ASX Nickel Stocks: 5 experts, 10 picks as EVs stir the nickel demand pot
Nickel has been a buoyant sector over the last few months due to geopolitical tensions in Russia-Ukraine and the growing adoption of electric vehicles.
Experts have noted an increase in consumers opting for EVs over traditional combustion engine vehicles – around 10 million EVs hit the road in 2020, a 43% increase from 2019.
Sitting at the heart of this shift is the lithium-ion battery, which contains high-quality grade nickel sulphate ore.
Batteries with cathodes containing greater nickel content have higher energy density and thus longer driving ranges, but unlike other battery materials such as cobalt and lithium, nickel is not primarily driven by global battery demand.
Around 70% of the world’s nickel production is consumed by the stainless-steel sector, while batteries make up a mere 12%.
Wood Mac’s Angela Durrant says one of the biggest trends in the nickel industry over the last 10 years has been the increased development of operations in Indonesia, which is now the world’s largest producer of nickel.
“This is due to the development of the large industrial parks at Morowali (IMIP) and Weda Bay (IWIP),” Durrant says.
“While operations at these parks were predominantly NPI (nickel pig iron) producers for stainless steel, they are now moving into the production of MHP and matte, which will feed the gradual expansion of nickel sulphate refineries for battery pre-cursors in China, but also move Indonesia a step closer to becoming a new battery hub.”
The demand for nickel has continued to change and become more and more focussed on supplying nickel to the battery sector.
Durrant says strong double digit growth is expected for nickel demand in battery precursors (pCAMs) with nickel consumption in this segment set to increase by 22% in 2022 to 388,000t, and then continue rising above that rate to more than 606,000t in 2024.
As it stands, China accounts for roughly 80% of battery nickel demand.
After the ‘big short’ occurred in March and the 12-day suspension of trading on the LME, the chaos inflicted on nickel prices settled down in April to a range of between US$30,000/t and US$35,000/t (US$13.60-15.90/lb).
Durrant says the anticipated return to pre-event prices around the February average of US$24,000/t (US$10.90/lb) has not taken place and it is debatable whether this will happen now at all.
“For the rest of 2022 we maintain that nickel prices will decrease,” she says.
“However, with prices settling in a range US$10,000/t above prior expectations, future prices are higher than previously forecast to take account of the more elevated starting point.”
VP Capital’s John So advises investors to take note of six-month headwinds in the short term, which will come up as interest rates surge and COVID-19 continues to affect China.
“In the medium to long term the nickel sector will be driven by this EV thematic which will gain more and more momentum over time.
“The macro factors of this sector are going to outshine the broader monetary policy concerns in the next 12 months.”
“My favourite is still IGO – Nova Bollinger is a low-cost producer with a reasonable mine life,” So says.
“The company has very experienced managers and operators who have been leaders in this industry for more than a decade.
“It also trades inexpensively at 10 times cash flow and in an environment where you have rising interest rates taking a toll on tech stocks and less profitable companies trading on high P/E, finding a company that still taps into this potential growth story and trading on less than 10 times cash flows is a very attractive proposition.”
His next pick is Panoramic, which has started producing in the last six months and is in the process of ramping up.
“If you look at the current run rate production, which is only a quarter of what the target final production is going to be, it is again trading on a pretty attractive cashflow multiple of around 11 times.
“Once you fully ramp up the production by the end of 2022, I think you are picking up PAN at around five times 2023 free cash flows.
“That is attractive in this sort of market, mind you with a mine life of around 10 years on reserves.”
While Nickel Mines doesn’t entirely tap into the EV thematic, So says the stock is cheap – trading at a discount at half the cashflow multiple of IGO at 3.4 times.
This multiple will drop even further to 2.5 times once the Oracle transaction is completed, he says.
“I think that NIC is an attractive proposition, but the real question is at what point does the market reward it for being undervalued and much cheaper than its peers?
“I think that will happen as the story plays out about how pig iron nickel can be used as a substitute for electrification of vehicles.”
Barclay Pearce equities trader Joseph Raad expects the nickel price to hang around $30-35,000/tonne level momentarily before increasing consistently year on year from here on out.
With this expected increase in the nickel price, he says producers are set to benefit from an increase in cashflow as well as receipts.
“Right now, in this high inflation environment and market volatility it is important to look for companies with strong cash flow and strong earnings,” he says.
“These three companies tick those boxes.”
MCR is expecting to restart its Kambalda nickel operation by mid-2022 where a definitive feasibility study in March confirmed a pre-tax IRR of 98% and low unit cash costs.
