TEN-BAGGER: Peak copper, weak nickel may be a sign to pivot

Welcome to Ten-Bagger, where Lowell Resources Fund chief investment officer John Forwood gives us his take on a sector of the ASX resources market full of value.

This month, John looks at nickel’s surprise rebound and where Lowell is looking for opportunities in the downtrodden sector.

Investors need to be ahead of the game to keep their batting average up and while following the pack can feel safe it can also lead to ruin if the herd walks itself off a cliff.

For many the magical run of copper, which hit an all time three-month LME high on Monday of US$10,889/t, is the second coming of a long awaited bull run for the commodity dubbed by Goldman Sachs as ‘the New Oil’.

Yet there are signals as well some caution should be taken.

Ten Bagger expert John Forwood, the CIO of the Lowell Resources Fund (ASX:LRT), is still a believer in the overall copper thematic.

But like a beer poured by an untrained uni student at a footy stadium, the telltale signs of froth could be emerging.

“Copper inventories have roughly doubled since the start of the year, but the price is hitting all time highs,” Forwood noted.

“I’ve seen the word frothy thrown around regarding the copper price and momentum driven algos have been quoted as driving the market, so it has become a bit disengaged from present fundamentals.

“There’s obviously some speculation happening and some short covering particularly on the COMEX Exchange, which is renowned as being more speculative than the others – LME and Shanghai.

“Cargoes are being diverted to the US to fill some of those physical short positions.

“It’s volatile on the upside and when the speculation stops, it could be volatile on the downside.”

If you adhere to the old buy low, sell high mantra, that could explain why Lowell has turned its attention back to the unloved nickel market.

Indeed, one of its big trades was on TSX nickel play Talon Metals (TSX:TLO).

Nickel is not a dirty word?

It’s been a dirty word since the start of 2024, with around 50,000t of supply curbed by Aussie producers after prices halved to under US$16,000/t thanks to a rampant increase in class 1 (battery grade) nickel production in Indonesia.

But the rebound has been swift. Supply challenges in Indonesia, where approvals have slowed, and the exit of marginal producers has played a role.

The latest issue, correlated with LME prices rising to around US$21,500/t, is the suspension of French miner Eramet’s operations in New Caledonia, where protests by the Kanak independence movement have led to widespread civil unrest in the French Pacific territory.

“In the last week nickel is up nearly 12%, which is just stupendous. I know it’s not nearly as big a market as say gold or copper, but that’s an amazing move just in a week,” Forwood said.

“Was it Mark Twain who said the news of my death has been greatly exaggerated?

“The current nickel price, if you look at in the long term, it’s not too bad. It’s well off its highs but it’s also well off its lows. So there’s a bit of life creeping back into nickel equities.”

The rising nickel price could heap political pressure on BHP to keep its Nickel West operations in WA going, given CEO Mike Henry has previously listed US$20,000/t as its breakeven.

Government concessions including a 10% tax credit for critical minerals producers coming in from 2027 have also been floated as ways to keep the mines in operation after BHP placed them under review earlier this year.

But Forwood is more interested in the more speculative end of the market, where equities are more likely to be priced on individual commodity exposure.

The nickel stocks on Lowell’s radar

All of Lowell’s new nickel holdings are a little off the beaten track for Aussie investors.

The most notable is C$173 million Talon, which is up 19% over the past month and a touch under 6% YTD.

It is looking to develop what would be one of only two domestic nickel mines in the USA, leveraging the Biden Administration’s bountiful critical minerals support.

The Tamarack project in Minnesota, which Talon has taken on from backer Rio Tinto (ASX:RIO), has already been selected to receive a US$114m funding grant from the US Department of Energy and US$20.6m grant from the Department of Defense to fund exploration.

Talon holds 51% of the project alongside Rio, with plans to acquire up to 60%, boasts a supply agreement with Tesla and has solid grades, including an indicated resource of 8.6Mt at 1.73% nickel and 0.92% copper and inferred resources of 8.46Mt at 0.83% Ni and 0.55% Cu.

“It’s got a very nice copper credit and PGM credit as well, but it is really a nickel project,” Forwood said.

“The downside of being in the US is that permitting can be very, very difficult.

“What they’re planning to do with the operation is actually mine the ore and without doing anything to it, stick it on a rail car and take it to North Dakota to an existing industrial site where they’re going to process it.

“A number of the Rio technical team who were working on Tamarack have come across to join Talon, which is a real vote of confidence.”

There is a (soon to be) locally listed nickel company on Lowell’s current radar, albeit at an earlier stage.

Asian Battery Minerals is planning to list via an RTO through the shell of former energy player Doriemus (ASX:DOR).

A recipient in the first round of BHP’s Xplor incubator program in 2023, ABM is primarily looking to assess the potential of the Oval Ni-Cu-PGE deposit in south-west Mongolia, where it is looking for magmatic nickel sulphides in the style of Russia’s monster Norilsk mine.

“This is a magmatic nickel sulphide belt that runs into Kazakhstan as well,” Forwood said.

“It’s a major ‘new’ – to the ASX at least – nickel or metal sulphide belt, which is only just being opened up to the Western world.

“That’s a pretty exciting RTO and that’s another theme that we’re seeing.

“After an absolute drought of IPOs in the junior resources sector and generally last year, we’re starting to see a trickle of new listings and I’d call Asian Battery Minerals a new listing.

“They have completely new assets in a recapitalised company. ”

While Lowell added to its Talon holding in April, nickel remains just 1% of its commodity exposure in the Resources Fund, with gold and PGMs making up 44% at April 30 and base metals including copper comprising 21%.