Barry FitzGerald: Forget price – these 5 nickel explorers are poised to amp up returns the old-fashioned way
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The ASX nickel sector has got its mojo back after enduring a price shock for the stainless steel and battery material in March.
The nickel price tanked 20% in early March but is again knocking on the door of $US8/lb – a level that gets the producers up and about, and one that provides plenty of incentive for the nickel developers and explorers.
It is still short of the $US8.90/lb high in February but the more meaningful comparison is with the March quarter average of $US7.94/lb, and last year’s (calendar) average of $US6.26/lb. So nickel is back.
The March price shock was triggered by China’s Tsingshan announcing it had signed a supply contract for 100,000 tonnes of high-grade nickel matte from its nickel pig iron (NPI) operations in Indonesia.
Nickel matte (75% nickel) is an intermediate nickel product used as a precursor material in lithium-ion batteries, while NPI is a low-grade nickel (15%) product for the steel industry where they effectively pay for the nickel and get the pig iron for free.
Tsingshan’s move into nickel matte upset the apple cart for the sulphide nickel producers who thought the battery materials space was theirs alone, and a super high growth one at that, thanks to the electric vehicle thematic.
Things have calmed down since. Tsingshan has yet to confirm the process at a commercial scale and whether it is actually cost competitive, remembering that while trial production showed promise last year, meeting a 100,000t contract at the right cost and quality is another thing all together.
The non-NPI sector has also grown more relaxed about the supply-demand outlook, with or without nickel matte from NPI. The common comment is that the world will need every unit of nickel it can get its hands on to meet demand from the EV revolution.
And then there is the potential killer for Tsingshan’s NPI foray into battery materials – its less than green credentials compared with sulphide nickel sources.
Indonesian NPI is an energy intensive business based on coal power, with NPI’s reversal into nickel matte hardly adding to the green cause. Will battery and auto makers in Europe and the US want to use it? Unlikely.
It was mentioned earlier that the rebound in the nickel price is the good for the producers, developers and explorers.
Garimpeiro’s interest today is in the explorers because the reality is that while a strong nickel price dials up investor interest across the sector, a decent nickel discovery can amp up an explorer’s share price regardless of the daily, monthly or quarterly nickel price move.
There are lots of them on the ASX, and it is worth remember that leading producers like Western Areas (ASX:WSA) and IGO (ASX:IGO) are also active explorers, as are the near-term producers or developers like Mincor (ASX:MCR), Poseidon (ASX:POS) and Panoramic (ASX:PAN).
But back to the pure explorers. Here are five that have caught Garimpeiro’s eye recently.
St George (ASX:SGQ): Has come up nicely from 7.9c to 9.5c and is currently in a trading halt while it puts away a placement. It will be well supported on the strength of the recent discovery of high-grade mineralisation at depth at its Mt Alexander project.
Boadicea (ASX:BOA): The Fraser Range explorer is trading at 27c form a market cap of $16.8m. It has IGO exploring on its tenements near IGO’s Nova mine. If a resource is declared, Boadicea gets $50m.
Orion (ASX:ORN): It is really a copper stock with its two projects in South Africa. But IGO is exploring on its ground in the Fraser Range at the highly rated Pike Eye nickel target. It’s 10km along trend from Legend’s Mawson discovery.
Legend (ASX:LEG): It has been rewarded for the Mawson find with a big lift in its market cap. But latest exploration results suggest Mawson will grow into a major find. Trading at 14c, Euroz has a 30c target on the stock.
Metal Hawk (ASX:MHK): Joined the lists in November with a WA gold and nickel focus. It has Western Areas, a 6.6% shareholder, working up some nickel joint venture drilling targets. Modest market cap of $12.5m (25c).