Neometals (NMT) – Battery Recycling Project gets Major Boost from giant SMS Group (Transcript)

Neometals Ltd.
  • ASX: NMT
  • Shares Outstanding: 545M
  • Share price A$0.16 (30.06.2020)
  • Market Cap: A$87M

Interview with Chris Reed, CEO of Neometals (ASX: NMT), and Accompanied by Jeremy McManus, General Manager.


Neometals is a ‘Project Developer.’ A technological innovator with a diverse portfolio of intelligent, economic projects, many of which position it in the incoming EV revolution. This includes a lithium refinery, a low-cost vanadium recovery from slag tailings project and their vast titanium-vanadium project. The most advanced project is a proprietary hydro-metallurgical technology that offers a much cleaner, more efficient means of recycling lithium-ion batteries than conventional pyro-metallurgical and mining methods, helping automotive manufacturers with their goal of NetZero carbon footprint.

The project has an ESG component that has become increasingly useful after Elon Musk’s request for as much clean, green and sustainable nickel to be produced. It is clear, the front-end of supply chains is under more scrutiny than ever before, and Neometals has the solution to fit perfectly into the backend of this green narrative. This will help deliver a solution for full supply chain.

Today, we’re talking about Neometals’ JV with SMS Group, a multi-billion dollar German conglomerate (Matt mistakenly refers to SMS as SGS on 2 occasions- apologies!). It was announced today, and Neometals now has a major partner for its flagship battery recycling project. It’s definitely a major milestone. We dig into the details, looking at the terms of the contract and the size of the opportunity that this could present for Neometals.

The company, as we’ve mentioned repeatedly, has more than enough cash, with $85M in the bank, to get this operation moving forward at an accelerated pace, and the next 12 to 18-months look like an exciting runway for catalyst moments. Expect an FID at the end of this period.

We Discuss:

  1. 2:38 – Company Overview
  2. 4:51 – JV with SMS Group: Diligence Process
  3. 8:53 – Potential Size of Market & How They’ll Capture it
  4. 15:28 – Barrier to Entry: Differentiating Neometals
  5. 17:47 – Elon Musk’s Requirements: Greenest Tech Ever?
  6. 22:15 – Terms of the Deal with SMS Group: Liabilities and Funding
  7. 30:37 – “Dividends? Keep ‘Em!”: Addressing Shareholder Concerns
  8. 32:29 – Building Neometals: A Look at the ESG Movement
  9. 36:04 – Raising Money: Do Funds Care?
  10. 38:25 – Understanding the Potential: Timing for Studies and Numbers
  11. 43:55 – What Happens Next?

CLICK HERE to watch the full interview.

Matthew Gordon: Gentleman, how are you? How are you, Chris? How are you Jeremy?

Chris Reed: Very well. Thank you, Matt.

Jeremy McManus: Good. Thanks, Matt.

Matthew Gordon: Thanks for joining us. I know it late your time, so we’ll get straight into it. We have seen the press release came out this morning. It looks like pretty good news. You have actually managed to get this JV together and created a company called Promobius. Do you want to tell us a little bit about it? Maybe start at the beginning for people new to the story, and then we will pick it up from there and get into the weeds with you in a second.

Chris Reed: Neo Metals is an ASX-listed project developer. Historically, we developed the Mount Marion Lithium project, which is one of the world’s largest sources of Lithium. Immediately in 2005, after we started construction we started looking at where in the supply chain we should be next, and all roads lead to recycling. These batteries are a mix of Lithium that’s been mined in Australia up to China, into Europe. Cobalt that has been mined in the DRC into China, into Europe or into Asia into the US. We have gone to such great lengths to combine all these materials in the battery. Surely at the end of life there is significant value to be had by processing these and recovering the battery materials as opposed to, to keep mining primary sources of ore that have got a massive carbon footprint.

So, over the last 3 or 4-years, we have been developing a process. We have been scaling that up from bench scale work in Australia, through continuous lab scale into a pilot plant that we ran at SGS in Canada in 2019. We finished that early in 2020. We executed a MOU with a very large German engineering group SMS Group last year. They have done extensive due diligence. We finished the pilot plant and today is really the culmination of about 9-months of work to incorporate what will be a 50-50 joint venture to develop initially what will be Europe’s largest battery recycling business.

Matthew Gordon: Can we just talk about some of the moving parts first before we get into the detail around the deal itself? SMS Group. Who are they? You say they are a big German group, but tell us a bit more.

Chris Reed: SMS, they have been around for almost 140-years. Privately owned. More than 14,000 employees in 95 sites around the world. They are one of the largest builders of processing plants in the world, based in Germany, which for us outside of China is the largest Lithium battery production hub and emerging. A natural target; they are, what we would say is a high capability partner in terms of delivering what have been successful R&D outcomes from Neo Metals. They are eminently equipped to build and operate these plants on behalf of the joint venture. They are one of the largest generators of German-backed import-export financings. They have been around a long time more than €38Bn sales last year. And I had a look in the annual report that they have got almost €1Bn cash. So, they are a very, very strong capable group and they bring a lot to the transaction.

Matthew Gordon: It would be nice to talk about one of the other variables, which was the market for this. What I’m trying to do is work out the scale of the opportunity, and then be able to get a sense of the quantum that you’re going to be able to capture. SMS – they are German, is that’s why you’re focused on the European ecosystem? You have got this battery metal thematic going on throughout Neo Metals, but what is it that you have been doing with them over the last 9-months to get them through to this stage? Can you tell us what’s the diligence process? What’s the problem you’re trying to solve?

Chris Reed: So essentially, you have got these batteries at the end of life and they have a lot of base metals in them, they have Lithium in them. It is hard to store them safely and they’ve got very high value in terms of the in-situ metal in those batteries. So, we have had to develop a process that can deactivate those batteries. We shred them, make them safe to downstream process. And then we developed a downstream process to recover the cathode chemicals that can be reinserted back into the supply chain. And, you hear about, Elon Musk has come out and said, we need Nickel and the Nickel producers to produce more Nickel sulphate. Okay, I do need more Nickel sulphate, but the Nickel is going into these batteries, you can capture it at the back end and you don’t need to have big mines that make concentrates and then they get shipped to refineries around the world and then they get made into metal and then they get dissolved into sulfuric acid and make sulphates and then go to cathode manufacturers. We can actually regenerate exactly what needs to go back into the supply chain at a fraction of the carbon footprint of virgin-mined materials. My offer to Elon Musk would be: we will recycle all the Tesla’s batteries forever for free. And if you want to phone me up, hit me up and I’ll even let you share in some of the profits.

Matthew Gordon: That’s a big offer. I hope he’s listening. You never know. So that’s interesting. You’re saying that you have got a green solution for providing Nickel back into the battery cycle. But part of what I wanted to understand is the size of this market. What is the total potential size of this? What is the bit you’re going to capture and how do you do that?

Chris Reed: Our initial deployment, so we own a 20,000t commercial scale shredding plant, or a comminution circuit. So you have got to make it safe to process. Then you have to separate out the plastics, the steel, the Aluminium, and Copper foils, and then you are left with a black powder or what we call a black mass. We then leach that and recover the cathode chemicals. So that’s essentially the process in a nutshell. And that addresses pretty much what the market needs. It needs to process them safely and it needs to close the loop. And if we have a look at, perhaps the timing of the deal and you go back to, what have you done in the last nine months – so what we have done is, is we have shown them the scoping study, the results we have then walked them through and they have been able to witness the pilot plant. We have wound that up. They have seen the recoveries we get, they have seen the purities that we can make. We have got the format test where it reports the mass energy balance and it goes into the engineering studies, and the guys are comfortable. And the opportunity in terms of the size of the market, so they’ve deduced what we have got to process. It is technically feasible. What they’ve told us so far is that it is economically viable. But when you overlay that, what is the opportunity into Europe? The investments in the EV sector in Europe have outweighed what has been invested in China for the last three years. The Chinese were there, they’re bigger, but they were there earlier. Europe has been where the factories have been committed to. And so,  what you have found, even from the start of the year to where we are now, it has gone up to 415 gigawatt hours. It is now over 500 gigawatt hours. And when you translate that into batteries that will hit the market and then how many batteries will come after they used for life, somewhere between 7 to 10-years, you are looking at a multimillion ton potential feed.

And so initially we’re going to roll out a 20,000t plant, and that’s designed really to take the production scrap from a gigafactory, not necessarily Tesla’s, but LG or any other, or indeed dealing with the car maker who gets their batteries from different sources, but initially designed to take production scrap. And then we would scale that up for the end of life applications. It is a big market. And if you multiply a couple of million tons by the in situ value, you are well into the double digit billions in terms of the market, and hence why for us, some might look at the transactions and go, well, you are giving half away, and then I would say, well, are you? You have approved a technology that cost you X to this point, and you have got to make it a reality for your shareholders and turn it into cash. What is the most efficient, timeliest outcome here, which is to get someone who is perfectly capable of delivering on time and scaling up to whatever the market needs? , SMS aren’t in there to build a little dinky 20,000t plant, they are there to build multiple 200,000t or larger plants. That’s the game.

 So, quality product meets all the regulatory requirements, meets the needs of the market. This is a step away and you look for minerals and materials for a sustainable future – that way. And so, we are giving them materials for a sustainable future in a sustainable process. It is a step away from mining, but it is lower risk than mining. We have done is we have partnered with someone who can actually make our 50% worth multiples more than what we could do. Now, we could deploy this in Australia, but Australia wouldn’t be big enough for 5 to 10-years. Europe is big enough. We can say with confidence that the money that is being committed, last month you had the German government commit €135Bnto the health of the EV carmakers. All of a sudden, this €6,000 cash subsidy to go with the €3,000 from the producer – that’s the carrot. And then they’re going to invest €65 billion investing or installing 77,000 high voltage charges in 14,000 service stations in Germany. That’s €135Bn. That is more than my country has committed to COVID relief for the whole country. And this is Germany just for the car makers. And you have got the French who have committed €12,000 for every domestic. And then you have got penalties if your fleet produces more than 95g Co2 p/km. You have got the carrot and the whip, just driving this transition to decarbonise transport and circular economies.

We started out 3 or 4-years ago, we thought this will grow into a good business. And we get into these businesses early. We were first into Lithium, we were first out of Lithium production. We’re one of the first into large scale recycling. But what has surprised us, has been the confluence of all these regulatory and ESG and circular economy and just these massive tail winds and these volumes just, they keep coming at us.

Matthew Gordon: Europe is the right place to be, and you have got the right partner in SMS because they have got the capital and connections. I understand that. You talked at the beginning about – you have developed. I’m trying to understand what are the barriers to entry for people coming in to try and get to capture some of this? And also because I understand the first mover advantage that you have got, but have you got proprietary technology? Have you got intellectual property? What’s to stop other people coming in and talking the same game?

Chris Reed: Yes, sure. We have developed own flow sheet. We have EU and Australian provisional patents pending. We have done the normal freedom to operate searches. I guess anyone that tries to follow us will be getting a nasty letter from our employees, our lawyers. And probably the employees. We have learned a lot over the last couple of years; it is called research & development for a reason. If you knew what you were doing, you wouldn’t call it research & development. So equally as we have found a process, we have found not what to do as well.

So you have got to be careful with these batteries. I remember early on, my chief operating officer gave me a book on Lithium batteries called ‘Canned lightening’. If you don’t shred them the right way, we have all seen from the press what can happen? Safety primarily and then recovery of value with an eco-friendly footprint. That would be pretty much the 3 drivers that that I would espouse that our process has.

Matthew Gordon: So talking about the Elon Musk statement last week about Nickel. He wants a green, efficient production of Nickel. And some of the Nickel companies, especially the Sulphate guys, reacted quite positively to that. You are at the other end of the scale, but nevertheless, as important, it seems. That seems to be the story: you are saying that you’re nevertheless important in terms of the total carbon footprint associated with car manufacturers, products being the car. With your technology, can you claim to be the greenest battery? Because there are battery recycling companies out there, you’re not the only battery recycling company out there, but are you saying you are the cleanest or you have got scale? What’s your USP?

Chris Reed: If you have a look, and people say recycling and it covers a lot of business models. In Australia, people say, I’m battery recycling. And really what they’re doing is taking the batteries, they’re deactivating, they’re shredding them and they’re separating out casings, foils, plastic and the black mass and the black mass is going offshore. And then you can go to Europe, with some of our competitors, who are using traditional pyro-metallurgy routes. They would take either the battery or the black mass and basically melt it. You would incinerate the graphite, which is about 50% of the mass. The plastics, the electrolyte hydrocarbon that’s bearing the Lithium. And so instantaneously you are below 50% recoveries. Whereas the EU Battery Directive is heading towards higher than 85% recovery, which is where our process is now. We’re hoping to get well into the nineties.

Our process has higher recoveries. And if you have a look at, as Elon said: more efficient, and even if you go to Rob Friedland’s comments last week about his high-grade Copper in the Congo, which will also need to go on the batteries, he has got a 10% grade. If you compare that to a 1% grade, say in a big bulk Chilean operation, you have to mine 10x less ore – that has a lower footprint. And then when you put that in your processing plant, you have to process 10x less ore to get a ton of Copper. It is just arithmetic. It then follows, if I’ve got a battery, the battery has the highest purity, metal oxides, or metal sulphides to get converted to metal oxides that you can get. The metals that are in there were high purity. And we’re recovering. If I have a look at an Apple battery, by weight it is 20% Cobalt. It has got incredible value: USD$6,000, USD$7,000 p/t of the ancillary stuff. That is incredible. If you had a look on a Gold basis, that’s 3oz p/t, right? There’s fat in it.

Our process is, is not the cheapest. The cheapest would be just burning them, but they then have to factor the losses in. And so, we are confident that we have almost a future-proof process. And it is a technology, so we have to look at what the market wants in the future. They will need get down to ‘net zero carbon’.

And if you have a look at so you buy an internal combustion engine or a car, a normal car with an internal combustion engine, it has a lower carbon footprint from the EV. What’s different in the car? One has got a battery, ergo that difference is in the battery. And the battery, it is mainly materials, otherwise it is electricity and robots and a bit of labour. It is in the materials where the carbon is. And if you can recover that, recycle, recover, produce a secondary material, you massively reduce the carbon footprint. And then all of a sudden, the EV is not as far behind the internal combustion car so you actually can get to what the car makers want.

