The lithium stocks waiting for the sun to shine… on nickel
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Lithium has long been considered the battery metals ‘golden child’ with long term tailwinds connected to the green energy transition and electric vehicle boom.
But commodities are cyclical, and as lithium prices and equity valuations come down, investors’ money will start going elsewhere.
Which is why ASX resources stocks with high quality projects in unloved commodities are the first to benefit when sentiment turns.
Take nickel, for example. Even though an increasing percentage of nickel is used in batteries, the bulk of demand is still tied to construction, which is falling.
Nickel prices have slumped 40% year-to-date to a two-year low but VP Capital co-founder John So believes it will pick back up again in February 2024 following Chinese New Year.
“China is heading into its winter period in a couple months so there’ll be a slowdown in construction activity and coming out of that is Chinese New Year, where things will be quiet and subdued because everyone goes on holidays,” So says.
“After Chinese New Year is when we typically start to see Chinese refineries restocking their product and that’s going to help decrease some of the nickel inventory that’s been built up.”
So says nickel’s dual demand centres — construction and batteries — means that its fundamentals are far more secure than lithium.
“As long as China is able to stabilise its economy and we continue to see the rest of Southeast Asia continue to urbanise, you will find nickel prices [fly] very quickly,” he says.
Longer term nickel supply, like copper, will suffer from ageing mines and a lack of new tier 1 discoveries.
“Nickel has also been mined in the world for decades now, which means the deeper sulphide deposits have already been mined out or are quite mature operations,” So says.
“If you’re trying to bring new supply on in the future to meet what will probably be a rebound in demand eventually, coupled with the usage in batteries, it is very difficult because it is an old product and the mines have already been tapped.
“Grade is also getting lower, deposits are getting deeper, and it is becoming more expensive and un-economical to bring new supply onto the market.
“This all means in the medium term; you’re still going to have a nickel supply issue.”
With a nickel supply imbalance taking shape, prices are anticipated to eventually go up.
“At current prices, a lot of these [more difficult] mines are not viable and they are not going to develop,” So says.
“The demand in the medium term and lack of new supply ultimately drives prices up and like all commodities, once prices get driven up, prospectors and exploration companies are motivated to find a pathway to developing their project and there will be an equilibrium.”
Here are some of the ASX stocks with exposure to the strong lithium market, which also have advanced nickel projects for when the market invariably returns to favour.
Mark Creasey, SQM-backed Azure has stunned investors this year with world class hits like 209m grading 1.42% Li20 at Andover.
This culminated in a 100Mt and 240Mt @ 1-1.5% Li20 exploration target and a rebuffed $900m takeover offer ($2.31 per share) from SQM itself.
But Azure had originally partnered with the Creasy Group in a 60-40 JV to explore and develop the Andover nickel sulphide deposit, where a resource containing 51,700t of nickel metal, 21,700t of copper and 2290t of cobalt was defined last year.
The stock has stock surged thanks to its Andover North and South projects which sandwich Azure Minerals’(ASX:AZS) Andover project in the Pilbara, WA.
But Raiden’s main game has been the nearby Mt Sholl project — a great project in its own right — where a maiden resource of 23.4Mt at 0.60% nickel equivalent or 1.54% copper equivalent was released in April.
The Mt Sholl deposit is open-pittable; 40kms from a port in the Pilbara and mineralisation remains open in every direction – with a lot of underlying value tthe company says will be realised once nickel as a commodity comes back into focus.
Not to metion the JORC exploration target for the project iof 80 – 150Mt at a grade range of 0.45% – 0.75% Ni_Eq or 1.15% – 1.95% Cu_Eq.
“We believe this mineralisation going to come out of the ground at some point, whether we do it or somebody else does it – it’s not going to sit there forever,” MD Dusko Ljubojevic says.
This $5.17m market cap stock re-rated earlier in September after teaming up with lithium producer Allkem (ASX:AKE) to assess the lithium prospectivity of its Carlingup nickel project, about 10km away from the 140,000tpa Mt Cattlin lithium mine near Ravensthorpe, WA.
But Carlingup is also a prospective nickel project, with an upgraded nickel resource of 11.6Mt at 0.56% nickel, 0.05% copper and 0.01% cobalt.
It boasts an existing mineral resource base totalling 155,000t of contained nickel and is in the same greenstone corridor as IGO’s Forrestania nickel mining complex, adjacent to First Quantum Minerals’ Ravensthorpe nickel operation
Greenfield drill program planning is underway to test a number of the Priority 1 nickel sulphide targets at Carlingup, with targets Lipple and Wadley to be tested first in early October.
