With a price moving back towards US$20,000 a tonne, nickel has shrugged off the worst of a 20% crash in February and become an investment opportunity where you can follow the money – and “the man”.
In the case of nickel, a high value metal ideal for small companies, the man happens to be one of Australia’s richest, the iron ore billionaire, Andrew Forrest, also known as Twiggy.
Before the Perth-based entrepreneur made his fortune through the outrageous success of Fortescue Metals Group (ASX: FMG), Forrest was a true believer in nickel, though he failed to make a permanent mark with his Anaconda Nickel.
Back in the 1990s Forrest made a good choice with nickel as it started a move to an all-time high of US$50,000/t in 2007, but picked the wrong processing technology, a technically complex system called high-pressure, acid-leach (HPAL) which also fooled BHP (ASX: BHP) at its Ravensthorpe project.
In nickel today, everything old is new again, with Forrest back in the game through a bold move in Canada (as well as buying into a number of small Australian players), and Ravensthorpe is back in business with a big Korean company buying a slice of the action.
But the history of nickel with its extreme price moves and game-changing technologies is also a warning.
It can be a fickle metal – all the way down to its name which was originally “kupfernickel” old German for St Nick’s copper, or the devil’s copper because it looked a bit like copper ore but was almost impossible to extract.
February crash, emerging renaissance
The 20% price crash earlier this year was caused by a Chinese company, Tsingshan Nickel, announcing a processing breakthrough, which it said turned low-grade ore into a high-grade product.
Nickel today is a metal enjoying an extraordinary renaissance thanks to it developing a second major use as a key ingredient in rechargeable batteries after relying for decades on a single market, stainless steel.
Batteries for electric vehicles, and a zillion other applications, is what’s drawn Forrest back to the scene of his first big business adventure, along with Posco, Korea’s biggest steel maker which is charging into the battery business through a stake in Ravensthorpe.
The challenge for investors is separating what’s happening at the top end where the corporate elephants such as Tsingshan, BHP and Posco are playing, from other players as signs emerge of a return to boom-time conditions in nickel.
Stocks to watch at smaller end of the market
Mincor (ASX: MCR) is a company with deep roots in the home of Australian nickel, in the WA outback town of Kambalda where Western Mining Corporation made its original discovery. Mincor lost its way for a few years when the nickel price fell, and gold looked a better bet.
A U-turn last year led the company back to nickel, starting with the development of the Cassini mine at Kambalda. Digging to the reach the rich orebody has started with first nickel hitting the market early next year.
With life of mine costs estimated at US$5,170/t (US$2.35 a pound) Cassini will be producing well below the current nickel price, which means it should achieve a capital payback in less than 12-months with peak production of 16,000t of metal reached in 2023.
Perhaps more important than the financial and geological detail is the presence of Forrest on the Mincor share register with a 15% stake held through his Wyloo Metals, the same corporate vehicle which last week bid for control of Canada’s Noront Resources which is a key in his plans to create a battery metals business in Canada.
After a weak start to the year, Mincor’s shares have been moving up with a $0.06 rise over the past two weeks to $1, which values the stock at a modest $432 million.
Another name in Australia’s nickel mining history is Poseidon (ASX: POS). However, it’s a very different business to the one which triggered the 1969 nickel boom that spurred Poseidon shares to a record $250, albeit briefly.
The new Poseidon owns the original discovery at Mt Windarra along with a number of other early discoveries such as the Black Swan and Golden Swan mines.
Poseidon aims to first restart production at Black Swan in the second half of next year with other mines to follow while value creation is also possible for ongoing exploration in the nickel rich areas around the old mines.
Adding to interest in Poseidon is that man again, Forrest, who is sitting on a 13.2% stake while Black Mountain, a US company with an appetite for Australian resources has a 19.6% stake in the stock which has crept up to $0.069 to value the new Poseidon at $205 million.
An early Australian player in the rich mineral fields of Brazil, Centaurus Metals (ASX: CTM) originally had high hopes for its Jambreiro iron ore project but has struck it lucky with the Jaguar nickel project.
Discovered by Vale, Brazil’s biggest miner, Jaguar was considered too small for a company steeped in iron ore, selling it two years ago to Centaurus for what today looks like a bargain basement US$7 million.
Exploration success in expanding Jaguar’s resource base, and a metal processing breakthrough, which should see Centaurus achieve the value-added prize of producing battery grade nickel sulphide, has significantly enhanced the outlook for the mine, and the company.
Centaurus suffered a sharp sell-off in February when Tsingshan played its market roiling nickel processing card but has recovered recently to a share price of $0.69 to value the company at $237 million.
Three other small players in the nickel exploration sector worth keeping an eye on include:
A company with its foot on tenements surrounding the historic Nepean nickel mine near Coolgardie in WA is Auroch Minerals (ASX: AOU). The historic Nepean mine has the distinction of being Australia’s second nickel mine. With a share price hovering around $0.20 Auroch has a minnow’s valuation of $54 million.
Azure Minerals (ASX: AZS) is another junior with big ambitions. The company has a well credentialled management team and a vision to turn the Andover nickel discovery near the northwest WA coastal town of Roebourne into a replica of the Nova mine in WA’s south.
A common thread is that both Nova and Andover have legendary prospector Mark Creasy as the key man behind their evolution.
Heading to the ASX soon, is IPO Lunnon Metals (ASX: LM8), which has the multiple distinctions of being named after an early Kambalda nickel mine.
The company also has the big South African gold miner, Gold Fields, as a cornerstone investor and key man in the creation of Mincor, Ian Junk, a as a co-founder.