Matthew Gordon: That’s good for me. Because we have talked about some of the variables, which I needed to understand, the macro component, which is what you’re working towards. What technology you have got, and what you’re you think you’re going to be able to capture? Can we just talk about the deal then? Okay – so SMS – big company. 1) why on earth would they team up with a small Australian company? 2) once you have explained that, talk to us about how has the deal been broken down? Who gets what? Who provides what? What are both sides bringing to the table?

Jeremy McManus: At a high level, Matt, the way the deal works is, we have worked for years on the technology, and that’s patent pending. And there’s a chemistry flow sheet there, which, we have covered it for a long time. We bring that into the equation and what SMS bring to the table. Again, this is at a high level, but they bring the ability to help us design, build, operate, and maintain that very complex plant. And that’s one of the key reasons why we’re keen to partner with them because ultimately if you want to appeal to the world’s biggest OEMs, they need some confidence that you can get this done. Having a neat technology is great, but actually having the ability to deliver. And there’s lots of USPs associated with our technology, but really the thing that’s most interesting about it is actually the business case itself, and having SMS on board is probably one of the biggest ticks because it means this has a chance of actually happening.

So, in terms of how else does this deal look? We’re looking to share the costs as we evaluate through building a demonstration facility in the heart of Germany. That allows potential partners and others to touch and feel and look at this showcase, see what comes out the backend and evaluate products. We will do a Feasibility Study in parallel with all of that. We will get a stronger grip than we already have on the economics. And ultimately we will make a decision to roll this out commercially, and Europe looks like an interesting place to start doing this, but of course, we need to attract the people with the feed, which we’re busy doing already. And also the people who are going to buy and take in a binding off-take sense for us to make a decision to go ahead and build commercial plants.

Matthew Gordon: Talk to me about it, so what does the deal construct look like? And are you happy with the terms or are you the smaller partner in all of this?

Jeremy McManus: Yes, well, it took a very long time to get to this place, as you would expect with a German company. That diligence was really, really thorough.  most people would see that as a very good thing because no stone has been left unturned with our partners. But yes, we’re exceptionally happy with the deal. It was negotiated very hard, but it is certainly fair to both parties. And we see both parties bringing a lot to the table. SMS can’t do this without us. We have to transfer technology, we have all the insights thus far, but we really do need a presence in Europe, the networks, which pull up with very big OEMs. And even just having a permitted site to demonstrate this, a lot of this is probably lost on people that don’t live and breathe it, but that’s hard to do and it is super time-consuming in the middle of COVID. So there is a fair bit to all of that, that screamed to us that we need to go ahead with this deal.

Matthew Gordon: Give me the terms of the deal. What is it going to cost you? What are your liabilities until you get to a point where there’s an FID on whether to move forward or not? Have you got the money?

Chris Reed: Yes. I can jump in here. We are very well-funded. We have got about AUD$85M in cash and listed investments, no debt – that’s Aussie dollars. So, €50M. In terms of the funding requirement for both SMS and Neo Metals through to the FID, the approved budget is €4M. In terms of moving into our first deployment into Europe, one of the terms of the deal was that SMS uses its best endeavours to procure German government-backed finance. And in terms of funding, our equity contribution, we’re completely able to do that off our own balance sheet with no dilution.

There’s a seamless path in terms of activities: both technical and economic and commercial. In terms of financing, we are good. We financed our entire contribution without debt, still off our own balance sheet. So, we have good flexibility there. It is roughly an 18-month funding requirement and our chip-in is €2M.

Obviously, all of our staff, labour, time. The joint venture will acquire our full commercial scale shredding or combination circuit. In terms of when we make a decision to commercialise, we can actually start up shredding and beneficiation well ahead of building a matching hydromet plant.

Matthew Gordon: Let me be clear, Chris, because we have had the questions sent in and so I want to be really clear: you are a project developer company. Your model is to fund those through to FID. But the company, at that point, whether they be JVs or otherwise will need to stand on their own two feet that, these are commercial operations, which you have got with partners. That seems to be your model. You develop a flow sheet, you bring in a big partner and then you make a decision whether to advance the project or not, jointly. But at that point, you go to market looking for debt or equity for that entity, and that does not affect the balance sheet or the ability of Neo Metals to continue with this current model?

Chris Reed: We have got total flexibility. Obviously, this project is the closest to cashflow for Neo Metals as a combined entity. It is more likely to stay in the group in terms of, we would love a cashflow-generating asset. We sold our last cashflow-generating asset last year, but banked a lot of cash at the front end of that. And the performance of the Lithium chemical prices, the Spodumene price is probably a third of what it was when we sold. So that vindicated that decision to sell early. And then what we have done with our extensive cash resources, as we have continued to share that; we have had five annual dividends back to the shareholders. We have returned more than AUD$55M in dividends and capital returns. We are cognisant of the importance of capital, particularly as you’re going into something like COVID-19. Now they are individually set up to, to be sell financing and non-dilutive, if we so choose, or we can embrace it. And certainly the Lithium battery recycling, we would embrace that as our first cash flow assets.

In terms of the other projects, they all have strong partners. They are all co-funded through the final stages of evaluation into FIDS. And we have complete flexibility whether they move in or out of the group, we can give them back to the shareholders, via an inspecie distribution. We could separately list them, raise capital, raise debt. Having such a strong balance sheet and no debt and a pipeline of projects that are getting to FIDS at the end of 2021, 2022, 2023, 2024. There is a pipeline of projects. , obviously we can’t fund all of them off the balance sheet, but the highest return with the lowest capital investment is going to get the first nod.

Matthew Gordon: Sorry to dig down on this one, but again, we have just had so much feedback from the market. You have been dishing out dividends. You did one recently, a big distribution. Your shareholders are probably happy, you would expect, but some of them came back and say, are these guys cognisant of the fact that we perhaps would rather have the security of knowing that the next project is going to get done, then have dividends. That’s a big group of people out of the shareholders going: keep your money, Chris. I want you to get this deal over the line. What are the discussions at board level around how you manage the capital that you have got?

Chris Reed: It goes through a very comprehensive process, a very highly experienced board. And we are very cognisant of what dilution costs to get projects. We are also aware of our weighted average cost of capital. We are also aware that if you do not have an immediate need, if you’re getting up to it and, you’re going to make the FID, it is different. These projects are advanced, but they’re still in the final stages. You have to have an equal balance. It is the shareholders’ cash. If I have not got a plan to deploy all of it, and we have given that over a 5-year period. So clearly we haven’t had the investments that have needed to be made. And we have taken the decision to return that cash to its rightful owners, which is the shareholders. Unless you have got a better use, right? If I can’t earn my weighted average cost of capital, or if my cost of dilution for an event coming up, then I shouldn’t pay it out, but we do go through a very detailed process.

Matthew Gordon: Do you think that this whole ESG movement is getting more traction now? I know you have been at it for 2, 3-years. You guys spotted it 2, 3-years ago and segued the business over it. Was there any point at which you are going, ‘crikey, I’m not sure people are going to pick up on this thematic other than just the nod to doing things the right way’?

Chris Reed:  it has probably just, just caught up. Look – my family has been involved in the mining industry for more than a hundred years, so we have developed precious metal mines. We have done industrial metals mines. We have explored for base metals. The thematic in there for us, the thematic of minerals and materials for a sustainable future then defines the commodities that you should target. And then you have a look at, okay, well, if I was going to get this out of minerals, what are the trends? And if I have a look at just general minerals projects around the world, the grades are getting lower and they’re getting deeper, ergo, the mining cost per unit of output are going up. And unless you can work out a way to actually change the physical location of your ore body, enrich it and make it closer to the surface, that trend is immutable.

So for us, we thought, well, the only way really that we can level the playing field is to try to innovate on the processing side. And, hence, we had a look at recycling and then we have had a look at Vanadium recovery. And from our background, our background has been in minerals. We were in Lithium minerals, Lithium chemicals. And this is just the next progression. It is producing these chemicals, but without the mine, and so it is lower risk, lower time, lower uncertainty, and hence, we know what’s in the batteries when we process them. With perhaps the Vanadium recovery project we know what the Vanadium grade is in the slag, they see exceptional grade. And if you do your studies right, and we are diligent in our studies, if you have got the grades, the feed grades right, you shouldn’t have massive fluctuations in your operating costs.

Where a lot of these projects go wrong is in the mining: everyone wants them a certain size, and you have got to do your evaluation studies in a certain period of time. And we cut corners. And the results vary a long way away from these Feasibility Studies. But essentially, they rush the front bit and we don’t run that. We don’t rush the front bit. We want to get it right, and we want to get it right. And we want to bring in big partners. We want to get the highest return on capital in the shortest period of time. The board and management of the biggest shareholders in the company. And we want to make our money and share it with our shareholders. That’s what we do.

Matthew Gordon: At some point you are going to need to raise some capital. It is all well and good Tesla saying, ‘give me green, efficient, name the commodity, right? Lithium, Nickel’. And it is all well and good. Your conversations with automotive manufacturers saying, we need to address our carbon footprint, but when it comes down to raising the money, do you think that the funds care? Are they going to give you extra attention because you have got a greener solution? Do you think you are going to be able to raise the capital based on the economics you’re going to be able to achieve?

Chris Reed: Whether or not they are green or not, none of those green funds like losing money, and neither do we. So, you will find in the discount rates we use for the battery recycling, we use a 12% discount rate. We are here to get these projects built. We’re not trying to coddle them to get some outcome in the market. If we need to go and raise the money we will. We have raised equity and debt, probably in the order of USD$180M to $200M over the life of the company, overdue areas, projects, and always paid our debt back. If you do what you say what you say you were going to do with the money and you are open and transparent. I can’t see any reason why we wouldn’t be able to. We haven’t done it for a while. We haven’t raised money for seven or eight years, but that’s not to say that. That’s good I would’ve thought,

Matthew Gordon: Well, it is good, but that’s what : at some point you are going to need to go to market, presumably, in Oz or in Europe.

Chris Reed: We’re not scared of that. If you have a look at the portfolio, our shareholders have four projects, now, if I give it back to them in an end-share distribution, you can either put more money in it. If you don’t want to put more money in it, we have to bring in new money and some debt, you still own the same amount as if I kept it in the head company and did the same thing. Right. But you don’t want to dilute four projects. So, you want to keep your best projects, right. And the ones that have the tightest strategic focus. There’s nothing wrong. Just because we have got a big portfolio, I can return those back to the shareholders. We could do spin outs. You could do any number of corporate finance moves on it.

Matthew Gordon: So at what point, I know you said you’re going to be doing a Feasibility Study for this project going forward, and you will get a better sense of the economics and cost and so forth and efficiencies. What’s the timing of all of that? Because if I look at your business as a whole, people go, certainly the feedback we get: these are smart guys. They are good operators, they are efficient operators and they are straight talking. What they’re trying to do is get a line of sight and go look, how do I start to quantify or value or evaluate these four projects coming down the line? I know 2021, 2022, 2023, 2024 is great. But what do they equate to? Are you going to be able to start giving us and sharing with us that those sorts of numbers going forward?

Chris Reed: Yes, absolutely. We have 4 advanced projects. They are in feasibility and then moving into feed. So, these studies take 12 or 18-months and then they just land. They’re designed to land as we know them too, but essentially, we’ll have Feasibility Studies landing and then moving into feeds for some of the projects, but you will have them landing sequentially. So, we go through a disciplined process of Scoping, Pre-feasibility, Feasibility and then front-end engineering and design. We don’t cut corners.

Matthew Gordon: Help me with the numbers.

Chris Reed: We will be able to put metrics into the market, and if I’m spending the shareholders’ money, I need to tell them why. I need to tell them what the risks and rewards are. And they need to know that because they need to know whether, and I might put it into another company and I might ask them to put more money in and they have a choice whether to, or not, but they need to understand the risks and the reward. We go to some length to share that with them.

Matthew Gordon: So when can we expect you to start adding a bit more colour to the sequence of projects?

Chris Reed: We could certainly provide a consolidated timeline for the various projects to you. Over a long period on a quarterly basis is there’s quite a lot of events. But, for the battery recycling, you’ll have a Class 4, Class 3 Study. Now what we might do is, when I said we will share the risks and rewards, we’ll tell you what the operating and capital costs are. We might not tell you exactly what the financial model looks like because, there are often there some commercial in confidence elements about that. It is not like if you have got a mine; if you have got a mine and you are opening the mine, you can be completely transparent about everything, right? Because no-one is going to come in and take it off your hands. But this is a technology where I’ve got to go in and I’ve got to compete. I don’t want to tell the wider market anything that might prejudice the actual success of the business. People will have to just bear with us then, but just suffice to say, we have put out a Scoping Study, that has got enough data in there where you can work out a financial model. You can work out the operating costs. We have given you the capital cost. We have given you the assumptions on the battery mix, the pricing assumptions. An educated analyst could come up with a number that’s probably 5% of what our management model looks like.

In terms of what the pilot plant told us, we surpassed our expectations. So you can have a look at the Scoping Study and hold those going forward with some confidence.

Matthew Gordon: As a retail, family office investor, we need to get a sense of those numbers. My comfort comes from someone like SMS, a multibillion dollar operation, doesn’t go and do a deal with a small Ozzy company if it doesn’t think it is going to make a lot of money. And I also get that there’s enough data around to be able to create some crude model about what the opportunity is.

Chris Reed: 4 of our other projects, from the Vanadium recovery, the Lithium refinery and Barrambi, we are more explicit. So, for the Vanadium recovery project, we put out a Scoping Study last quarter. We will put out the Pre-feasibility mid next year. We’ll put out the final Feasibility mid the following year, we will make an investment decision and then you’ll have a timeline. For the traditional projects where there’s a known feedstock source secured, I’m happy lifting the skirt, so to speak. The battery recycling one, I just do need to be a little careful. It is a bit like Mount Marion, we developed what is the world’s second largest source of hard rock Lithium units. We never published a resource. We never published a reserve and we never published results of any Feasibility Study because we were negotiating with the Chinese. Only one country by Spodumene, that’s China. The last thing you can do is tell them your costs. If I’m trying to go into the EV market in Europe, these guys love beating suppliers up. I don’t want to tell them everything.

