Centaurus Metals is confident it can compete with Indonesian nickel

Centaurus Metals (ASX: CTM) managing director Darren Gordon says the company’s Jaguar nickel project is being undervalued by the market.

Shares in Centaurus have fallen by nearly 40% this year as a slump in nickel prices hit Western producers and developers.

In Australia this year, administrators of collapsed junior producer Panoramic Resources shut down the Savannah mine in Western Australia, Andrew Forrest’s Wyloo Metals has suspended its Kambalda operations, First Quantum Minerals announced it would stop mining at its Ravensthorpe operation and IGO (ASX: IGO) put its advanced Cosmos development project on ice.

BHP (ASX: BHP) is also conducting a review of its Nickel West business.

Surge in Indonesian nickel production

The nickel price plummeted by 42% last year due to a surge in production from Indonesia.

Indonesia accounted for 49% of nickel production in 2023, up from less than 5% just eight years ago.

Mr Gordon acknowledged that the “noise” around Indonesian nickel really scared the Australian market.

“I think Centaurus has been put into the same camp which isn’t necessarily fair,” he told the Resources Rising Stars Gather Round conference in Adelaide today.

Benchmark Mineral Intelligence expects deficits to emerge in the nickel market from around 2028.

Mr Gordon said that, based on global gigafactory construction, about 85 Jaguar nickel projects would be required by 2050 to meet demand.

Jaguar has a resource estimate of 109.2 million tonnes at 0.87% nickel for 948,900t.

Low-cost environment

Centaurus’ advanced Jaguar project is in Brazil, where the cost environment is much more competitive than WA.

Mr Gordon expects Jaguar, once in production, to sit in the lowest quartile of nickel producers.

“The proof will be in the pudding when we deliver the feasibility study in June,” he said.

“Our goal is to be able to sit side by side with this new production and compete.”

A May 2021 scoping study forecast the production of 262,100t of nickel sulphate over 13 years at an operating cash margin of US$4.27 per pound of nickel.

Pre-tax life-of-mine annual cashflow was estimated at $252m.

The study returned a post-tax net present value (8% discount rate) of A$1.11b with an internal rate of return of 52%, based on a conservative nickel price of US$7.50/lb plus a US$0.50/lb premium for nickel sulphate.

Downstream deferral

Last month, Centaurus deferred the downstream component of the study due to market conditions.

Instead, the focus will be on the production of saleable nickel sulphide concentrate.

“With broad negative sentiment sweeping the nickel market, the capital requirements for a comprehensive concentrate-hydrometallurgical development were going to be a big pill for investors to swallow,” Argonaut analyst George Ross said of the decision.

“Readjusting to an initial concentrate-focussed project will reduce both capital and technical risk associated with POX [pressure oxidation], purification and crystallisation.”

Centaurus will revisit the downstream nickel sulphate refinery when market conditions improve.

“The economics we’ll demonstrate through the feasibility study will dwarf where our market cap is at,” Mr Gordon said.

At a share price of $0.32, Centaurus is capitalised at just under A$160m.

Argonaut has a price target of $0.80 on the stock.