 1.21% Cu and 0.08% Co, 19.3m at 1.44% Ni, 0.40% Cu and 0.06% Co and 27.7m at 1.04% Ni, 0.43% Cu and 0.04% Co.
$22 million capped Auroch has also been exploring for lithium in the US and zinc, copper and rare earths in South Australia, but controls a grab bag of nickel projects in WA’s Goldfields region, including the historic Nepean nickel mine, 60km southwest of Kalgoorlie.
Nepean was Australia’s second producing nickel mine, delivering 32,202t of nickel at a grade of 2.99% between 1970 and 1987.
Currently containing a mineral resource estimate of 236,000t at 1.5% Ni and 0.11% Cu for 3,625t of contained nickel and 252t of contained copper, exploration is continuing to identify new resources around and below the historic mine at depth, with the current resource limited to the first 120m below surface.
Auroch also boast the Saints nickel deposit to Kalgoorlie’s north, where it hosts 911,000t at 2.3% Ni for 21,000t, and the Leinster deposit near BHP’s northern operations and IGO’s (ASX:IGO) Cosmos nickel complex.
Blackstone is a bit of the beaten track, owning the large and low grade Ta Khoa nickel project in Vietnam.
With a mining inventory of 64.5Mt at a grade of 0.41% nickel, a PFS in February anticipated producing an average of 18,000t of nickel in concentrate a year over a roughly 10-year mine life.
But Blackstone’s ambitions are broader, with the company aiming to head downstream and refine nickel-cobalt-manganese 811 battery precursor for battery producers.
BSX is aiming to complete a refinery pilot by the end of 2022 as part of a DFS into the production of “green nickel” from Ta Khoa.
Laverton-focused Duketon has pivoted between base and precious metals since listing almost a decade ago.
But nickel has been the focus since it inked a deal to sell its gold tenements to neighbour Regis Resources (ASX:RRL) for $25m in 2019.
The Rosie deposit has since grown to 2.77Mt at a 3.27% nickel equivalent grade, containing 56,300t of nickel 11,800t of copper and 229,000oz of platinium group elements.
In total its combined resource for the Rosie and C2 discoveries comes to 94,300t nickel, 14,100t copper and 255,200oz of PGEs.
A scoping study in 2021 suggested the Rosie project would be viable at US$8/lb nickel as a mining, trucking and toll treating operation, with an eight-year mine life and an average NPV of $161m with an average IRR of 54%, generating ~$223m in pre-tax cashflow from underground with a capital cost of just $18m.
Widgie Nickel has one of the larger resource bases among the nickel sulphide juniors on the ASX, though its 58% year to date rise has been strongly influence by lithium discoveries.
With a global resource base of 168,000t, Widgie is sitting on plenty of nickel metal at its Mt Edwards project near Kambalda and the historic town of Widgiemooltha, near Mincor’s ultra-high grade Cassini mine.
A scoping study released last month highlighted the potential of Mt Edwards’ 13,200t Armstrong deposit, with shallow mining of between 500,000-560,000t at 1.9% nickel to deliver free cash flows at current spot price assumptions of US$22,000/t nickel and a 0.63c US dollar exchange rate of $67.8-68.7m.
The Widgie board has approved the advancement to a full feasibility study and pre-production dewatering activities.
Check the chart above and the one thing that stands out above all else is the Lunnon grade.
The explorer boasts one of the only positions in the historic Kambalda district outside Mincor Resources, boasting 2.2Mt of indicated and inferred nickel resource at an average grade of 2.9% Ni for 64,300t.
That grade is stellar in this day and age, and isn’t just comprised of the historic orebodies left behind at its Foster and Jan nickel mines, picked up from gold miner and major shareholder Gold Fields and once producing mines for the famous Western Mining Corporation nickel business.
Impressively the Baker discovery, made by Lunnon after listing last year, contains 568,000t at 2.8% Ni for 15,800t. Meanwhile historically minded Lunnon — named after the driller who sunk the discovery hole at Kambalda in 1966 — has also picked up the Silver Lake mine, Kambalda’s first nickel development.
The other big fillip for Lunnon is proximity to infrastructure. While most nickel miners will have to build their own infrastructure out in the desert or face land access battles under farmland to get started, Lunnon’s assets are located literally down the road from BHP’s underfed Kambalda concentrator.
Since 2015, Corazon has controlled the Lynn Lake nickel sulphide mining centre in Manitoba, Canada, which turned out 206,200t of nickel and 107,600t of copper over 24 years to 1976.
While that is dwarfed by the giant nickel domains of Canada like Thompsons and Voisey’s Bay, it remains one of the country’s largest historic nickel sulphide producing belts and has gone relatively underexplored in the time since.
Chaired by Western Areas founder and former Jubilee Mines director Terry Streeter, Corazon has defined a JORC resource at Lynn Lake of 16.3Mt at 0.72% Ni, 0.33% Cu and 0.033% Co, with total contained metal of 116,800t Ni, 54,300t Cu, 5,300t Co.
NickelSearch’s Carlingup project in WA’s south sits adjacent to one of Australia’s biggest nickel mines, the Ravensthorpe nickel laterite mine owned in a JV between global nickel and copper miner First Quantum Minerals and South Korean industrial giant POSCO.
But Carlingup’s big prize is the RAV8 nickel sulphide deposit, mined in the mid-2000s nickel boom producing 16,100t at a grade of 3.45% Ni.
RAV8 currently contains an inferred resource of 13.2Mt at 0.6% Ni for 75,100t, with a combined exploration target at the satellite RAV1, RAV4 and RAV4 West deposits of 300,000t at 0.9% Ni for 2800t of metal to 9.8Mt at 0.4% Ni for 41,200t.
NIS also boasts the John Ellis lateritic nickel deposit, which holds 16Mt of nickel ore at 0.56% for 90,300t of nickel metal.
Drilling to test high priority targets at RAV8, Sexton and Javelin began last month, with a greenfields program expected to follow.
At Stockhead, we tell it like it is. While NickelSearch, Azure Minerals and Corazon Mining are Stockhead advertisers, they did not sponsor this article.