Matthew Gordon: Great catch up, Chris, a great story and well done on the JV. I’m excited to hear what happens next.

Chris Reed: So are we. A demonstration plant is starting up in the new year in the centre of Germany at one at SMS’s has production facilities. The procurement activities are highly advanced. We’ll start construction probably towards the end of September as the European summer starts to wind down and everyone gets a back into the swing of things and do the demonstration plant in the March quarter. We will then do the engineering and Feasibility and commercial in parallel. Come Christmas next year. It is hopefully going to be good times.

Matthew Gordon: Chris, I appreciate the update, Jeremy – thanks so much. Good to speak to both of you as always. Pick up the phone if there is some new news. Thank you.

Chris Reed: Excellent. You have a fantastic day.

Company Website:

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Mark Selby #08 – Tesla, “Produce more Nickel. We will give you long-term contracts” (Transcript)

Canada Nickel Co Inc.
  • TSX-V: CNC
  • Shares Outstanding: 57M
  • Share price C$0.92 (02.07.2020)
  • Market Cap: C$52M

Our weekly Nickel Market Insights with Mark Selby, Nickel Market Commentator and CEO of Canada Nickel Company (TSX-V: CNC) will help you stay ahead. Stay up to date by listening to our weekly market roundup on Nickel.

So, what events have transpired in the exciting world of nickel this week? Price movements are at the top of the list: nickel has gone from a low of c. US$11,000/t up to US$13,430/t today. It did actually hit a peak of US$13,512/t last week, but Selby attributes this to nickel trading in synergy with some momentum drivers around the Shanghai Index.

Just as the nickel price was starting to recede, Elon Musk of Tesla, the figure of ultimate encouragement for nickel/battery metals investors, has told nickel miners to produce as more nickel in his quarterly call. He’s clearly gearing up to go big and kickstart the EV revolution in style. After launching the mid-tier Model 3, Musk needs this to be the cash cow for his company. Many have regarded Tesla stock as immensely overvalued given sales figures, but the c. $35,000 Model 3 could be a real gamechanger, building on the success of the Model S and Model X; I’ll hold off on the Cybertruck for now.

Major subsidisation packages in Europe alongside European vehicle manufacturers investing €250B in EV infrastructure, and the Chinese EV space needing to be rejuvenated are compelling reasons for nickel producers to be accelerating their production timeframes.

After touching on some of the macro thematics beneath the surface of the nickel space, such as the immense difficulties surrounding the production of the huge amount of nickel that may be needed in the next decade, we touch on one of our favourite gold production stories, Karora Resources (TSX: KRR). Selby is already an expert on the Dumont Nickel-Cobalt Project, having developed and de-risked it substantially during his tenure as CEO of RNC Minerals. Karora Resources has sold its remaining interest in Dumont (28%) to Waterton for some cash up-front and a residual payout based on a future sale. The 3 low-grade, bulk-tonnage, advanced nickel projects have all been acquired in the last 6 weeks. BHP, OZ Minerals and Waterton have all moved to secure projects early. Is this a major sign of things to come? Time to pile into nickel?

We Discuss:

  1. 2:42 – Tesla’s Quarterly Call: “Nickel Miners – Don’t Wait!”
  2. 8:54 – Innovations in the Space: How Can it Get Better?
  3. 14:51 – Environmental and Efficient: Impact on Investment
  4. 20:17 – Ways of Validating Company Claims for Retail Investors
  5. 24:09 – Giga Factories and Nickel Uses
  6. 26:45 – Nickel Price Drop: What Happened?
  7. 27:49 – M&A News: Karora Resources Sell Dumont Stak

CLICK HERE to watch the full interview.

Matthew Gordon: Mark, how are you doing, sir?

Mark Selby: Excellent, sir. Good to see you once again. Actually, I can see you better because I got my glasses back. They broke, and so I was with my readers which don’t quite work, but I can see clearly right now.

Matthew Gordon: I lose mine quite often and then my children tell me they are on my head. When you do that thing – and you go, ‘where are my glasses?’, I’ve reached that age.

Mark Selby: Mine fell off when I was cutting the lawn and then I drove over it with the lawn tractor.

Matthew Gordon: That would definitely do it. Well done, well, that’s quite spectacular. I’d better put them back on or I can’t see you or the page in front of me at the moment.

You are here for our weekly catch up on Nickel. And, we were both listening to the Tesla Quarterly call. I thought it was really interesting. I thought it was fascinating because it was quite insightful as to the way that Elon Musk and Tesla are thinking, and others will follow suit quite quickly.  the one big phrase that stood out for me was, ‘Please mine more Nickel. Don’t wait for the price to go up.’

Mark Selby: Yes.

Matthew Gordon: That’s more easily said than done. What was your take on the call?

Mark Selby: Oh no, it was fascinating. To me, firstly I would encourage people who are into Nickel to listen to those two minutes of it so that you can actually hear what the context was. For me, the fact that he was answering and came up to that response to the question of overall battery constraints; so, an investor was asking him, it sounds like you might be less concerned with battery constraints and he launched straight into: ‘Please mine more Nickel.’ And there were several dimensions to that. The key is A) don’t want for the price to move. B) if you can do it in an environmentally sensitive way. And C) if you can do it efficiently. So I thought those are the three key things that they are thinking about, and obviously they haven’t quite got there because he also talks on the call about how he doesn’t need any Cobalt but he has signed a couple of Cobalt deals but he hasn’t signed any Nickel deals at this point. That his comments really highlight some of the key constraints in this industry that we have started talking about on these calls. But he drove it home to what the exact theme is.

Matthew Gordon: Slightly conflicting messages about Cobalt. He is talking about Cobalt-free batteries, then he comes out and then he says, go and invest in some Cobalt. But let’s break it down on more of the stuff that we did understand, which was the phrase he says to Nickel miners, ‘Don’t wait.’ What did you read into that?

Mark Selby: Yes, what that fundamentally is reflecting is that at USDUSD$6/lbs today. There really is no project outside of Indonesia that could go ahead, assuming a long-term USD$6/lbs Nickel price, or at least for a period of time until the capital is paid back. For most projects, anywhere from USD$6.50 to USD$7.50/lbs is required. We are hoping that our project, given what we are seeing so far might be a little bit below that, but realistically, for the next set of projects to be developed, that is the price range that you need. , this is wishful thinking: the Nickel price isn’t quite there. The big miners before they are very confident or before the price is in that range before they are going to push a button on any expansions. So that is the issue there that he is really driving home.

Matthew Gordon: Someone like him who has got all the money in the world, they have no problem raising money. If you look at their market cap, it is frightening. There is nothing is impossible. But for miners, there’s a whole bunch of different constraints around that, price being one of them or the cost of money being the other. What do you do off the back of that? it’s nice to hear but it doesn’t change anything, does it?

Mark Selby: No, the key thing is it is always tough, even for someone who is a pretty bold innovator like Elon Musk, is you haven’t seen yet a car company invest directly into a mining company.  if you want Nickel at a price that is going to start at USD$6/lbs rather than higher, then he is going to have to think about that. It just takes corporations time to get around to think about what model might work for them. So, there have been models that have worked for Japanese trading companies in terms of how they invest in projects when other people are investing in joint venture in projects.  that the Tesla’s of this world need to think about how they do it.

To me, one model that makes a lot of sense is, Eric Sprott does a great job of advancing 50 different Gold projects simultaneously. He is not funding them 100% of the cost for each one of those, but he makes a 5% to 10% investment in a company which allows that company to probably raise double that. And once they have been Eric Sprott-endorsed, it makes it much easier for them to raise capital from the group of individuals and funds who follow along with Eric. He is able to put a little bit of his capital in, and all of the smart mining people are really good at using other people’s money to multiply the value on their money.

I’m pretty sure that Tesla is thinking about those types of models, and to me, that would be one way to do it. , you don’t need to pick a winner and you don’t have to bet USDUSD$100M, USDUSD$200M at this point. But even just endorsing two or three companies that could potentially get there. If you want that Nickel in 5 or 10-years, you are going to have to start doing something like that. And, a Tesla-endorsed company, whoever gets those first couple of investments will be well off to the races because all of a sudden there will be a slew of institutional and retail money come at that company to be able to advance that Nickel project.

Matthew Gordon: The way you are talking about that is you are encouraging Elon Musk to be more like Eric Sprott, and I am coming at from the point of view that shouldn’t we be encouraging people like Eric Sprott to be more like Elon Musk. How do you innovate in this space, not just Nickel. I have come from outside of the mining space originally and you see these innovators in different sectors solve problems which people who have been in there too long can’t. Do you think, is that coming through AI? How do we get better at doing what we are doing?

Mark Selby: AI on the exploration side is definitely going to open up a huge amount of doors, and you are already starting to see that.  we are just in the early stages. To my mind, we have gone through several exploration waves. If you look at, just as an example, the great VMS deposits that have been discovered globally, in the early 1900’s, you had the  walk-on ones, where a prospector was banging through the bush, saw some interesting-looking rock, banged it, caught an assay and was like, look; I found millions of tons of Copper and Zinc and Silver. And things like Sullivan, in Canada anyway, as examples there are the Sullivan Mine, the Hud Bay and so forth. And so, that was that generation. Then we had the second generation when geophysics started to be really well-used during the late 1950’s, early 1960’s, people stopped finding deposits at surface because they had walked everywhere where potentially you could find one, and then they found deposits like Kidd Creek, in Timmins New Brunswick, sitting not very deep below the surface, but below the surface so they had been missed at that time.

, we really haven’t had that next revolution of exploration discoveries, and I really do think that AI is going to be that, because  we have walked on pretty much everywhere we can go. We have seen the shallowest places where we most likely think about where things could be, and so now we need to use big data with some smart mines to understand where we could find deposits that we hadn’t found before. That’s on the exploration side. And Nickel, we don’t have a large project pipeline. That’s a critical issue in the Nickel space so there’s a significant amount of effort that’s needed on that point just to start of finding some new discoveries.

In terms of the rest of the sector, it really comes down to competition for capital. Mining has always done such a horrible job of destroying capital and not doing a very good job at actually returning much capital to shareholders. At some point, and what I’m excited about is having Tesla in that world to make that connection to the mining space is that if we are able to get some patient, private equity money into this space, then  that will allow more junior mining companies, more different stage mining companies make smarter decisions. Because, private equity; they invest in lots of high-risk businesses, , , things like pharma, high tech, it’s not like every investment you make is a home run, but once  that there is a funding pipeline behind you as opposed to, okay, the price popped today, investors are interested, I’m going to takes as much money as I can right now because I don’t know when the windows are going to open, it just creates a lot of really bad behaviour on both sides that  doesn’t help with the ultimate goal of creating value and returning capital to shareholders in the future. I hope that Elon’s discussions here will lead to more private equity start to look at mining because there is a massive amount of value to be unlocked here if it is done properly.

Matthew Gordon:  You said patient private equity, coming from a private equity world, it is definitely not a word I would put with private equity. And because of the impatient nature of private equity, it drove people to do better, because the demands were there for people to see make changes, make adjustments, tweak things on almost a daily basis to improve outcomes. And possibly this sector needs more of that, less staring at the share chart on a daily basis, but be outcome-focussed in terms of how the business and operations is done. And it might be beneficial. That’s why I am intrigued by curious minds like Elon Musk approaching the mining sector and putting a rocket under it, with the luxury of a lot of money behind it too.

Mark Selby: There is one venture: KoBold Metals, that has attracted a bunch of basic private equity money. And this is a venture that has basically said, we need more Nickel and Cobalt outside of high-risk areas and we are going to start to apply big data to solve that problem. That to me was quite encouraging. What was also encouraging was their first land-acquisition was next to a company that I am on the board of called Orford Mining,  the data has pointed to 6 or 7-years ago, but we need more of those types of ventures and we need more of those types of investors in this space if we are going to get all the Nickel that Elon says he needs in the next 5 to 10-years.

Matthew Gordon:  Well, let’s finish off on the Elon statement because it was, ‘Mine more Nickel,’ came with some conditions to it: it needs to be environmentally friendly and efficient, which I am reading as economic. What’s your take? Clearly ESG is a big part of this. Environmentally friendly or sensitive.

Mark Selby: Where that’s really coming from, and I hinted about this in the past and it is something I will be spending a lot more time talking about this, when you look at where most of the Nickel supply growth has come from in the last 5-years, it has been Nickel pig iron (NPI) from Indonesia. Before that it was Nickel pig iron in China and then looking forward over the next 5-years, literally, I don’t know the exact number but it will probably be more than 100% of the supply growth, because there are other supply operations that are still shrinking, it will come from Nickel pig iron and other projects in Indonesia.

The challenge with Nickel in a place like Indonesia is that processing laterite ore requires a huge amount of electricity, and in Indonesia, with the exception of PT and Inco who have built a series of hydro-electric dams in Sulawesi, it all comes from coal-fired power, and then you need to use some more coal to change the mineral into a metal. To make 1 ton of Nickel at one of these NPI projects, you are using 25t to 30t of coal, and when you multiply that by 2.8 it gives you 75t to 90t of CO2 per ton of Nickel. So even if you took 50kg of that and put it in a battery, I’m not sure Elon Musk would like 1t or 2t of CO2 strapped to his Tesla because he used some Nickel that came from that source.

The other projects that are being considered in Indonesia are looking at Hpal projects, and we have talked about Hpal from time to time. The problem with Hpal is you are taking about 1% of the material and you end up with about 99t of it, of tailings for every ton that you process. Piling up that type of waste in a highly seismic area, it is not necessarily, we have seen issues in certain areas when it is not done properly. A bunch of those operations are looking at deep-sea tailings. VW, BMW, Tesla, I don’t think are very happy knowing that the product that they might be purchasing is spewing 99t of tailings in an uncontained way into the sea to get the Nickel and Cobalt that they need. Tesla is stepping back and looking and saying, okay, in this industry, all of this growth is coming from these particular projects which have a pretty high environmental footprint attached them. So that’s where his environmentally sensitive parts are coming from. We have some nice inherited advantages in our project that we’ll be talking about a lot more in the coming weeks here.

