Is Mincor Resources a sitting duck for a takeover attempt?

Despite popular belief, lightning can strike the same place more than once and that appears to be the case with Mincor Resources (ASX: MCR), which is reliving its nickel-star past as the same forces which saw its share price rocket up by 600% in 2007 appear to be making a repeat performance.

After that stellar 2007 performance, which was closely tied to a spectacular rise in the price of nickel, Mincor drifted into the wilderness, including three forgettable years up to 2019 when it tried (and failed) to become a gold miner.

Mincor has now returned to its roots just in time to catch a re-run of the nickel boom, rewarding its patient followers with a strong share price recovery that was capped by a recent spurt which has seen the stock rise by 51% since 9 December to trade around $1.79.

Rising nickel price

The nickel price is once again a primary driver for Mincor’s latest rise, up 40% since March, but so too is a re-start of nickel production and the promise of more to come as old mines are returned to life and exploration expands on the company’s mineralised footprint around its key operations close to Kambalda, south of Kalgoorlie in WA.

A lot has changed since Mincor entered the nickel business 20 years ago, which was a time when most of the metal was used to make stainless steel, with that traditional (and still strong market) now joined by demand from battery makers struggling to keep up with demand from the electric vehicle (EV) industry.

Though small, the key to understanding Mincor is that it inherited much of the nickel mining division of the old Western Mining Corporation – the company which created Australia’s nickel industry around Kambalda in the late 1960s before disappearing inside BHP (ASX: BHP), which a few years ago wasn’t sure whether it wanted nickel exposure.

BHP’s nickel story

BHP’s negative view of nickel started to change as demand for the metal from battery makers picked up speed, reaching a point where the mining major has found itself scrambling to re-assemble a nickel division to replace assets that it rather thoughtlessly discarded.

The first nickel asset kicked out of BHP’s back door was the Ravensthorpe project on WA’s south coast, which proved too technically challenging for the company’s engineers, but which is now running smoothly for Canadian-based First Quantum and its new partner, Korea’s Posco group.

BHP’s next nickel asset to be given the flick was the Cerro Matoso mine in Colombia, which was deemed surplus to requirements, but which is now a strong performer for its spin-off South32 (ASX: S32).

The biggest remaining BHP nickel business is Nickel West, which was once the processing operations of WMC with assets that include a smelter in Kalgoorlie (close to Kambalda), a metal refinery at Kwinana (south of Perth) along with a number of mines north of Kalgoorlie.

They were all for sale as recently as two years ago.

Nickel re-investment

Today, BHP is re-investing in its facilities to produce battery-grade material, expanding old mines, and signing fresh ore supply agreements with small miners such as Mincor as they restore assets BHP once owned, and open new mines on tenements once controlled by BHP.

The rebuilding process has not gone smoothly. BHP was beaten in a pre-Christmas bidding duel with iron ore billionaire Andrew Forrest for Canadian nickel hopeful, Noront Resources.

That loss year prompted BHP to buy a stake in Tanzania’s Kabanga Nickel, along with a seat at the table of a promising new nickel processing technology.

The return to Africa, after repeated failures on that continent, is an example of BHP’s desperation to repair its mistakes and grow a world-class nickel business.

At some point BHP management might wake up and look a little closer to home where two nickel targets are making its global wandering look a little foolish even if the Canadian and Tanzanian adventures highlight the case for investing in nickel.

Western Australia’s nickel riches

Perth-based Chalice Mining (ASX: CHN) is one that got away from BHP with management at Nickel West undoubtedly watching on as a world-class nickel and palladium discovery was made less than 100km from the Kwinana refinery.

Mincor’s revitalisation of mines close to Kambalda is the second example of a nickel business developing (should that be redeveloping) in BHP’s backyard.

Rather than being forced to buy feedstock from other miners, BHP could be producing more of its own material, as well as expanding output in a nickel-rich region, which has attracted international mining companies to plug a hole left by BHP’s departure in search of nickel in Canada and Africa.

None of this background necessarily makes Mincor a BHP takeover target, not least because if it did make such a move it would bump into its Noront nemesis, Forrest, who is sitting on a 15% stake in Mincor and more than happy to make life difficult for BHP as it made life difficult for him in the early stages of his iron ore business, Fortescue Metals (ASX: FMG).

Closer look at Mincor

The key for investors in understanding why Mincor is a company worth a closer look lies in the combination of its return to nickel production as the commodity’s price hits a high, and a big landholding in a region with a prolific mineralised endowment.

Mincor’s share register is also worth noting with Forrest sitting on top and another nickel-hungry player, IGO Ltd (ASX: IGO), in third spot.

On the production side, first ore in Mincor’s nickel re-start was from the Durkin North mine just before Christmas, a significant de-risking event, to be followed by first ore from the recently developed Cassini mine in the company’s southern WA mining centre near Widgiemooltha.

By the end of this year, Mincor will be building nickel output towards an initial target of 15,000 tonnes of metal annually at a cash cost of around US$6,500 a tonne – roughly one-third of the current nickel price.

Macquarie Bank reckons the value of nickel sales should be running at more than A$300 million annually from next year, with around A$111 million sticking in Mincor’s accounts each year as after-tax profit.

Cash flow re-start

The re-start of cash flow is underwriting Mincor’s immediate future, while project development and exploration on tenements that cover some of the most attractive nickel exploration targets in the world is attracting the eye of corporate players such as Forrest and IGO.

Lurking in the background, but probably concerned about a re-run of its Noront flop is BHP, which ought to be the natural owner of Mincor’s assets (as it once was).

Whether looked at as a mining revival story or an emerging corporate play Mincor is very much a stock to watch even if the share price appears to have run ahead of fundamentals. At $1.79, Mincor is $0.24 higher than Macquarie’s price target of $1.55.

But anybody who has lived through a nickel boom, like that of 1969-1970, or 2007-2008, can tell you there is nothing quite like a nickel feeding frenzy to drive share prices through the roof.