“A lot of nickel producers that are moving forward still won’t be making significant cashflows,” Raad says.
“For example, UBS estimates that only 26 of 41 advanced staged nickel projects will deliver 15% IRR at a long-term nickel price of US$20,000 tonne.
“This goes to show that a lot of advanced stage nickel projects won’t be producing a high IRR so it’s important to look for ones that will be.”
“PAN recently restarted and re-opened its Savannah Mine late last year, and they have had significant receipts of payment already come through in regular fashion,” Raad says.
“We are anticipating that to ramp up as well as they continue moving forward.”
Raad’s last pick is NIC, which he says has cemented itself as one of the major producers in Australia.
“The company will be opening its Angel Project in Indonesia in September. There aren’t many nickel producers that have a lot of value on the ASX but these three I think investors will start to look towards with the increasing focus on the nickel price.”
Although nickel did not escape last week’s sector wide mining sell-off, Daley says strong demand remains for class one nickel.
“As the global EV revolution accelerates, we feel there is a developing deficit for grade one nickel.
“A number of Australian small cap exploration companies well positioned to capitalise on this demand include, Sabre Resources (ASX:SBR), Emu (ASX:EMU) and Boadicea (ASX:BOA).”
Sabre was recently granted co-funding from the WA Government to drill the high-grade nickel sulphide targets at the company’s Sherlock Bay asset in WA.
“The aim of the program will be to increase and upgrade the JORC resource to enhance economics of the recently completed Sherlock Bay Scoping study,” Daley says.
“With a market cap of $13.9m and $3.9m in the bank, the company now has a rig secured and investors can expect a diamond drilling program to commence shortly.”
Emu’s Viper, Graceland and Sunfire Nickel-Copper-PGE projects are located in the same terrane as Chalice Mining’s (ASX:CHN) Julimar Projects and Venture Minerals/Chalice Mining’s Southwest Nickel-Copper-PGE project which includes the Thor Discovery.
“Venture Minerals (ASX:VMS) recently announced that Chalice Mining had interpreted a ‘Julimar lookalike’ which sits right alongside Emu’s Sunfire project, where a significant zone of nickel and copper anomalism has been identified,” Daley says.
“The company also has 2,500 and 500m drilling campaigns due to commence on their nickel sulphide targets at ‘Graceland’ and ‘Viper.’”
The recent EM surveys delineate significant electromagnetic anomalisms which coincide with geochemical anomalisms, giving the board confidence in the drill targets.
“With a market cap of $8.25m, this is an exciting small cap nickel explorer to keep your eyes on.”
Boadicea’s Fraser range tenements exploring for nickel, copper and gold are strategically located next to three exciting discoveries.
“A total of 11 exploration licences north and south of IGO’s Nova mine cover an area of 1,239km,” Daley says.
“Boadicea’s Symons Hill, Transline and White Knight tenements are each respectively located near IGO’s Nova Mine, Legend Mining’s exciting new Mawson nickel discovery and Creasy Group’s Silver Knight nickel discovery.
“An exploration agreement with IGO results in a large exploration program and a potential $50 million payday to BOA.”
AZL’s low enterprise value circa at $60 million makes this stock one to watch, Le Page says.
“The maiden JORC resource at its Andover Project sits at 4.6Mt at 1.4% nickel equivalent and is set to grow rapidly in the next 12-18 months with multiple targets to follow up, including Ridgeline that has returned a number of high-grade nickel intersections.”
“The company’s major shareholder and partner, Tsingshan, ran into trouble with a nickel short position – this has created a buying opportunity as there was some doubt as to their support to develop the expansive nickel portfolio,” Le Page says.
“Production is set to triple over the next three years and revenue is projected to top $2 billion by FY 2024 on the back of just over 90,000t of contained nickel per annum.”
BSX is an emerging nickel producer in Vietnam developing the Ta Khoa Nickel-Copper Project around 160km west of Hanoi in the Son La Province of Vietnam.
“There is a hefty pre-production CAPEX of over US$800 million but with all in costs of US$13,192/tonne and post-tax NPV8 of over US$2 billion at an internal rate of return of over 40%, the recent share price slide presents a buying opportunity,” Le Page says.
Boyd-Matthews says Poseidon Nickel (ASX:POS) would be his preferred stock, given the company is going into production early next year with exploration upside.
“POS has a well experienced, sound management team that I expect to deliver in the long term,” he says.
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