Matthew Gordon: It’s not just Elon Musk that that is going to influence, but it’s the big funds. We have spoken to the Fidelity’s and the BlackRock’s of this world who are moving over to their ESG-led investing thesis which means that if there are Nickel Hpal projects and those sorts of numbers in terms of the carbon footprint and whatever they are spewing into the sea, that’s going to influence their ability to get financed when they go to the investment committee and say, ‘well, should we be investing in this Hpal project or a Sulphide project?’ You’re going to get 2 very different answers.

Mark Selby: Yes, I know. That’s where mining companies really need to… what worked in the last century, in the last millennium, isn’t going to work in this next one. You really need to think about how are we going to design and construct and operate our project in a way that’s going to have the lowest environmental footprint possible. Because mining, a big part of it is a capital intensive industry, and it’s about competing for… if you’re able to compete for capital, if you are more competitive and you’re able to get it at a lower price, that is going to have, in terms of Elon Musk’s other goal of having the most efficient and lowest cost type of metal to market, if you can do the thing that gives yourself the broadest investor base possible, then you’re going to be a winner. We are going to be talking about that at Canada Nickel, because we realised that we have to start mining for the new millennium and get away from the way we’ve been doing it in the past.

Matthew Gordon: This was sent in by a subscriber to Crux Investor: How can a retail investor best validate the claims of a company as it relates to their assets?

Mark Selby: Yes, that’s a challenge. A retail investor can’t go out and hire an engineering consulting firm to evaluate that an institution or a strategic investor could do. I would say there’s 2 things to do: 1) in Canada you get access to the full 43-101 report.  On the ASX, you get the press release that’s attached when they complete the report, but you can’t actually get the full report. But you do get a bunch of the information in the press release. Look at who did the work. We’ve talked about this on another call, but there’s basically, there’s 2 groups of engineers. There’s people who do studies that get hired by junior mining companies to come up with good numbers that someone can sign off on, but they’ve actually never built anything or haven’t built anything in 30-years. So put a big question mark around the quality of those estimates. And then there’s the engineering firms that, actually not just do studies, but actually build things and have built things within the past decade. So, in terms of the quality of the estimate, you’re going to get a much better estimate from those group of companies. If it’s a mining company that’s serious about actually advancing their project, they are not going to use, ‘Joe Engineering Co’ or ‘Jane Engineering Co’. They are going to go with the person who has the reputation that when they go to pitch the project to joint venture partners and other larger mining companies, those companies know they can rely on those numbers.

2) try and find projects that have been built within 5-years or 10-years. Try and find, if it is using Nickel for example, look at Ferro-Nickel projects that have been built in the last few years. Look at HPal projects that have been built in the first few years. And, it doesn’t take a lot of, and maybe this is something we can put together in the next few weeks; just some historical benchmarks that just, look at the capital cost; look at how many tons of ore are they going to process; how many tons of metal; where are they going to produce?; what’s the operating costs?; what’s the capital costs? You don’t need to go through 20 numbers, it’s just pulling those 7 or 8 numbers and looking at those 7 or 8 numbers for some historical projects and just to see, ‘okay, how in line are they?’ And if they’re significantly different and they haven’t explained why they are significantly better, then there is probably a good chance that they are actually not going to be significantly better. So, that’s what I do when I’m looking at other projects and I’ve done a corporate development role. That’s what I would encourage people to definitely go and do.

Matthew Gordon: If we could help maybe be put together the 7 or 8 numbers that people should be looking at. If you’re able to help out, that would be for Nickel, because different commodities have different types of ratios that you should be looking at.

Sticking with the Elon Musk thing if we may, just for a little bit longer, Elon talks about his Gigafactories. And we talked last week about the fact that currently Nickel is used mostly in stainless steel, that’s its biggest market. But going forward, the Gigafactories are going to be built. These factories, the numbers certainly seem to be getting bigger and bigger and bigger. Is there a number that people are attributing to as a percentage of the Nickel market where this Nickel is going? Is EV going to be 10% of market? 20% of the market?

Mark Selby: Glencore has put out a few numbers and they’ve probably got as much market presence as anybody and their forecasting a few years ago that we would need 1.3Mt by 2030, and that’s equal to about 60% of what Nickel supply was in 2018. So, and that’s on top of the Nickel growth that’s still not a huge amount that’s basically getting to 25% to 30% of the market going towards electric vehicles being sold on that basis. There are forecasts now that once you get to a certain tipping point, you’re going to see things accelerate much more quickly than people think. I wasn’t surprised to hear Elon Musk talk about constraints around, when the question about constraints came up, he immediately leapt to Nickel, because to even to produce that much Nickel by 2030, in addition to all the growth Nickel is required for stainless steel and all the other applications, in my mind it is going to be extremely challenging.

The other part that he did talk about on the call is that is that they very much see 2 strata. They have lithium iron phosphate, which is for the low end lower-end part of the market. And they then talk about their Nickel-based batteries for the upper end of the market. And that’s the way they are thinking about a lithium ion phosphate supply chain and the Nickel supply chain. Their battery technology day is coming up so the fact that they haven’t stopped talking about Nickel says that Nickel is going to be playing a pretty essential and long-term role as part of their battery platform.

Matthew Gordon: listen to that quarterly call they were talking about mega packs.  They’ve got big plans. And just in terms of time though, the Nickel price has fallen back a bit this week. Why?

Mark Selby: I was surprised that it moved higher and it was trading alongside some momentum drivers around the Shanghai index and then the Copper prices had moved and so had moved along with it. Both of those have come off and it came off until Elon talked last night, and Nickel is now back up USD$0.20, up over USD$6.10/lbs. He is the guy that can move markets. My question is do I fully believe in medium and long-term fundamentals, but I’m not sure that the near-term fundamentals support pricing above that. So we’ll see whether that Nickel price erodes back to USD$6 here over the next month or in a year or so from now, 6-months, a year from now, if he opens his mouth and the market is a lot tighter, then those are the kinds of things that all of a sudden you wake up and the price is up USD$0.50 to USD$1 in over week.  Hopefully we’ll see that sooner rather than later, but it’s not going to happen in the next few weeks.

Matthew Gordon: A little bit more M&A in the market.

Mark Selby: Yes. A project I’m extremely familiar with. Karora Resources, which was RNC minerals, sold the remaining interest in Dumont to Waterton for some cash up front and then some residual pay out based on a future sale. A big plus, a big thing there is you now have all of the 3 large-scale, advanced low-grade Nickel sulphide projects have all been acquired in the past 6-weeks. This is far faster than I thought they would. You’ve got BHP acquiring Honeyman Well Minerals. Oz minerals acquiring the 30% of Nevo Babel that they didn’t own by taking over Cassini resources. And now Waterton consolidating their ownership in RNC minerals. So now you’ve got the 3 large-scale Nickel sulphide assets owned by 3 very tight-fisted owners who will not part with them, or either will never sell them or will only part with them at a pretty high valuation. It’s helpful for the Canada Nickel story and then the other earlier stage Nickel sulphide developments out there.

Matthew Gordon: Discretion may be the better part of valour here, but the market seems unsure, unsure how to read that. It was effectively USD$10.7M cash, and up to USD$46M, depending on where Nickel goes going forward. Do you feel that’s a good to deal? Would you have been happy with that?

Mark Selby: Yes, I know you had 2 specific groups with very specific different sets of interests at this point. Karora is now very focused on Gold. And knowing the gold assets they have, we acquired Beta Hunt and Higginsville while I was there, and they were both spectacular assets. So the opportunity to get some more cash now to unlock even more value at those assets made a lot of sense, and they still retain some upside if and when the project gets sold. But you could easily contemplate a scenario where a transaction for Dumont doesn’t happen for 4 or 5-years because Waterton is going to wait for the absolute peak and then a cold market before they exit that position. In every deal, you have to make a few trade-offs. And that given where Karora Resources is that deal definitely made sense for them.

Matthew Gordon: Mark, thanks very much for that. Another week in the world of Nickel. What’s interesting to me is the amount of M&A that’s happening in this space now. It helps with Elon Musk saying what he said, but even before that, and despite that Nickel assets are being marked up here. And it’s just interesting to see where things go over the next 6-months or so, for sure.

Mark Selby: We said all along that there is only a handful of Nickel assets. It’s not like Gold where you’ve got literally hundreds of gold companies and new ones emerging at every stage. There’s a very short list of Nickel companies. Nickel hasn’t started to move yet, but you can that see one comment from Elon makes the Nickel price go up 3%. I would encourage investors to not wait too long, and then make sure you’re positioned because 3 assets have gone in the last 6 or 7-weeks here that I didn’t think we would see transacted on for at least another year or two.

Company Website:

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Mark Selby #09 – Tesla Calls for NetZero Nickel and Efficient Nickel (Transcript)

Canada Nickel Co Inc.
  • TSX-V: CNC
  • Shares Outstanding: 57M
  • Share price C$0.92 (02.07.2020)
  • Market Cap: C$52M

Our weekly Nickel Market Insights with Mark Selby, Nickel Market Commentator and CEO of Canada Nickel Company (TSX-V: CNC) will help you stay ahead. Stay up to date by listening to our weekly market roundup on Nickel.

Elon Musk impact still ripping through the nickel market:

  • nickel at $6.25
  • up 5% since his comment
  • no change fundamentally
  • with gold at all-time highs, if you bought CS, TKO, or a range of other liquid high torque copper stocks, you have outperformed most gold companies.
  • Still not clear support for higher prices at current time
  • nothing clear on inventories, supply/demand fundamentals

The Positives

  • Chinese reflation still ongoing
  • ore imports for June 2020 dropped year over year (YoY) as the Philippines couldn’t make up for Indonesia. And ore stockpiles only growing slowly. Need multi-million tonne build to make up for Philippines wet season in winter when ore imports drop off.
  • Stainless imports up very substantially YoY. If more than enough NPI, why bother boosting imports

Key Discussion Points

  • Leading analyst published view that Indonesia has all nickel covered until 2025 – if so, why is Elon Musk & Tesla talking about nickel as primary constraint and why he asked us not to wait for higher prices.
  • Nickel sulphate premium doesn’t exist – trading at a discount, no sustainable premium over long-term
  • Class I versus Class II – despite getting huge amount of air time from many – agree not an issue, will flow from ore source to end product.
  • Amount of nickel coming from Indonesia – nearly 900ktpa more by 2025 versus 2018. But where will the next 1.6Mt that is necessary come from by 2030.
  • Nickel demand forecast – needs to be 4-5% peak-to-peak + EV demand (less loss of demand in aerospace and oil & gas)
  • Without any clear forecast from consumers it is hard for analysts to have aggressive forecast

If automakers want lots of nickel by 2025 and 2030, they need to provide the information that will allow the industry to gear up to produce it. Realise their own estimates are proprietary, but they need to provide ranges. If they don’t, investment community won’t figure out, and they’ll pay way more than they should to get it – is better for all of us, if no surprises

  • Offsetting supply – will see high carbon, non-Chinese ferro-nickel producers get squeezed so will offset rest of nickel supply growth from Indonesia
  • Western automakers will not use high carbon, high footprint nickel in their cars. They will not rely on Indonesia/China as primary source

We Discuss:

  1. 2:53 – Elon Musk’s Statements: Impact and Implications
  2. 6:32 – China and the Philippines: Complex Relationship
  3. 9:21 – “Nickel’s Covered ’til 2025”: Misinformed Predictions
  4. 16:52 – Ethical Mining: Class 1 & 2 Debate, Footprints of Mining
  5. 24:15 – Clean vs Sufficient: Repercussions, Supply & Demand
  6. 29:52 – Market Moods: What’s Next for Price?
  7. 31:01 – Any Calls Regarding NetZero?

CLICK HERE to watch the full interview.

Matthew Gordon: Mark Selby. How are you?

Mark Selby: I’m excellent, sir.

Matthew Gordon: Good to hear.

Mark Selby: It is 7-days post-EM in the Nickel world, after Elon Musk’s big announcement last week.

Matthew Gordon: And Nickel companies and CEOs around the world are dancing a jig of joy for sure. We are going to talk about that as part of our weekly Nickel catch up today. There’s a lot we discussed last week; quite controversial topics. A lot of feedback, a lot of trolling, a lot of clapping, but a lot of discussion, which is the main thing for people to  maybe investigate a little bit more. I’m sure we will, over the coming weeks as well, drill down on a few of those things. Well done for that. We are going to continue with a bit of EM. The Elon Musk statement of last week still ripples through the market. Price – yet again up.

Mark Selby: Once again, wrong. The Nickel price has basically moved 5% off the back of Elon Musk’s comment. I know he said miners make more Nickel now, but I don’t think he was thinking about needing to buy more next week. But, it’s just with sentiment, fundamental, technical momentum – that definitely falls into the momentum category. I’d love to say the fundamentals are supporting that move higher, but not really seeing too much in a way that would cause that price level at this point to be sustained. Unless there’s more momentum comments come out, then we’ll see it drift a little bit lower back towards that USD$6 amount.

The one thing that is underlined is Philippines ore imports were decent, but what we need to see between now and next October is a steady rise in our inventories in China because ore imports go away every winter when Philippines hits the rainy season. If there isn’t a bunch more ore on the ground, then producers may struggle for finding supply. And the corollary to that is, there’s one of the analysts picking up on the fact that China’s stainless-steel imports have been up year over year to some extent. So, whether that’s a little hedging by a few people, we’ll see. But no broad basis support that says the prices should move much higher, in the near term anyways.

Matthew Gordon: Everyone needs an Elon in their life. It probably helps, but it’s not sustainable because the fundamentals and technicals don’t back it up. But it’s nice to have that sentiment now. And it’s also nice to get the attention because Gold and Silver have been taking all of the attention. Nickel has had a few days in the sun for sure. Some people have done quite well off the back of it.

Mark Selby: Yes, our stock has moved up nearly 2X since the call, which has been tremendous. And more broadly, you hit on a good point: if you are a Gold or Silver mining CEO these days there is huge amounts of capital now flowing into that sector, and flowing down the hierarchy of companies, and they are now getting to early stage exploration. In Copper, that’s now started to happen since our call back in mid-May. You have seen the high torque; Copper stocks have actually outperformed most of the Gold stocks that people have been pretty fired up about it. That’s why it’s important to get around those turning points, get yourself positioned.

