Why nickel outshines gold for Mincor Resources
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Nickel, rather than gold, has been powering up Mincor’s share price, writes Barry FitzGerald in his weekly Garimpeiro column.
Mincor Resources has had a couple of painful years after being forced to put its Kambalda nickel operations on care and maintenance in 2016 because of the lousy nickel price.
But it has not been sitting idle.
Mincor (ASX:MCR) has been working up a future for itself as a gold producer from its dominant ground position in the Kambalda area of Western Australia, and it could be in production next year.
Since July the stock has more than doubled to 35c, valuing the company in its 21st year of operation at $66.5 million, or $56m at the enterprise level after taking in to account it is debt free and that it was holding $10.6m in cash at the end of September.
So is it the gold strategy or Mincor’s latent capacity as a nickel producer that is behind the price surge for the stock, without production of any kind?
The answer is that while the unfolding gold leg for Mincor has kept up interest up in the stock while it has taken a holiday from nickel, it is the latter that has been powering up the group’s share price.
Good money as a nickel producer
Mincor made good money over the years as a nickel producer, a fact reflected in its tight issued capital base after all these years of just 188.9 million shares. The tight capital base explains why there has been a leveraged response in Mincor’s shares to nickel’s amazing price recovery this year.
The key stainless steel ingredient was last quoted at $5.85/lb which is up 35% on last (calendar) year’s average of $4.35/lb. The price is now at a level where operators like Mincor with shuttered operations can think about getting back in to production.
And while it would be nice to think that it has been recovery in demand from stainless steel producers that has put a rocket under the nickel price this year, that is not the case.
Nickel has been swept up in the mania for metals used in lithium-ion batteries (Li-Bs), with the coming electric vehicle revolution set to make demand from the Li-Bs makers a new high demand market for nickel.
As Mincor itself pointed out to shareholders this week, there is up to eight times as much nickel in a Li-B as there is lithium.
A story of mine closures
What’s more, the sick nickel price of recent years means that unlike lithium where there has been a massive demand response to the LiB-EV thematic, nickel has been a story of mine closures.
Mincor has two projects in the Kambalda region with underpinning reserves of 28,000 tonnes of nickel as a starting point for its return as a nickel producer, should the recent price strength for the metal become a sustained rally. The resource base is much bigger.
But the company is also keen to use the current downtime from being a producer to explore its extensive ground position at Kambalda for the next you-beaut nickel deposit in a region that already ranks as of the one the world’s best nickel (and gold) provinces.
Mincor director and stand-in chairman at Mincor’s annual meeting this week, Brett Lambert, said the company was taking the initial steps to map out its return to nickel production.
“But I caution that it is early days and there is still some way to go on this journey,’’ Lambert told shareholders.
The development of a gold business is closer to hand. In quick fashion, Mincor has built a gold resource base at its Widgiemooltha project area (WGP) of 267,100 ounces, increasing its global resource base in the Kambalda area to 328,660 oz.
Mincor is planning to get the WGP into production in the first quarter of next year from an initial reserve base of 73,000 oz.
The project is forecast to generate net pre-tax cash-flow of $28m, assuming an Aussie dollar gold price of $1600 per oz. The plan is to have the ore toll-treated which limits start-up costs to all of $2.8 million.
There is plenty of gold exploration potential to chase up. But for the time being at least, it will be where nickel goes from here that will be driving interest in the stock.