Green for Go: RFC thinks these TWENTY nickel projects are most likely to attract a takeover

Nickel exploration hit a 10-year high in 2022 globally as demand for the commodity used in EV batteries rises
RFC Ambrian says takeovers are growing more likely for companies with large pre-development resources outside Chinese-backed Indonesia
The corporate advisory firm says 20 companies, including ASX-listed players, could be takeover targets

One of the top performing commodities of a volatile 2022, nickel has had a dull start to 2023 with three-month delivery prices on the London Metals Exchange falling to US$24,099/t from over $30,000/t at the end of last year.

But the longer term outlook is strong, given the key role nickel will play in the transition from fossil fuel based transport to the rollout of electric vehicles.

For the time being supply is growing faster than demand thanks to the growth of the nickel pig iron industry in Indonesia, where a dramatic ramp up of processing and mining capacity is resuming after a lapse during the Covid years.

According to the International Nickel Study Group last month, primary nickel production has lifted from 2.610Mt in 2021 to 3.06Mt last year and is heading for 3.374Mt this year.

At the same time nickel use is expected to rise also from 2.779Mt in 2021 and 2.955Mt in 2022 to 3.134Mt in 2023. That comes in at a forecast surplus of 239,000t this year.

But the growth in nickel supply is uneven. Indonesian nickel from low grade laterites, mainly used in stainless steel production but increasingly converted into battery grade products, is the main engine room for growth.

In China supplies are on a downward trend and in the West, nickel sulphides and output from HPAL-processed laterites are stagnant.

“For 2023, the INSG continues to expect mild growth in the stainless steel sector and increasing usage of nickel in batteries for electric vehicles (EV), despite the negative effect of the removal of subsidies in China,” the INSG says.

“INSG forecasts nickel pig iron (NPI) production in Indonesia to continue to rise, and to further decline in China.

“Also in Indonesia, the conversion of NPI to nickel matte is growing, high pressure acid leaching (HPAL) plants to produce mixed hydroxide precipitate (MHP) are continuing to ramp up output, and the first nickel sulphate project was commissioned last month.

“Historically, market surpluses have been linked to LME deliverable/class I nickel, but in 2023 the surplus will be mainly due to class II and nickel chemicals (principally nickel sulphate).”

M & A due for a rebound

In this environment, the development of new nickel sulphide and laterite operations outside Indonesia will be keys to ensuring supplies of nickel rise to fuel battery market growth in the West.

Nickel exploration figures from S&P back that mood up, with global expenditure of US$612m in 2022 at its highest level since 2012 and drill holes with significant results the best they’ve ever been.

But M & A will be a key as well, and corporate advisors RFC Ambrian note in a recent review of advanced nickel projects that has not picked up in the same way.

“There was just US$336m spent in reported nickel M&A activity in 2022, compared with US$1.43bn in 2021,” RFC analysts led by David Bird noted in the 38-page report.

“This expenditure is the second lowest level in the past 10 years. It is unclear if this reflects a lack of appetite or a lack of available opportunities, or both, and certainly a lot of capital investment is taking place in Indonesian nickel production at the moment.

“The majority of the growth in nickel production over the next decade will come from Indonesia, utilising its vast nickel laterite resource base, with much of the finance coming from Chinese companies.

“Nevertheless, as we outlined in our November 2022 report, the nickel market will still require the development of nickel projects outside of Indonesia to satisfy demand towards the end of this decade.”

There have been signs that M & A interest in nickel and battery metals is growing. Last year IGO (ASX:IGO) paid $1.3b to acquire Western Areas in a soon to be impaired deal initially announced in late 2021, while BHP (ASX:BHP) picked up the $1.7b West Musgrave project in its $9.6b purchase of copper miner OZ Minerals.

Private equity firm Kinterra paid $45m for junior Cannon Resources last year, owner of the small Mt Fisher and Collurabbie nickel projects in WA.

And Andrew Forrest’s Wyloo Metals recently reached majority control of Kambalda nickel miner Mincor Resources (ASX:MCR) in a cash deal valuing the company at $760m.

RFC has reviewed 24 nickel projects with resources of more than 400,000t of contained nickel with development potential that could service projects of 15,000tpa and 15-year mine lives, which could make them takeover targets for larger companies.

According to RFC, projects in the West and outside of Indonesia could be attractive M & A targets given their lower geopolitical risk and better ESG metrics.

“In a world where battery and EV manufacturers are increasingly striving to minimise the CO2 footprint of their products, reduce risks caused by geopolitical concentration, and ensure environmental and ethical standards are implemented and maintained, nickel deposits such as those covered in this report should become increasingly attractive investment targets,” RFC says.

Of those 24, 20 have been identified as having the potential to draw third party M & A activity.

And ASX-listed companies emerge as some of the top prospects.

Green Light

Four ASX-listed companies land on RFC’s list as hosting projects boasting the highest prospects of a third party takeover, given ‘green light’ status by the corporate advisory group.

None will be a major surprise, though the top ranking target on the list may do.

Ardea Resources’ (ASX:ARL) Kalgoorlie nickel-cobalt project lands at the top of the list, with the WA nickel laterite deposit rating as the largest undeveloped project covered by RFC.