But you have seen Copper stocks move and you’ve seen some Copper trickle down a level or two. They haven’t gotten widely down to the exploration stage, but that is happening in Copper. Nickel in Australia – Centaurus and some others have raised a decent amount of money. But in North America, the TSX-type Nickel stocks, and the rest of the base metals still really haven’t participated in seeing any material capital at this point. Having this Elon Musk comment now fixate, helps get investors focused on the opportunity in Nickel.

Matthew Gordon: Let’s go back over some of the ground we’ve covered in the past few weeks as well, if we may, because China is reflating. Indonesia has shut up shop. And we’re relying on the Philippines to make up the difference. What are you seeing happening there? Is Philippines going to be able to make up the difference?

Mark Selby: Yes, on the demand side the reflation trade continues to be very well supported. All of the data that I had talked about previously, they’re all still heading in the right direction. In terms of a broader commodity reflation, compliments of China, that’s definitely coming down the path, and you can see it particularly in the Copper price, which is holding up towards USD$3/lbs.

Yes, Philippines is the key here for supply is how much ore is going to come out of the Philippines. There is an announcement that there was a bunch of mines that were shut down in 2017. The Philippines’ government is relaxing some of the restrictions on there. In 2017, it seemed like a sizable amount of ore relative to how far the market continues to grow and the big gap that needs to be filled by Indonesia, it’ll be a little bit more ore, Philippines’ ore is lower grade than Indonesian. But, it’s not going to come anywhere close to filling the gap that has been created by Indonesia. It is Indonesian NPI growth versus Philippine ore growth, versus Chinese demand – that’s the triangle that’s really going to determine where prices head over the next 12-months.

Matthew Gordon: Philippines …do they have seasonal outputs? Because, obviously it is quite wet over there. Is that an impact factor we need to consider?

Mark Selby: Oh, most definitely; the rainy seasons in Indonesia and the Philippines used to offset each other to some extent, so that China had a relatively stable supply of material all year round. But with Indonesia out of the picture you’re going to have this November, December, Jan, Feb period where Philippines ore exports plunge. There’s still one part of the country that’s dry so they still produce ore from that part of the region, but from the rest of the area you see a massive drop off in order supplies. And, ore inventories need to increase. So that’s not necessarily a bad thing. That’s what the market will need to increase by several million tons between now and the start of October, if China is going to have enough ore to really see it through that that downturn in the Philippine season.

And, sometimes rainy seasons are shorter than the normal. We will have to see what happens at that point in time.

Matthew Gordon: Question for you: there is quite a good newsletter writer in the marketplace, no names, but one of the better ones. He seems to say that Indonesia has got this covered, Nickel is covered until 2025. Everything is A-OK. Do you agree?

Mark Selby: I agree with some of his underlying comments, but I don’t think I necessarily agree with the conclusion. He was writing in response to Elon, and Elon said, we need more Nickel now. He expressed concerns with environmentally friendly, environmental sensitive and huge volumes, and you’ll get a big contract.  This analyst’s comment looks back; we see pretty strong supply growth out of Indonesia, which I do not disagree with the numbers that he was talking about. They are exactly in line with the forecasts that are there. There’s a question mark around whether the pressure acid leach production will show up. And I share that same question mark. It was supposed to already be in production by now, and a bunch of the projects have already been delayed by several years. So we’ll see whether they get there.

That pressure acid leach has been troublesome for everybody around the world. If they don’t have any trouble that will actually be a surprise. But yes, they’ve got a pretty big increase in supply growth, but the fundamental issue is he has better and more aggressive demand forecast than a lot of analysts. But as I’ve said before, a lot of analysts have a tough time putting a number that’s too far from  2%  trend demand growth, because they never want to be ‘too wrong’. And the trouble with a metal like Nickel is it’s a very high growth. It grows at 5% versus 2%. And then because it’s very volatile, not only does it grow on average 5%, but there are years where it grows 8% to 10%. There are years it grows 0% to -2%, which obviously we’ve been going through right now. But when it rebounds, it has always rebounded with pretty sizeable year over year growth. And so on a peak to peak basis, you end up with this 4% to 5% trend demand growth. And this is, to the Elon’s and to all the other EV supply chain people, the auto people, because, there’s been concerns expressed about Nickel and Cobalt and other metals from time to time. If you want material from the mining companies, please provide some clarity in what your medium and long-term outlooks really are.

I have had discussions where a number of these companies, and they have some pretty spectacular demand forecast going forward, which are much higher than a lot of analysts have in terms of how quickly and how much metal they’re going to need. And so if you don’t provide that to the market and then the analysts will use that into their demand forecast, you’re not going to get the metal you need, because the analysts aren’t going to have the demand growth that’s there, and they’re going to say, ‘Oh, we’re going to be balanced or surplus for many, many years.’ 

This is a call out – if there’s anybody listening on this, ‘yes, please provide more long-term clarity’. It doesn’t have to be your individual forecast. Just talk about it as an industry. So you’re not giving away any industrial secrets, but please provide some clarity in terms of 2025 and 2030, what your range of production is going to be and then the mining industry will have a chance of actually delivering that metal for you.

Matthew Gordon: That is smart. I can see why you’re also CEO of a Nickel company. I can see why not just Nickel, but Cobalt, Lithium, and all the other parts that go into this EV thematic that we have been talking about, all talking about. We would be more easily able to raise money off the back of that. Right now, you’ve got long lead times. The industry is having difficulty raising capital to get into advancing projects. You’re feeling, from what I’m hearing is analysts don’t have the data to be able to make informed or do informed report writing. And as a consequence, bankers aren’t able to use that information to be able to say, ‘well, yes, this is a sensible use of our capital’. What’s the likelihood of an automotive CEO revealing what they’re going to need in the short to medium term?

Mark Selby: There is no chance that they’re going to reveal their individual forecasts. But if they can talk about their view collectively in terms of at least some range of where electric vehicle demand is headed. And, it would be very, very helpful on that front for sure.

Matthew Gordon: Let’s come back to some numbers then if we may, because we were talking about Indonesia. We went over to talk to the automotive manufacturers. Coming back to Indonesia, what is coming out of Indonesia at the moment? Because this analyst that we were talking about, referring to, talked about 2025, but what is happening in 2030 for instance?

Mark Selby: The update was really focused on out that next five years. So you’ve got production growing by 800,000t or 900,000t, which is in line there. It’s going to be offset by a 200,000t or 300,000t reduction in production from Nickel pig iron in China, because they don’t have the ore. That ore is being processed in Indonesia rather than being shipped to China. And beyond that everybody, including him…it’s an open question in terms of, ‘okay, if EV demand comes in close to where it’s going to be, we won’t have enough’, and we’ll have to look at, and Lithium iron phosphate is going to be a big part of the market. It has to be. There’s a market niche that makes sense for that. Elon Musk talked about that there’s really 2 streams: there’s a Lithium iron phosphate stream and a Nickel Cobalt stream that will continue to advance in terms of the capabilities of that battery to deliver range.

The other analysts who do cover it make those long-range forecasts, they have very low demand forecasts for stainless steel which are much lower than trend. Those analysts don’t necessarily have the overall demand growth that not only doesn’t approach the 4% to 5%, including EVs, it even falls short of that 4% to 5% trend demand growth, which is very frustrating from my perspective.

Matthew Gordon: Let’s talk about ethical mining. A very big topic.  It’s getting bigger. Last week, you introduced this concept of NetZero. It’s something you are trademarking, and you have also registered as a corporation. I want to talk around, not just that, but things like class 1, class 2. Should people now be paying more attention to things like class 1, class 2? Because it has been a debate, we discussed it a few weeks ago. Can you just remind people what the debate is?

Mark Selby: So the class 1, class 2 is something that came up about 2 to 3-years ago. There are only certain types of Nickel that can be used in batteries. If it doesn’t come from this source or through this refinery, then it ultimately can’t be used to make batteries. This analyst report that I’m referring to is very, very well written. And, there’s a lot of things that we agree on entirely. One is around this class 1, class 2 thing; it is not 100% wrong. There’s sulphide ore, there’s laterite, limonite ore, there’s laterite saprolite ore and there are paths with the right Cobalt price and Nickel price and product price that each of those sources can end up in any one use. And the Chinese will make sure that there’s more than enough processing capacity, as they’ve done in every other material, to transform whatever feed source they can into whatever end use source is required by the market. So do not get caught up in those class 1, class 2 differentials.

The other thing as well that it gets a lot of is the ‘Nickel sulphate premium’, and  3-years ago, when all of a sudden you had a new source of Nickel sulphate supply, and Nickel sulphate is a very small portion of the Nickel market, but you had this big new source from EVs. You had a short term bump where premiums went well up over USD$2,000t. And all of a sudden it became, ‘oh, there’s this massive sulphate premium that will exist now and forever’. The reality is Cobalt sulphate trades at a discount to Nickel metal. And, those are produced from often similar feedstocks. So, that’s where Cobalt has gotten to, and that’s where Nickel is headed.

So, you won’t see a sustainable premium, there will always be a little bit of one, because there’s some additional transformation costs to do it from a pure product into an end use product. But by and large, it should be zero, or just either side of zero on any longer run average here going forward.

Matthew Gordon: That leads us on to things like the supply chain, because before Nickel gets to do its thing, before Nickel producers get to do their thing, iron ore is involved. We need to get iron ore out of the ground. And part of discussion last week was around the footprint of doing that. So, explain to people how this is all connected. What does that chain look like before it gets to Nickel?

Mark Selby: The key piece here, what we’re really trying to focus on with our NetZero initiative, is car companies who are building EVs, they’re trying to solve a problem, which is carbon emissions for the planet. And so what they don’t want to do is build a product that in the course of building that product and taking all the various components together, end up creating a big footprint that’s going to take you six years to drive around the car, drive that little EV around and not buy enough gasoline that you actually offset that footprint. They wanted to build as low a footprint operation as possible. And the thing that this industry really needs to realise is there is an entire generation of consumers that sees and looks at Co2 emissions the same way that we used to look at movies of industry in the seventies; with great orange coloured liquid running out the back of a plant down into a stream and down into a lake. And rivers used to catch on fire because there was so much pollution in there. That’s what a new generation sees with Co2 emissions; as horrific as that seemed to us there’s an increasing number of people who look at Co2 emissions with that same horror. We really do need find ways to produce a zero-carbon product. And we’re in a fortunate position with our deposit and where it’s located in Timmins that we can take a bunch of existing technology and make that happen.

But the same discussions really need to start happening because if you really want to take that one step further, when you look at the large mining companies, the bulk of their revenue comes from iron ore, thermal coal and that coal. And almost, you are starting to think about that as the cigarette producers of industry, because cigarette producers, it’s like, ‘oh, okay, well we just make them, if people choose to smoke them, they’re just exercising the right to smoke them. And if that kills them and puts massive costs incurred to the health system, those are all people just choosing to do that’. All of his iron ore and coal, a huge portion of it goes to China where it gets converted into steel using traditional processes and creates a massive amount of Co2 emissions. Our industry needs to ‘own its shit’ in terms of, we have to think about really how it’s used and start deploying capital and start thinking about our projects, not just to get to this intermediate point, but how do we deliver to industry a cleaner, greener product that the market really needs.

And just coming back to Nickel for a second in Indonesia, the bulk of that is more than 100% of the growth that’s coming in terms of supply. I do not think, and it will displace some of the Nickel that’s currently being used that could be at that much lower footprint than the 90T of CO2 for every ton of Nickel gets produced in Indonesia. But, there’s a lot of other sources of Nickel that either have a bunch of Co2, a bunch of So2, or a bunch of deep-sea tailings associated with them. When Elon’s talking about and making a point that Nickel is his constraint, it is because they’re struggling to find environmentally clean Nickel that they’re quite happy to put in the bottom of the Tesla. So, some more information from that industry to help inform investors in terms of what the opportunity is, would go a very long way to help them get the Nickel that they want.

Matthew Gordon: If the Teslas of this world, the BlackRocks of this world, the fidelities of this world are striving to find, in this case, clean Nickel, it could be any commodity, to be socially responsible in every way, across the entire length of the food chain – that’s great. And whatever some people would call them: ‘snowflake millennials’, they want this, but at the end of the day, if there’s not enough Nickel, we’re going to have to come back to producing Nickel the old fashioned way, and as dirty and as polluting as that may be, it is needs must. So what are you suggesting? A bifurcated market in terms of pricing here? What happens?

Mark Selby: Yes, to the extent that there will be insufficient supply of clean, green products, the demand for that will exceed that. There are often times where people would like something but they’re really not willing to pay up for it. We’ll see.  We don’t need them to pay extra. Our whole approach with Crawford and Canada Nickel and NetZero really shouldn’t cost us anything extra because of the local advantages that we have. But, if prices don’t get to a point that they incentivise enough clean, green production, then premiums will have to emerge to make that happen. If you are in the chain, then you want to make sure you get that those clean, green sources of supply sooner rather than later. So that you get access to it without having to pay the full premium for it.

Matthew Gordon: Then what are the options available? And do these companies buy carbon credits if they’re producing, we’ll call it dirty Nickel – the old-fashioned way. Do they get taxed more by governments or does industry somehow pay for it? What are the options available here? What do you see this new world looking like? Because I do get that the Tesla will demand it, millennials will demand it and more funds will demand it. But at the end of the day, when the rubber hits the road, if they’re running out of Nickel, they could care less, right?

Mark Selby: No agreed. But the carbon pricing mechanisms, you’re seeing more and more jurisdictions really starting to talk about pricing carbon. And so, when that happens and that really gets factored into the costs, the reason they’re doing that in Indonesia is that’s the cheaper way to produce the material. If that starts to somehow, as it’s making its way out of Indonesia and into the market, and somewhere along, whatever carbon is embedded in the product has to be taxed or penalised, then that will start to change behaviours. And, market mechanisms are generally always the best way to make adjustments rather than individual regulation.

The tricky part is, China’s a huge market, for anybody who thinks that China’s still depends on the rest of the world for exports – no. It’s a massive, massive internal market. And part of the reason they have been flexing their strength politically is because they can really much more afford to do that than they could, say 5-years, 10-years ago or 20-years ago. The thing might be that some of the bifurcation that might happen is just more…Chinese industry is okay for the time being, with that  carbon footprint, and the rest of the world might not be right. That might be one of the key dividing points in terms of the Chinese EV companies aren’t going to get to sell their cars outside China because they won’t be allowed or there won’t be a market for it, or they’ll be taxed so heavily that that will price them out of the market effectively.

