Barry FitzGerald: Three nickel juniors within days of potential market-moving announcements
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The lithium stocks have run hard and fast this year for some very good reasons around the decarbonisation and electrification thematic.
But Garimpeiro wonders whether the boom will run out of puff as 2022 unfolds.
On that basis, it could well be time to get up close to another way of playing the decarbonisation and electrification thematic – nickel.
The ever volatile metal has had a good 2021.
After getting beaten up in March because of a Chinese nickel pig iron (NPI) producer’s plan to convert some of the low nickel content product into premium-priced nickel matte for batteries, nickel has come roaring back.
After falling below $US7.25/lb in March, nickel has worked its way back to $US9.25/lb. That puts it 48% ahead of its $U6.26/lb average last (calendar) year.
The recovery from the NPI-to-matte shock in March was expected because of environmental concerns about the process. It seems the big auto groups only want low emission nickel in their batteries.
While not in the same league as lithium’s boom 2021, nickel’s price strength means happy days are here for the nickel producers, developers, and explorers.
The market is not yet valuing the ASX nickel stocks on the bumper spot price, with most analysts pencilling in much lower nickel prices in their stock valuations. So there is a re-rate event coming for producers should the price continue to hold at these levels, or move higher.
That’s great for the producers. As for the explorers, the business of finding a nickel deposit with the drill bit can be a hit and miss affair. So that leaves Garimpeiro to focus today on the nickel developers.
The world needs them too, remembering annual nickel demand is expected to increase by 3.7 times to 9.2 million tonnes come 2050, according to Glencore. No one is sure the supply challenge can be met.
Developers with news events coming up are a particular focus today as there is the potential for share price moves to the upside by them independent of short-term moves in the nickel price.
CENTAURUS (ASX:CTM): It is trading at $1.01 for a $360 million market cap ahead of a “significant’’ increase in the mineral resource estimate (MRE) at its Jaguar project in northern Brazil.
Due any day now, the new estimate will build on what is already a globally significant resource of 562,000t at a grade of 0.96% nickel.
Brokers following the stock have a $1.40-$1.50 price target range on the stock ahead of the resource upgrade which follows an intense drilling program in 2021 employing eight drill rigs.
The company plans to become a nickel producer in 2024, with annual output of 20,000t from a $US288m development which at prices well below spot, could pay back its capital in 20 months.
A definitive feasibility study into the initial 16-year project is due to be completed in the fourth quarter of 2022.
MINCOR (ASX:MCR): The stock is trading at $1.20 for a market cap of $581m ahead of a de-risking event this month – the confirmation of first ore being produced from the restart of its Durkin North and Long North mines at Kambalda.
First ore from the Northern operations, as the pair are bracketed, is set to be followed by first ore from the new Cassini deposit early in the new year.
The ore from the operations will get sent off to BHP’s Kambalda concentrator for processing, putting Mincor on track to achieve first concentrate sales in the June quarter next year on its way to becoming a 16,000 tonne-a-year nickel (in concentrates) producer.
As progress in the ramp-up of production is a risk around any project, the expected confirmation in coming days of first ore from the Northern operations will stand as a key de-risking event for the stock.
Macquarie has a $1.40 price target on the stock, saying that apart from the upside from its nickel price assumptions being below spot prices, exploration drilling success across Mincor’s Kambalda portfolio continues to provide further upside potential to its base case assumptions.
PANORAMIC (ASX:PAN): Another former producer restarting operations. Trading at 21c for a market cap of $450 million, with Macquarie having a 28c price target on the stock.
It is expected to confirm in coming weeks that it has made its first shipment of concentrates from its Savannah nickel-copper-cobalt operation. The planned first shipment size is 8,000-10,000t, worth $16-$20 million.