With a market cap of around $70 million, RFC says its resource is much expanded since a PFS in 2018, at much lower nickel prices, that put the metrics around a project delivering 18,000tpa of nickel and 2200tpa of cobalt over a 25-year mine life.

A new PFS is due based on a larger resource base, and is expected to arrive in the June quarter.

Ardea ranks highly on its resource base, NPV to capex efficiency and internal rate of return. Being close to the historic gold and nickel town of Kalgoorlie in one of the world’s top mining jurisdiction in Western Australia means it also rates highly on geopolitical risk, environmental and permitting risk and company cash and other assets.

Close to Ardea is NiCo Resources (ASX:NC1) and its Central Musgrave project.

One of the world’s biggest undeveloped nickel and cobalt projects the laterite deposit near the Aboriginal community of Wingellina in WA’s remote Ngaanyatjarra Lands, it has been a known quantity since its discovery in the 1950s.

But the conditions for its development have never really come to pass until the recent run in nickel prices that prompted Metals X (ASX:MLX) to spin the deposit into its own vehicle in 2021.

A DFS is due this year, with a PFS last year laying out the potential to produce 35,000t of nickel and 2700t of cobalt a year over a 42-year mine life along with potential scandium by-products.

NiCo is trading at a market cap of a little over $40m.

Also in the high category are the well documented duo of Chalice Mining (ASX:CHN), which is pricey at a market cap of nearly $3 billion, but is currently shopping a project level stake in a partnership process for its world class Julimar nickel-copper-PGE discovery near Perth, and Centaurus Metals’ (ASX:CTM) Jaguar project.

$350 million capped Centaurus’ Jaguar is one of the largest undeveloped nickel sulphide projects out there, with a proposed output of 20,600t of nickel and 600t of cobalt annually over a 13-year mine life.

Located in the Carajas region in the Para State of North Brazil, Centaurus expects to complete a DFS this year for the major nickel sulphide development.

Another project considered ripe for a third party takeover is London-listed Horizonte Minerals and its Araguaia laterite in Brazil, where production on the 14,500tpa project is expected in the first quarter of 2024 and Glencore already holds a 17.8% stake.

BHP (ASX:BHP) meanwhile has demonstrated its interest in the Kabanga project in Tanzania, a nickel sulphide project expected by RFC to produce almost 50,000tpa with major copper and cobalt by-product credits, where it has pledged an early stage investment of up to US$100 million.

Takeover green light share prices today:

What else is out there?

Using a green light, amber light, red light system, RFC views another 15 projects as potential takeover targets, with amber projects classed as medium likelihood and red light projects regarded as having low likelihood for third party takeovers.

In the amber category are three Australian listed projects, including Robert Friedland chaired Sunrise Energy Metals (ASX:SRL), whose proposed 21,300t nickel and 4400t cobalt project in New South Wales has major project status with the Australian Government.

Also there are Alliance Nickel (ASX:AXN) and its NiWest project in WA, where automaker Stellantis signed an offtake deal last year.

Located near Glencore’s Murrin Murrin mine, Australia’s largest standalone nickel and cobalt producer, a DFS at NiWest is currently in the works after a PFS update last year put a roughly $1.2b price tag on developing a 27-year mine producing on average 19,200t of nickel and 1400t of cobalt over its first 15 years. Alliance was, intriguingly, in a trading halt pending a ‘material transaction’ on Friday.

Alongside massive low grade Canadian projects Dumont and Crawford, Australian Mines’s (ASX:AUZ) Sconi also rates a mention.

$11 million capped AUZ is targeting a final investment decision on Sconi in 2025, but has seen the value of its shares drop almost 97% over the past five years amid delays and a recently settled civil complaint from ASIC over disclosures made about offtake agreements in 2017 and 2018.

Another three Australian projects, Gladstone, Jervois Global’s (ASX:JRV) Nico Young and Poseidon Nickel’s (ASX:POS) Black Swan are all considered less likely to attract a third party takeover, according to RFC, though Jervois is focused on cobalt operations in the US and Finland and currently has its non-core Nico Young deposit in Australia on the block.

Black Swan is smaller in scale and life than many of its peers (the reason RFC thinks a third party bid is less likely), but has the advantage of being a restart operation with an existing concentrator and high grade resource.

Once backed by Andrew Forrest, a restart decision on the mine 50km from Kalgoorlie is due from Poseidon this quarter.

Concentrate production could recommence as soon as mid-2024, with Poseidon also studying an expansion of its processing feed rate from 1.1 to 2.2Mtpa which would deliver a rougher concentrate suited to non-conventional refiners like battery precursor producers.

Other non-ASX projects and companies on the list include FPX Nickel’s Decar project in British Columbia, Horizonte’s Vermelho in Brazil (both medium-high between green and amber), Canada Nickel’s Crawford, Waterton Global’s Dumont (amber), Giga Metals Corporation’s Turnagain, EV Nickel’s Shaw Dome, Harmony Mineral’s Tanzanian project Dutwa, and Flying Nickel’s Minago (red).