Matthew Gordon: Well, in the current environment of trade wars and tariffs going on, it is probably very topical to discuss, maybe something we can pick up on another time. But are there any examples where bifurcated markets have actually worked?

Mark Selby: That’s a good question – maybe, what, I’ll think about that over the coming week and see what I can come back with, because anytime any  bifurcation opens up is that you then end up with, the gap for that product tends to get closed over time.

Matthew Gordon: The general mood at the moment is obviously very positive with regards to Nickel. You are going to take a slightly more sanguine approach to this?  What do you think is going to happen now? Is this the week it’s going to come back down?

Mark Selby: Oh, no, it won’t come back down this week. You will just see through the remainder of the summer and through till September that I’ve been saying range bound for a while and I haven’t been right. But, the near-term fundamentals just aren’t there in terms of really moving things higher. Where things will get interesting is, when we get to October we’ll have to see what ore inventories are like in China and how quickly and how aggressively does the Philippine rainy season come into hold. And do we see stainless steel production and consumption push higher in China post-COVID. So range-bound for now, and then let’s check in, in September and October. Range bound with the risk to the upside, rather than to the downside.

Matthew Gordon: Any inbound phone calls off the back of NetZero from auto manufacturers?

Mark Selby: I didn’t have any additional calls, but I’ve had relationships with a number of the EV suppliers who would be looking for a product at some point in time. Part of why we’re creating NetZero metals is to be able to a lot of the supply chain is quite happy to have access to long-term offtake for Nickel and Cobalt. They are also very keen to put processing plants between your mine and the auto plant and be as close to that as possible. Because the one thing I will emphasise, and drive home across the industry is, all the players that I’ve talked to, the cheapest, best way to make this product is dissolve it. Get it into the system, dissolve at once and keep it into an end product that then goes to an auto industry.

Making sulphate out of Nickel that’s in solution takes a lot of energy to crystallize it all. And then the first step that happens when you take it to another plant is that gets dissolved. So, it doesn’t exist now, but what you are going to see, and I know what’s coming because that’s the way that a lot of the key players in your industry are thinking is, they want to build these plants with intermediates coming in one end. They will do more of the Nickel upgrading and produce a final battery product or battery precursor within one single facility going forward. Having a net zero metal subsidiary, which is separate from the mining operation really helps in those types of discussions, in terms of being able to bring them in to joint venture.

Matthew Gordon: We will catch you next week. I’m sure there will be more to talk about, but it seems to be a new thematic in the market now. You and a few other players have approached us and to talk about perhaps the new way of processing Nickel. I’m intrigued to see if the industry as a whole reacts to what has been talked about in the last couple of weeks. Obviously, it got a little kick up the backside from Elon Musk, and also a positively in terms of the share price, et cetera, but also in terms of maybe a new greener, more efficient way of producing Nickel. And then those are the 2 bits that, more Nickel is great, but greener and more efficient; the industry is going to have to wake up to that demand.

Mark Selby: Yes. My call to the auto industry and the EV industry is share more data. Let analysts make better forecasts. Then you have got a better chance of getting your Nickel.

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Canada Nickel (TSX-V: CNC) – Tesla Wants Clean Nickel – NetZero Nickel (Transcript)

Canada Nickel Co Inc.
  • TSX-V: CNC
  • Shares Outstanding: 57M
  • Share price C$0.92 (02.07.2020)
  • Market Cap: C$52M

Interview with Mark Selby, CEO of Canada Nickel (TSX-V: CNC)


Now, here’s something that some nickel commentators know about, but very few of them seem to talk about.

Let’s talk about ‘Clean Nickel & Dirty Nickel’. Elon Musk wants nickel. he wants it efficient and clean. large funds are bound to follow this lead. As will other automotive manufacturers.

Not all nickel is equal. We’ve discussed at length the advantages of disadvantages of nickel sulphide and nickel laterite, with both possessing different costs: high-cost mining (sulphide), low-cost mining (laterite), high-cost processing (laterite – +US$1Bn HPAL projects) and low-cost processing (sulphide – simple smelting).

However, the element that many are forgetting to this story regards the environmental footprint of nickel sulphide and nickel laterite; are laterite projects dirty? Is this a complete game-changer in the wake of Elon Musk’s quarterly conference call requesting that nickel miners produce as much green, efficient and sustainable nickel as possible?

We Discuss:

  1. 2:20 – NetZero Metals Inc: An Overview
  2. 5:30 – Environmental and Sustainable: Problems of Mining
  3. 7:10 – Sulphide vs Laterite: Which Gets Funded First?
  4. 9:29 – NetZero Mission and Plan
  5. 11:13 – Supporters of NetZero: Benefits to the Market
  6. 12:17 – A Distraction from Canada Nickel’s Goals?
  7. 15:37 – Difficulties to Come: Might Big Companies Retaliate?

CLICK HERE to watch the full interview.

Matthew Gordon: Mark Selby. How are you, sir?

Mark Selby: Good. Thanks, Mr. Gordon. How are you?

Matthew Gordon: It feels like only yesterday we spoke, but that was I suspect that was our Nickel insight weekly session.

Mark Selby: There you go. The weeks do merge together these days when you’re at home with COVID.

Matthew Gordon: They do roll on. But today we are talking to you with your Canada Nickel Corporation hat on, because I saw your press release, you are talking about NetZero Metals. What is it? Is it some gimmick?

Mark Selby: No, we have had this in the works for the last few months. What we realised is, we’re in a pretty unique position where we have the rocks that make up 90% of a deposit actually, naturally absorb CO2 when exposed to air. We are in a region where all the electricity is hydroelectric power. Any electricity that you use in the mining process is zero carbon. And we are in an area that actually has a long history of doing downstream processing in the region, so we can actually build a downstream processing plant, which is often where a lot of these emissions are generated. We are going to take advantage of the fact that our waste rock and tailings should be able to soak up that CO2. When you step back and look at it, you go, ‘Oh, okay. What?’ We can actually deliver zero-carbon materials, zero-carbon Nickel, zero-carbon Cobalt and zero-carbon Iron. And, Mr. Musk’s tweet last night, not last night, last week, really drove that home in terms of they need environmentally sensitive Nickel, and it’s not a 2050 issue. It’s a today issue.

Matthew Gordon: I need to dig deeper than that because those factors have always been there in your project – why now? What attention are you trying to draw? Is it just trying to draw attention to Canada Nickel Corp? Or is there something bigger to it than this?

Mark Selby: I think, at the end of the day… in a past life, we realised that Dumont could be that, so now that I’m running my own show, realising that, yes, this is possible and to step back, and really, this is the thing the mining industry should be doing. I think what the industry needs to realise is there’s an ever larger number of people who are your consumers who look at Co2 emissions in the same way that we did looking back in the 1970s and 1980s when a lot of mining companies and industrial companies in general used to think, ‘Oh, just dump the gas in the air, dump the liquid waste down the stream. That’s great, we’ve got a stream, that’ll just carry it away for us. We don’t have to worry about it.’ And we look back and we think all that was so horrible, but there’s a whole new group of consumers who are looking at the Co2 emissions that our industry is involved with, not just generating ourselves, but the products that we make, and we really need to find solutions to generate the zero-carbon products that these consumers and the market wants and needs.

Matthew Gordon: Elon Musk came up that statement last week, and that’s had a massive effect on the price of Nickel, your share price, and it has got people’s attention, looking towards Nickel. But you have got a Nickel Sulphide project. We have talked in some of our weekly insights sessions around laterites, and we have done one show on dirty Nickel. So he’s helped people understand that he will invest in Nickel projects if they are sustainable, if they are done in an environmentally friendly way. Aren’t they all environmentally friendly,  as far as mining goes?

Mark Selby: No, that’s the big thing, we alluded to it in different things. Nickel has a dirty Nickel issue in that the bulk of the growth over the last five years and where the bulk of the growth going is going forward, has come from Nickel pig iron projects in Indonesia, and to make Ferro-Nickel, to make Nickel pig iron, you use a huge amount of electricity and all those projects are using coal-fired electricity that degenerate it all. Each one of those projects is using somewhere in the order of 25t to 30t of coal to make 1t of Nickel. That in turn is 90t of Co2 emissions per ton of Nickel. So all of a sudden you take 50kg of that  Nickel that’s related to that and all of a sudden, you’re strapping 4t of steel to a Tesla that’s got 50kg of Nickel under the bottom, I’m not sure that’s what Elon Musk had in mind when he was,  wanting to build Tesla to  change our impact on the environment. And, consumers don’t want to buy a car and end up having a whole pile of CO2 that comes along with it. The fact that that’s where he went to immediately after saying we need as much as we can, as soon as we can, is really, that is a fundamental issue for them, that they just can’t get enough clean Nickel to meet their objectives.

Matthew Gordon: Basically, Indonesians, Chinese, they don’t care. They can get funding wherever. What about laterite projects outside of those jurisdictions? Do you think that they are going to find it just that little bit harder to get funding, or do the big institutions and funds not mind? And they are really just concerned about the bottom line?

Mark Selby: Well, the coal-based Ferro-Nickel projects in general are going to really struggle here because, not only on an economics perspective, you’re now competing with these massive facilities that are being built in Indonesia. Your project itself is at a disadvantage scale-wise to these businesses. You now, if you’re using coal in the rest of the world to generate your Nickel, if the Indonesians are going to dominate the Chinese market, and you’re left supplying your product to the rest of the world, are you going to have a market there when you either have to start paying for the carbon that you’re generating? Or whether people will say, ‘no, as long as I have an alternative that’s zero or lower carbon, I’m not interested’.

There are Ferro-Nickel projects that do have access to hydroelectric power or access to natural gas so those, obviously, have a much lower environmental footprint than the coal-based powers. But, those are the design choices people are going to have to make in terms of the projects that they choose to fund going forward.

Matthew Gordon: Who gets financed first – Sulphide projects or Laterite projects?

Mark Selby: Sulphide projects, particularly the ones that have the benefits that we do at Crawford, where you have these rocks that do absorb CO2. And, I encourage people… there’s a whole pile of research on carbon sequestration using serpentine rock-based systems. They are actually looking at injecting CO2 into solid rock, as opposed to just using the tailings and the waste rock that are leftover. It’s a real solution. I think increasingly as we move forward here there’s going to be much more capital available to those projects that are able to deliver a zero carbon or low carbon versus those projects that generate 90t of carbon for every ton of Nickel that gets produced.

Matthew Gordon: But what are you trying to do here? Because not only have you announced a wholly-owned subsidiary – NetZero Metals, but you have also applied for trademarks. Are you trying to get investors more aware of specific issues, or is this just for your own benefit?

Mark Selby: We’ve been talking now about carbon for several decades, and several decades in, industry still hasn’t managed to do it. If you look at most of the larger resource companies they have got, ‘By 2050, we’re going to be net carbon neutral,’ That’s 30-years from now, and that’s a lot of carbon between now and then. And this year we changed all the light bulbs in the office to be LED lights, but fundamentally they are making iron ore and coal that go to make steel that are going to generate several tons of carbon for every ton of product that they are shipping out. It’s time for those large companies to look themselves in the face and say, ‘okay, how do we, as an industry, find end-solutions to be able to deliver zero carbon production?’

We’re talking, we are going to build downstream, look to build downstream facilities in the area next to this mine, because, the off gas from these processing plants is the issue and we’ll have an ability to take that off gas and route it through the tailings and waste rock and make that carbon issue disappear. Other companies should be thinking about that and should be able to do, should be looking for those opportunities to do it as opposed to, we’re going to get to it in 20 or 30-years.

Matthew Gordon: Have you got any other supporters here? Because I suspect that the BlackRock and Fidelities of this world who are changing their investment criteria, would be interested, if they understood this. Are you going to take this forward? Are you going to be the champion for this?

Mark Selby: Yes, one of the things we talk about in the release is leadership changes, so we really want to target mining. It’s about getting the right people. It’s about finding the right deposits. And it’s about competing for capital in a way that allows you to have ‘the best capital and the lowest cost capital, the most patient capital’ and so forth. So if this initiative allows us to tap into a much broader range of networks to be able to get those type of investors, and you’re going to see changes at our board level where we are going to start to bring in people who have those types of relationships and who have that  experience. So that, we really are going to take this as a new concept to a much broader audience, and, hopefully win versus the other competing mining projects in this space.

Matthew Gordon: Why do you say that’s a positive? Isn’t this going to be distracting for your main task, which is to get your project up and running?

Mark Selby: No, from a mining perspective, it’s about A) – getting the right people. B) getting the right asset, and C) getting the right capital. You need to focus on all 3. Too many mining companies just get caught up in the technical and not really focused enough on the people and on the capital part of it. I would encourage people to listen to Tesla’s last conference call because every topic they came to was around talent; we need more of these types of people. We need more of these types of people. If you’re an entrepreneurial actuary we want you to come help us build an insurance business. So that’s the mindset that we need to have, and this is a stake in the ground in terms of, this is going to be a major thrust of where we’re headed.  We have trademarked these terms because we are first. They don’t exist today. And then in terms of creating a separate entity, because , I’ve been talking to the people in the EV chain now for the last three or four years, and it’s clear on 2 fronts: 1) – they are not as interested in deploying capital to the mining side of the business, but oh boy, do they want as much Nickel and Cobalt as you can produce and preferably double and quadruple your production as quickly as possible, please. And we will help you build a processing plant and we will promise to buy everything you produce. By creating a separate subsidiary right out of the gate, it makes it a much easier conversation, a simpler conversation to get those companies into that specific entity.

The other fundamental piece of this, and, so many companies to date have got this so, so wrong, 2) is the auto industry wants to make the lowest-cost product possible, Elon Musk makes it very clear. That’s how they are going to win. And so you need to look from an end to end perspective of what’s the lowest cost way to get a chunk of Nickel out of the ground and into a battery that isn’t a Tesla and the other 18 large automakers who are going to be betting the farm now on the electrification of cars. And so when you look at that, the key is, as you take a Nickel intermediate that’s as high-grade, as clean as possible, and you dissolve it once and then you basically keep it in one set of processes until it’s like in a can that’s ready to ship to a plant. These people who have built standalone sulphate plants are crazy because to take the sulphate, the Nickel that’s in solution, you spend a huge amount of energy to crystallise it, to put it in a bag or a drum, and then that bag or drum goes to a plant that starts to make batteries. And the first thing they do is dissolve it all. I can spend 15-minutes on why that’s not a good idea. All of these companies that we have been talking to are very keen at basically putting as much of the one process under one roof. They do everything once and only once until they get to a product that’s the right thing to ship at that point in time.

