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BHP puts its hand up to buy Mincor’s nickel, paving way for production re-start at Kambalda
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Special Report: The race to buy Mincor Resources’ top-quality nickel is on – and BHP Billiton Nickel West, a subsidiary of the world’s second-biggest mining company, has put itself in the box seat following a landmark offtake term sheet between the companies announced today.
Mincor (ASX:MCR) says the term sheet is “milestone” and sets the foundation for its plans to restart nickel production at Kambalda – opening the door to what it describes as a “new era” for nickel mining in the district.
Nickel inventories are falling worldwide and demand is forecast to rise sharply due to the pivotal role it plays in the manufacture of lithium-ion batteries, in addition to rising underlying demand from the stainless steel market.
Analysts are predicting that demand for nickel in electric vehicle (EV) batteries will skyrocket from 2022 onwards, however the pressing issue is where Class One nickel supply will come from, given the lack of new nickel sulphide development projects globally.
That’s where nickel sulphides from Kambalda could once again play an important role.
Offtake a likely catalyst for Mincor’s resurgence
Mincor said in a statement to the ASX that it sets out the major operating principles that would form the basis for a “binding Ore Tolling and Concentrate Purchase Agreement” with BHP Nickel West, giving it the right to process up to 600ktpa of nickel sulphide ore at the Kambalda Nickel Concentrator.
For investors who may have lost sight of Mincor in recent years, a quick recap:
The company was one of a group of juniors that acquired nickel mines from WMC in the 1990s, sparking a revival of the district.
Mincor profitably mined nickel sulphide ore and processed it for over a decade at the Kambalda Concentrator under a historical 20-year agreement with BHP Nickel West.
This strategy worked well for Mincor during the last nickel boom, propelling it into the ranks of the S&P ASX 200 and giving it a market capitalisation which at one point touched $1 billion.
When the nickel price crashed in 2014-15, Mincor was forced to shut down its Kambalda mines and refocus on the gold potential of its Widgiemooltha tenements, where it now has an operating gold business.
However, it was always the underlying value of its Kambalda nickel assets which kept investors interested in the stock, particularly given the recent resurgence of interest in nickel.
Mincor is still a dominant player in the Kambalda District, a world-class nickel (and gold district) which historically has produced a staggering 1.6 million tonnes of nickel over more than 50 years.
The company’s large resource inventory (3.3 million tonnes at 3.6% Ni for 118,000 tonnes of contained nickel) and its potential to quickly restart production clearly put it in the box seat to capitalise on the looming transformation in the nickel market, driven by new demand from the global lithium-ion battery industry.
New leadership to oversee return to production
The appointment of a new high-profile chief executive in the shape of former long-serving Western Areas Executive Director David Southam late last year added further fuel to speculation that Mincor is closing-in on a fairly rapid return to the ranks of nickel sulphide producers.
Southam noted recently that the expiry of the historical BHP off-take agreement in February this year potentially opened the door to the evaluation of a range of processing options.
So perhaps it should come as no surprise that one of his first acts since starting with the company in February has been to get BHP Nickel West over the line on a new off-take deal which Mincor says secures “substantially improved commercial terms from the previous agreement”.
“We weighed up the alternatives, including investing in our own stand-alone nickel concentrator and the option of toll-treating our ore via third parties,” Southam said.
“The term sheet we negotiated with BHP Nickel West is compelling on a number of levels – most importantly with respect to price, risk and capital intensity – which clearly meant that this was the best economic outcome for our shareholders over the contract term with the lowest risk.”
Clear pathway for integrated restart plan
Mincor says the off-take term sheet with BHP Nickel West secures a “clear production pathway” and underpins a restart strategy which is likely to focus initially on three deposits – the new Cassini discovery (which is currently the main focus of drilling) and two existing mines, Ken/McMahon and Durkin North, which are likely to be reopened based on new reserve extensions.
“This is a really important development for Mincor and our shareholders as it clearly demonstrates our commitment to restart nickel operations as quickly and efficiently as possible in one of the world’s most prolific sulphide nickel provinces,” Southam said.
“Mincor has clearly outlined its strategy to re-commence mining operations in Kambalda to take advantage of what we see as a looming generational change in the nickel market – and the signing of this term sheet marks a critical step towards realising that vision,” he continues.
“We believe that the nickel market is on the cusp of a new era, driven by a combination of rising underlying demand from the stainless steel market supplemented by new demand from the global lithium-ion battery industry as it gears up to supply the rapidly growing electric vehicle and energy storage sectors.
“With respect to nickel content in batteries, our firm belief is that the overwhelming trend is for high nickel content batteries that will predominantly be sourced from nickel sulphide ores. In this regard, our timing for this term sheet and our restart plans could not be better.”
According to Sydney-based institutional broker Petra Capital, the development of Ken/McMahon, Cassini and Durkin North could deliver 14.5kpta of nickel-in-ore by FY22 over 5 years, with a relatively low CAPEX hurdle of just $10-20m for each mine to restart.
“We believe Mincor can progressively bring three high-grade underground mines online over the coming years,” said Petra analyst Brett McKay, allowing the “Kambalda King to return to the throne.”
Petra Capital has a target price of 86c per share for Mincor shares.