Shares in Neometals spin-out Widgie Nickel sky rocketed 40% in June 2022 after the discovery of a new nickel find at its Mt Edwards project, close to Essential Minerals’ (ASX:ESS) Dome North and Pioneer Dome projects and Bald Hill’s 26.5Mt lithium and tantalum mine in WA’s Goldfields region.
Mt Edwards is home to nickel resources of 11.136Mt at 1.50% nickel for 170,000t of nickel across 12 deposits, thanks to historic operations and exploration conducted by Neometals.
While 31,000t of nickel was mined across four mines between 1980–2008, limited exploration has been conducted due to fragmented ownership, providing the explorer with significant exploration and resource extension upside.
A rapidly growing lithium endowment is also being unlocked at the Faraday-Trainline project, following the establishment of a spodumene rich resource of 481,000t at 0.59% Li2O.
WIN managing director and CEO Steve Norregaard says the project has “all the hallmarks of a very low cost development able to be commercialised in the near-term.”
Future Battery Minerals holds some of the most prospective nickel sulphide tenure in the Norseman Wiluna Greenstone belt, the same region as BHP’s Nickel West operations which includes the Leinster nickel mine.
Around five processing plants are within economic trucking distance of the company’s Leinster and Saints Nickel projects with the former comprising a 911,000t resource at 2.3% nickel for 21,000t of contained nickel.
A scoping study released in April demonstrated strong financial metrics for the Saints Nickel project based on a low capital cost of $8.6m and five-year mine life.
Meanwhile, FBM recently raised $7.6m to accelerate exploration at its Kangaroo Hills (WA’s Goldfields region) and Nevada lithium projects.
Recent Phase 3 drilling at Kangaroo Hills confirmed a significant spodumene bearing swarm at the Big Red and Rocky prospects.
Dynamic Metals recently sold its non-core tenement in WA’s eastern Goldfield’s region to Western Mines Group (ASX:WMG) for a combination of cash, shares, and options as well as a net smelter royalty to focus on its lithium and nickel hunt and allowing WMG to consolidate the entire Mulga Tank complex.
DYM’s focus is now on the Lake Percy and Widgiemooltha projects, the latter of which has returned thick, high-grade nickel in maiden drilling from the Dordie Far West (DFW) prospect.
The project area has also emerged as a significant lithium belt hosting numerous spodumene deposits, with the Mt Marion, Bald Hill, and Buldania projects all within 25km of Dynamic tenure.
Results from a first pass program defined an elevated lithium trend (>40ppm) extending over 2.8km through the centre of the sampling area.
Meanwhile, DYM believes it is on the trail of a “fertile nickel sulphide system” at the underexplored Lake Percy project in WA, where drilling in April pulled up several significant nickel hits at the LP1 and LP2 targets, including a highlight 16m at 1.11% Ni from 32m.
St George Mining has an extensive battery minerals portfolio consisting of lithium and nickel at the Mt Alexander, Woolgangie, Ajana and Broadview projects in Western Australia.
The company acquired the Woolgangie project earlier this year, which covers a dominant landholding of 3,350km2 in the Coolgardie Mineral Field and takes in +90km of the Ida Fault – a major crustal boundary that controls multiple major mineral deposits including Delta Lithium’s (ASX:DLI) 12.7Mt Mt Ida project and Liontown Resources’ (ASX:LTR) $895mn Kathleen Valley mine.
While a pipeline of high priority targets has already been identified, SGQ says its initial focus will remain on three strategic areas – the Central Tenements, the Western Tenements and the Eastern Tenements.
Artemis Resources (ASX:ARV) spinout GreenTech Metals (ASX:GRE) made its ASX debut in January 2022, focused on finding large critical minerals deposits across its combined 225km2 West Pilbara portfolio.
Chief among its initial prospects was the 6.2Mt Whundo project where, in May, the junior uncovered a 19m-thick copper zone at the Austin prospect, with grades up to 5.4% copper.
Austin is a separate mineralising event to the overlying Whundo East resource, the company says. Based on the footprint of the conductor, the company says Austin could potentially eclipse Whundo East in size.
The stock rerated in response to the news.
Around the same time, market darling Azure Minerals (ASX:AZS) began a drilling blitz at its Andover lithium discovery, a stone’s throw from GreenTech’s underexplored Ruth Well tenements.
Azure’s success culminated in a second rerate of the $30m capped GreenTech, which is now up ~270% year-to-date.
It also led to Greentech’s decision to take a closer look at the lithium potential on its own ground with a reconnaissance field mapping program confirming the presence of significant pegmatite swarms in the Northern and Southern trends.