Tim Treadgold: Centaurus tries again in Brazil… and might succeed this time
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There was a time when Centaurus Metals (ASX: CTM) was not a penny dreadful with shares trading at less than 1c, and if its latest attempt to succeed in Brazil with a potential company-making deal is as good as it looks, then it might finally shake-off the derogatory tag.
So far, the reaction of investors to the proposed acquisition of the Jaguar nickel project from Brazil’s iron ore giant, Vale, has been less than enthusiastic.
But, the share-price slide from 0.9c to 0.7c on Tuesday, after Centaurus announced the move into nickel at the Diggers and Dealers forum in the WA, was probably influenced as much by the company’s past struggles as the trade-war jitters gripping all financial markets.
The US declaration of China as a currency manipulator took the dispute between the world’s two biggest economies to a new low and threatened to plunge the world into a long-term crisis.
With dark clouds gathering on the economic horizon there has been an understandable retreat from any investment perceived as risky, with mining investors switching their focus from base metals such as copper, nickel and zinc to the safety of the world’s ultimate reserve currency, gold.
In other words, the timing for a major announcement by Centaurus was unfortunate with no-one paying much attention to a company which has promised much for more than decade and delivered little except a 99% share price fall from 74c in early 2011 to its latest price of 0.8c.
Over the next few weeks however it’s likely that some investors will form a more positive view of the Brazilian nickel deal Centaurus has negotiated because it has an interesting parallel with events in Australia where BHP is reconstructing its nickel operations to catch rising demand for batteries in the electric vehicle industry.
The latest move by BHP has been to renegotiate an ore supply deal with a mining minor, Mincor, for nickel mined at its Kambalda mines for conversion into the fast-growing market for nickel sulphate.
Centaurus, while well behind Mincor in that it is yet to develop Jaguar into a mine, has latched onto a plan by Vale to mimic BHP, selling some of its smaller assets to juniors who will then feed what they produce into the big company’s operations, a process dubbed “mini-mines”.
Jaguar is a relatively small nickel deposit, at least by the standards of Vale which operates some of the world’s biggest nickel mines, but it does have the potential to produce ore classified as a sulphide. That means it’s perfect to produce nickel sulphate which battery makers prefer and a material which BHP is increasingly producing at its Kwinana refinery south of Perth.
The deal Centaurus has struck is expected to be finalised at the end of the month when the Vale board signs off on what management has agreed.
What Centaurus gets is a nickel deposit in the Carajas province containing 40.4 million tonnes of material assaying 0.78% nickel for a total of 315,000 tonnes of metal, with the potential to grow as exploration leads are pursued.
What Vale gets is a modest $US250,000 up-front payment, future cash payments totalling $6.75 million, an ongoing royalty after production starts, transfer of an exploration licence close to its Salobo copper mine and an agreement to sign an off-take deal whereby it buys all of the nickel Centaurus produces at Jaguar.
In other words, a deal very similar to that BHP has with Mincor and might be considering for some of the other sulphide deposits located around the Kambalda dome as the world hunts for more sulphide-rich nickel ore.
Centaurus has a long way to go before it develops Jaguar with a fund raising of some sort on the way, given that the company had just $2.26 million in the bank as at June 30 and remains hopeful of developing its Jambreiro iron ore project – one of the assets which first lured the company to Brazil but which has been waiting for the right conditions to be developed.
In theory, the Jambreiro iron ore mine should be the first cab off the Centaurus ranks but in reality, given the falling iron ore price after this year’s boom, and the rising nickel price as battery demand rises, then it could be Jaguar nickel that proves to be the saviour for a company which has tried hard and could finally be in sight of a win.