Matthew Gordon: That’s hard to put together. What’s even harder is getting the old boys in the industry to back something like this, because what you’re proposing is potentially going to cost them billions and billions of dollars on infrastructure to get clean.

Mark Selby: Oh, no. If you’re making iron ore it’s like, well, okay, well we just ship iron ore. That’s our business. If it all ends up in China, and China pumps out billions of tons of CO2 in the process of making that, we’re not going to build a steel plant next to a hydroelectric facility or in a place where there is some solar or wind, so you have a chance of having cheap hydro available or using natural gas involved in the reduction of it. Or look at complete hydrogen reduction of that process, so that there’s no carbon involved, and/or strapping on some carbon capture at the end of that process. So that if there is carbon that’s produced, you’re able to capture it so it’s not released into the environment.

Matthew Gordon: Well it’s exciting times, and the whole NetZero initiative. Exciting for you. Keep us up to date with how things are moving along.

Mark Selby: Yes. Most definitely.

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If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Neometals (NMT) – “We Will Recycle Every Tesla Battery For Free, Forever”… Elon Musk, ready when you are.

Neometals Ltd.
  • ASX: NMT
  • Shares Outstanding: 545M
  • Share price A$0.17 (03.08.2020)
  • Market Cap: A$92M

Interview with Chris Reed, CEO of Neometals (ASX: NMT), and Jeremy McManus, General Manager.

Feel free to check out some of our previous articles about the company and the battery recycling project.

Neometals is a project developer that has caught our attention. They segued out of mining after selling the Mt Marion lithium project and banked $200M. Neometals’ board focussed their attention on the inevitable rise of the electric vehicle ‘circular economy.’ What does that mean? Well, automotive manufacturers are looking to reduce the carbon footprint of their vehicle production. The entire supply food chain needs to be looked at, including recycling. So, how do they deliver that? Neometals believe they are part of that solution, and their JV with multi-billion dollar SMS group just put them front-and-centre on stage.

Neometals has quite the project portfolio, with projects ranging from a lithium refinery, a vast titanium-vanadium project and, most recently, a high-grade vanadium-bearing slag recovery project in Sweden with SSAB.

As part of this slag recovery project, the company arranged a conditional supply agreement with a huge Nordic steel company, SSAB, which owns nearly 2Mt of waste/slag spread across 3 steel mills in Sweden and Finland, and which grows at 200,000t pa. By making this deal and forming a JV with Critical Metals, Neometals demonstrated its credentials to forge deals with major strategic partners. This perhaps foreshadowed the latest development for the company’s flagship lithium-ion battery recycling project…

Matthew Gordon talks to Chris Reed & Jeremy McManus, August 2020

Neometals has entered into a binding deal with German metallurgical equipment supplier and plant construction company, SMS Group GmbH, to establish a joint venture to recycle lithium-ion batteries. This is exciting news and might be the first of numerous catalyst moments over the course of the next 12-to-18 months.

As you might already know, Neometals’ battery recycling project is based upon a green, proprietary solution to the battery needs of our EV-driven tomorrow. Neometals has a unique hydrometallurgical process to recycle Li-ion batteries, and it is more effective (in terms of recoveries) and environmentally friendly than conventional pyrometallurgical practices. Neometals is able to regenerate sustainably-produced secondary battery materials such as nickel, cobalt and lithium from spent & scrap EV Li-ion batteries and consumer electronics.

So, What Exactly Does This Deal Look Like?

It takes the form of an incorporated 50/50 JV called Primobius GmbH, and the intention is that it will be utilised to commercialise Neometals’ proprietary lithium battery recycling process.

This is now a formal agreement to follow on from the MOU agreed in October 2019. SMS Group has taken this time period to conduct due diligence on Neometals’ Canadian pilot battery recycling trial, SGS Lakefield.

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The next 12-to-18 months is a development runway, and there seem to be plenty of big catalysts on the horizon that may wake the market up to the value proposition on offer. With $85M in the bank, expect Neometals to move this battery recycling project forward at an accelerated pace. Phase 1 involves the construction and commission of a licensed demonstration plant at the SMS manufacturing facility in Germany. This will demonstrate that Neometals’ proprietary process can work economically at an industrial scale before an FID needs to be made. Looking towards commercial operations, Primobius intends to capture the emerging European market, which is regarded by many commentators as the second-largest Li-ion battery production hub in the world (behind China). The model is to build the first plant in Europe and then set up a spoke & hub operation globally using the financial access that SMS brings to the table.

There has been mounting pressure on battery supply chains in recent years, with an emphasis on ESG. We saw it with the Responsible Cobalt Initiative, with Panasonic, Tesla’s main battery supplier signing up, and Elon Musk stating that Tesla would eventually eliminate cobalt from its batteries. Pressure from environmentalists, like Greta Thunberg, has heaped scrutiny on the ethicality and environmental friendliness of supply chains in mining and industry, and both institutional investors and consumers have been paying attention.

Moreover, the “major confluence of regulatory initiatives to stimulate the electric vehicle sector to decarbonise transportation, secure battery material supply chains and support circular economies generally” has been the cherry on top of the carbon-neutral cake. Aggressive subsidisation packages across Europe have been actively implemented and European automotive manufacturers have invested heavily into their EV infrastructure. Germany is investing in thousands of EV charging ports across the country. France is close behind.

Elon Musk stated in his recent quarterly conference call that Tesla would need as much clean, green and sustainable nickel as possible. It is clear that individual battery metals need to have a cohesively green macro story if they are to form a major part of the EV revolution. Reed makes a call out to Elon Musk; he says, “We will recycle all Tesla batteries for free, forever.” Neometals has the cash in the bank and a financially and technically capable business partner. We think he is serious.

Moving on to the terms, Neometals and SMS will co-fund the construction and operation of the demonstration plant, in addition to an Association for the Advancement of Cost Engineering (AACE) Class 3 Feasibility Study, totalling c. A$6M.

If certain criteria are met, SMS will earn a 50% stake in Neometals’ proprietary technology subsidiary, and both parties will jointly finance commercial activities towards an FID on a commercial-scale battery recycling plant for c. A$1M.

What Next?

Primobius has commenced an AACE Class 4 engineering cost study for a 20,000t pa Li-ion battery recycling plant. As previously mentioned, it is based in Germany and the findings are based on Neometals’ pilot plant in Canada.

The JV will then begin construction of the demonstration plant, targeting early 2021 for commissioning.

After that, a feasibility study will commence, followed by commercial arrangements in relation to battery feedstock, product offtake, key reagents and project financing, and for future commercial preparations. The company is starting to show investors the scale of what their first non-mining project could look like; we think that with this clarity, more interest will be generated in Neometals.

This is a big story and could really shake up the way Neometals has been perceived by the market. What do you think? Comment your thoughts below; we’d love to hear them!

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If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Mark Selby #03 – Nickel On The Comeback Trail? (Flashback to May)

We regularly talk with Mark Selby. He’s become something of our resident nickel expert. He is a renowned nickel market commentator and CEO of Canada Nickel Company (TSX-V: CNC).

So much has happened surrounding the EV revolution/battery metals thematic in the last few months. It’s always useful to rewind a few months to remind investors of some dynamics they may have forgotten.

At the time, based on all the data available to Selby, he believed that global metals markets had bottomed out, and this has since been proven to be true, with battery metal prices and, in particular, nickel prices beginning to rally once again. If we can uncover the key indicators that led Selby towards the suspicion, we can perhaps uncover the market dynamics that investors should watch closely in the future.

One such metric that was up for consideration regarded the price premium of copper, the largest metal by market volume. The latest data on the Chinese copper market, the largest consumer of copper at 51%, at the time of the interview painted a bullish picture: +18-month highs for the premium price of Chinese copper purchases.

Selby is a big fan of using copper concentrate terms as a general reference point for metals markets performance, because at a potential inflexion point, when the market because to climb from rock bottom, the Chinese strategy is to buy as much copper as possible when it considers the copper price to be ‘cheap.’ Therefore, whether it is cathodes, concentrates or scrap, the Chinese just want as much copper as possible on its way in any form. Copper concentrate terms were at “multi-year lows,” and this was yet another signal that investors should look at today.

The strategy that Selby thought the Chinese were deploying at the time has undeniably manifested in a variety of ways. There have been YoY increases for all manner of metals and products, as the Chinese government looks to drive metal production via spending on infrastructure and construction. If in doubt, buy your way out? Cables manufacturers that feed into the Chinese supply chain were up over 100% capacity, and China’s blueprint for economic stimulus was making Selby feel upbeat. Even excavator sales are claimed by some to be up 60% YoY. This “big shove” to get the Chinese economy back in the swing of things has been very beneficial to copper, with the copper spot price on the LME skyrocketing from US$5,825/t up to US$6,52/t today.

Matthew Gordon talks to Mark Selby, May 2020

Historically, when copper performs well, nickel also performs well. Both are crucial in the manufacturing sector, and both will have major applications in the EV revolution. The nickel price on the LME has risen from US$11,853/t to US$13,215/t since this interview was conducted. Stainless steel, currently the primary growth driver for nickel, has increased in price YoY. Moreover, stainless steel inventories fell at the time, and this has continued to be a feature of the new normal we are living in. Production isn’t as hindered as it was several months ago, but there are still unavoidable issues that are necessitating inventory consumption. Production has continued to be restricted, with some mines in the nickel haven, the Philippines, staying offline (all of them were offline at the time). Selby remarked that nickel ore imports on the ground in China were hitting multi-year lows. This is likely to continue for the foreseeable future, and tightening inventories can only ever really mean one thing…

With nickel equities rallying significantly right now, this bullishness shows no signs of slowing down. Aggressive subsidies for EVs in Europe and mandated infrastructure could accelerate things even further. Investors are starting to pile into nickel, and it’s no wonder; these trends are becoming increasingly prolific.

Another nickel-specific indicator Selby took a look at was the price discount between nickel pig iron produced in China and general nickel; it had reduced a lot.

Investors should be aware that though copper market movements are useful, countries will sometimes take a gamble by speculating on a few thousands tonnes. Therefore, investors should also pay attention to bulk metals; speculation won’t happen for these. At the time, iron ore imports were rocketing in China, with iron ore price at “very. very, very solid levels.” Investors should pay attention to the cohesiveness of metals market behaviour. If everything is going in the right direction, from copper to nickel, and from bulk metals to general economic indicators, it might be time for investors to throw their hats into the ring.

What did you make of Mark Selby’s interview? How have his May insights held up against contemporary developments? Comment below and we will respond.

Check out another interview with Selby here.

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If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Canada Nickel (CNC) – NetZero Nickel Sulphide Projects go to the Front of the Queue

Canada Nickel Co Inc.
  • TSX-V: CNC
  • Shares Outstanding: 57M
  • Share price C$2.52 (30.07.2020)
  • Market Cap: C$144M

Interview with Mark Selby, CEO of Canada Nickel (TSX-V: CNC).

Canada Nickel was already looking like a tempting proposition. Selby is a renowned nickel commentator and previously developed Karora Resources’ (RNC Minerals) Dumont Nickel-Cobalt Project from early exploration to advanced-stage development. He has a track record of creating accretive value with nickel assets by de-risking and developing them.

Moreover, Canada Nickel’s Crawford Nickel-VMS Project is a nickel sulphide project that has impressed the market with the company’s share price skyrocketing. It’s already the 12th largest nickel sulphide resource on the planet after just 6-months of development; imagine what it will look like after a further 6-month programme of development…

Matthew Gordon talks to Mark Selby, 27th July 2020

It’s a bulk-tonnage, low-grade nickel story, but we recently spoke to Selby about some high-grade drill results that had come up. He discussed how they carry the potential to create an even more exciting value proposition for the company.

Today, we spoke to him about a really exciting development for the company. Canada Nickel has created a wholly-owned subsidiary, ‘NetZero Metals.’ It will use this subsidiary to commence the research and development of a processing facility, located in the Timmins, Ontario region, with the goal of utilising existing technologies to produce zero-carbon nickel, cobalt and iron products. 

Canada Nickel has also applied for a series of trademarks: NetZero NickelTM, NetZero CobaltTM, and NetZero IronTM in the US, Canada and other jurisdictions. Canada Nickel will be looking to build downstream facilities in the area next to its mines. It will be able to take the gas produced by the processing plant and route it through the tailings and waste rock, making the carbon issue “disappear.” The tailings and waste rock will simply “soak up” the CO2. It will take advantage of existing hydro-electrical power in the region too. Should other companies be looking to do this? Should the mining industry at large be looking to engage in this process?

We’ve discussed on this platform with numerous battery metals producers about how there is a new wave of momentum behind the ESG component of mining. Both battery manufacturers and EV manufacturers are assessing their supply chain with much more scrutiny because of pressure created by consumers, environmental groups (thanks, Greta) and regulatory bodies. National governments, like the UK, have pledged for their countries to go carbon neutral by 2050, as have most large resource companies. Potential aggressive subsidisation packages for strategic battery metals companies and EV manufacturers are further incentives for individuals to clean up their supply chains. We have already seen it with the Responsible Cobalt Initiative with companies like Daimler, Panasonic and Tesla all pledging to reduce, or eliminate, cobalt from their products due, in part, to ethical issues surrounding child labour in the DRC.

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The most recent, and perhaps significant, development comes from Elon Musk’s quarterly conference call. He has called for nickel miners to produce as much green, efficient and sustainable nickel as possible. He has big plans to kick off the post-COVID EV renaissance with boosted production. The new mid-tier Model 3 is intended to be the bulk-sale cash cow for the company on the back of the success of the Model S and Model X. In order to make this a reality, he’s going to need a lot of nickel, and there are plenty of challenges surrounding this, especially given the pressure to keep it green.

We’ve previously discussed the differences between two different classes of nickel: nickel sulphide and nickel laterite. However, we didn’t discuss a crucial issue for investors: environmental footprint.

SOURCE: CNW Group/Canada Nickel Company Inc.
Y-axis = tonnes CO2/tonne of nickel produced

It’s quite clear then. Sulphide projects are expensive to mine but cheap to process via conventional smelting techniques. Laterite is cheap to mine but extremely expensive to process; it requires an HPAL plant, which has only ever been successfully constructed for over US$1Bn. With such a large CAPEX and a much more damaging environmental footprint, does this put nickel laterite projects at the back of the queue when it comes to getting financed? It certainly looks that way. Are you invested in a company with a nickel laterite project? What is your take on all of this?

How exactly will this all play out? Will the old boys throw their toys out of the pram? It would cost them billions in infrastructure after all…

Let’s hear your thoughts below! It’s both an exciting and controversial topic and we’d love to hear your take on it.

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If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Blackstone Minerals (ASX: BSX) – Nickel Production Within 3 years?

Blackstone Minerals
  • ASX: BSX
  • Shares Outstanding: 254M
  • Share price A$0.29 (27.07.2020)
  • Market Cap: A$72M

Interview with Scott Williamson, Managing Director of Blackstone Minerals (ASX: BSX)

We’ve spoken to Williamson several times now. He’s a straight talker, but what about the value proposition of Blackstone Minerals? Is it one that investors should seriously consider?

Blackstone Minerals (ASX: BSX) is an Asian nickel player. The company’s primary focus is on exploring the Ta Khoa Nickel Project in Northern Vietnam. The project includes the Ban Phuc nickel mine, which operated an underground mine between 2013-2016 and has existing modern infrastructure including a 450ktpa processing plant.

Matthew Gordon talks to Scott Williamson, July 2020

The team features some decent names that are well known in the nickel space: Hamish Halliday (Non-Executive Chairman), Scott Williamson (Managing Director), Andrew Radonjic (Non-Executive Director), Hoirim Jung (Non-Executive Director) and Steve Parsons (Non-Executive Director).

Williamson and Blackstone Minerals believe that the value proposition of the Ta Khoa district and the Ban Phuc mine represents a unique opportunity to access a district-scale nickel PGE (Cu Co) sulfide project with existing infrastructure and a downstream nickel sulfate value-add opportunity. Moreover, Blackstone Minerals categories Asia as an ’emerging hub’ for EV Li-ion battery manufacturing.

Moving forward, Blackstone Minerals expects to have completed a scoping study and maiden resource for Ban Phuc by Q3/20. The total investment by previous owners exceeds US$136M, which generated US$231M in revenue over 3.5 years in spite of falling nickel prices. Ban Phuc has been on care and maintenance since mid-2016.

The company’s over projects include the GoldBridge Cobalt-Gold Project (Canada), the Silver Swan South Gold-Nickel Project (Western Australia), and the Middle Creek Gold Project (Western Australia). A “formal process” is underway for GoldBridge, and Blackstone Minerals is seeking a JV partner, preferably, a mid-cap/major gold mining company. Blackstone Minerals is also looking for spin-off/sale opportunities for its Australian assets in an attempt to monetise them. Williamson claims there is “a lot of interest” in the company’s gold portfolio.

It’s full-steam ahead at Ta Khoa. This is the clear focus for Blackstone Minerals. On April 22nd, it announced a share subscription deal with EcoPro, Korea’s largest cathode manufacturer. EcoPro is now a substantial shareholder in Blackstone Minerals, and this gives Williamson’s company access to some of the “best battery chemical engineers in the world.” With some concrete studies coming to the market in the near future, Williamson is keen to let investors know the company is still exploring and on the hunt for massive sulfides. The company will always to be a 90% stakeholder of the mine. Williamson has agreed on a 12-month deliverable timeline (9 months from now) for a PFS with EcoPro, which is extremely aggressive. The company will not be building a mine on the back of a PFS, but it will be building a partnership with EcoPro based on it. Will the company deliver on a PFS by Q1/21, followed by a bankable study a year later? Construction could commence at the mine by 2022, making Blackstone Minerals an accelerated nickel value proposition, but is it too much too quickly? Whilst nickel has been increasing in price over the last few months, is this timeline of development going to hit the EV-induced uptick at the right moment?

There are a variety of potential exit options. Value could be added via expanding the partnership with EcoPro, but Williamosin does not see a takeover as a viable option. He wants to create accretive value by turning this thing into a mine.

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Luckily, the January lockdown imposed by the Vietnamese government due to COVID-19 has resulted in just 360 recorded cases from 100m people, and Vietnam is still looking at a remarkable 5-6% growth of its GDP this year. As a consequence, Blackstone Minerals’ operations have not been affected whatsoever; if anything, the company is ramping up, aiming to increase on its 3 drill rigs and add an additional EM crew to unlock the massive sulfide opportunities. Blackstone Minerals has c. US$7M in the bank, and whilst the brokers would love to see the company raise more capital, at this market cap, the company doesn’t believe it would be the right thing to do. The burn rate is US$500,000 PQ, meaning this capital could see the company through for the next 12-18 months.

What did you make of Blackstone Minerals and Scott Williamson? Comment below and we will respond.

There are numerous articles and interviews on the Crux Investor platform relating to nickel or the EV revolution. Why not check some of them out?

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If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Cypress Development (CYP) – Advanced, Large & Complicated Lithium Clay

Cypress Development Corp.
  • TSX-V: CYP
  • Shares Outstanding: 90M
  • Share price C$0.32 (21.02.2020)
  • Market Cap: C$28M

Interview with Bill Willoughby, CEO of Cypress Development Corp. (TSX-V: CYP).

In recent weeks, we’ve spoken to a lot of lithium explorer, developers and commentators who have spoken about lithium’s potential as a strategic commodity. In fact, the US is said to be actively considering how it can reclaim some of the control of the lithium space from Asia. This is similar to the sort of thing we’re seeing from the administration regarding uranium, with the Department of Energy’s Nuclear Fuel Working Group Report highlighting policy recommendations to restore America’s competitive nuclear advantage.

As a consequence of this desire for strategic fortification, some lithium investors have been bullish about the prospects of new American lithium projects getting funded. However, whilst lithium producers and developers have found capital fairly easy to come by, there has been very little made available to explorers; there simply isn’t that much interest in new projects yet.

Matthew Gordon talks to Bill Willoughby, July 2020

The EV picture in general looks bullish, with the €250Bn investment of automotive manufacturers in Europe almost forcing them to encourage EV demand growth. Countries like Germany, France and the UK have been discussing aggressive subsidies to allow COVID-19-afflicted consumers to purchase EVs: in Germany, a figure of c. €9,000 for every EV up to €50,000 could be on offer, with the more extreme idea being that the government could mandate EV charging stations at every single gas station (though this seems farfetched).

So, whilst the lithium price has remained depressed, the demand drivers are providing reasons to feel more optimistic. However, will the general lack of capital be deleterious to a small lithium junior like Cypress Development? With a CAPEX this sizeable, has it bitten off more than it can chew? How will it get financed?

Cypress Development (TSX-V: CYP) (OTCQB: CYDVF) is focussed on developing its 100%-owned Clayton Valley Lithium Project in Nevada, USA. It is a lithium-bearing claystone project but with high lithium recovery over 85% Li, which means the dominant lithium-bearing minerals present are not hectorite (which requires roasting to liberate the lithium). Cypress Development claims that exploration and development have rendered Clayton a ‘world-class’ resource of lithium-bearing claystone. Encouragingly, the project is adjacent to the Albemarle Silver Peak Mine, which is North America’s only lithium brine operation. Clayton has the scale to be attractive to major strategic partners.

In May of this year, the company released a PFS. The numbers are strong:

  1. Average production rate: 15,000 tpd to produce 27,400t lithium carbonate equivalent. (LCE) annually over a +40-year mine life.
  2. Lithium Carbonate Price: US$9,500/t.
  3. Capital Cost Estimate (CAPEX): US$493M.
  4. Pre-Production and Operating Cost Estimate Averaging US$3,329 per tonne LCE. This is industry-leading.
  5. After-Tax Net Present Value (NPV8): US$1.052 billion.
  6. After-Tax IRR: 25.8%.
  7. Probable Mineral Reserve: 222Mt averaging 1,141 ppm Li (1.353 Mt LCE) based on a cut-off grade of 900 ppm Li.
  8. Measured and Indicated Mineral Resources of 593Mt averaging 1,073 ppm Li (3.387 Mt LCE).
  9. Average Annual Production: 27,400t pa LCE.
  10. CAPEX Payback Period: 4.4 years
  11. Strip ratio: 0.15:1. This is negligible due to minimal overburden and no interbedded waste.

First and foremost, Clayton has the scale to be attractive to major strategic partners. Another positive is that Cypress Development is able to produce self-generated power from a 2,500 tpd acid plant, and this is included in the project’s costs. The cash cost is exceptional, and an IRR of c. 26% is impressive. However, how will Cypress Development finance its c. US$500M. It’s not going to get financed on the back of a PFS, and nobody has yet brought a lithium clay deposit into production at this scale, so what is the next step?

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The next step is building a pilot plant to provide a proof of concept. This is driven by a focus on the needs of end users. The company will have to scale the plant accordingly to its potential consumers. Right now, Willoughby and his company are aiming for 1 tpd. It’s a c. US$7M phased programme. Even if Cypress Development nails the technological side of things, this capital is a big ask for a lithium minnow. The company will be applying for government grants. There is a REEs aspect to this story, and Cypress Development is hoping to play off that as America target building a new rare earths hub. Other than grants, an equity raise/strategic partner is the other option. Willoughby thinks that investors will buy into the value proposition of this advanced lithium project, and he expects them to throw their money into the ring. However, a private placement is not the current priority. It can afford to be patient with US$1M left in the treasury and a low burn rate: C$25,000 per month.

There is still plenty of permitting to resolve in Nevada, including arranging water rights. The company does have a strategy to source a water supply, but these plans are not yet transparent. The company is in discussions with industrial partners, miners and chemical companies to get this thing off the ground. Willoughby has the energy to go all the way: building a mine. However, it will sell the project at the right price. The lithium clay has a big advantage over lithium hard rock in terms of cost, and it has a jurisdiction advantage over lithium brine projects because it isn’t in the sometimes unstable realm of Latin America.

In terms of remuneration, Willoughby receives a ‘relatively cheap’ compensation package of a salary plus some stock, though he won’t give us the exact number. He claims that he buys stock on the open market, though he hasn’t bought too much recently. He has participated in most of the private placements.

What did you make of Bill Willoughby and Cypress Development Corp.? Comment below and we will respond.

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Mark Selby #07 – Nickel M&A Picking Up. Pick Your Winners (Transcript)

Our weekly Nickel Market Insights with Mark Selby, Nickel Market Commentator and CEO of Canada Nickel Company (TSX-V: CNC) will help you stay ahead. Stay up to date by listening to our weekly market roundup on Nickel.

If you don’t understand the nickel market, don’t invest in it. Our weekly round up of the nickel market aim to help you make smarter decisions around which companies and timing.

1) Nickel up another $0.05-$0.10 this morning. c.$6.00, 2 weeks in a row. What’s going on. We discuss what’s driving the nickel market and its not EV and battery thesis. Another macro play – copper moved from $2.80 to $2.95 – approaching critical $3/lb level – copper 5% higher than pre-COVID hasn’t been c.$3/lb for more than 2-years. Again what is driving the base metals…. find out

2) Last week we discuss the Nickel market for EV and stainless steel. So this week we discuss the other uses and applications. – High nickel alloys, alloys – jet engines, gas turbines. Obviously jet engines not going to be growing again for awhile – Alloy steel – throw a little extra nickel in to get some extra strength – other properties – high pressure/high temperature applications, corrosion resistance, slightly magnetic properties – Plating – chrome plated – think big bumpers, shopping carts

3) Industry News – Centaurus, in early July announced a Brazilian sulphide project – 48.0Mt @ 1.08% Ni FOR 517,500 TONNES OF NICKEL – relatively new discovery – Carajas, Brazil – Few new sulphides – so everyone exciting news – particularly as open-pittable (1%) – Sulphide discoveries rare – if get 2-3% grade nickel intersection is exciting, often tough to get resource those grades at any scale – nature of deposit

We Discuss:

  1. 3:35 – Nickel Price Keeps Growing: How Long Will the Trend Continue?
  2. 5:41 – COVID-19 and Battery Metals: Not Too Bad an Outcome?
  3. 7:36 – Nickel Market Reset: When and And What it Will Look Like?
  4. 9:07 – Lesser Known Uses For Nickel
  5. 17:28 – News from Centaurus Metals: M&A Implications
  6. 21:03 – ASX vs TSX Opportunities for Investments in Nickel
  7. 26:52 – Growing Excitement in the Market: Generalists Incoming?
  8. 32:08 – Investors, Listen Out for These Trends!

CLICK HERE to watch the full interview.

Matthew Gordon: Hi, Mark. How are you doing, sir?

Mark Selby: Good Matthew. Good to see you again.

Matthew Gordon: That’s a nice setting in the background. You’re up at the country?

Mark Selby: I am at the cottage, yes. That’s one of the benefits of living in a country where you have 3 million square miles and only 35M people – there is actual land that’s not too far away from the city where you can be on a Lake and be able to get out. And particularly in COVID times, it is pretty spaced out here. It is a nice place to have to quarantine from time to time.

Matthew Gordon: Very nice. You are on a lake, rather than a mountain then, is that right?

Mark Selby: Yes. Once you get a little bit north of Toronto and on to what geologically is the Canadian shield, we literally have tens of thousands of lakes. I think we have something like 30% of the world’s fresh water in the country. Very few people, lots of little lakes means you get a place on a lake which is rare around the world.

Matthew Gordon: I’ll be applying for my Canadian passport at this rate. Well, we are here for our weekly catch up on the world of Nickel, which from what we are seeing is, it is starting to hot up somewhat. We have talked in the past few weeks about a little bit of M&A, we can do a little bit of a market update in a second, but I’m going to have to call you out 2-weeks in a row – price.

Mark Selby: I know, fabulously wrong twice. It might be all over after today. So again, fundamentally, I didn’t see anything that would suggest the market was going to move higher and I thought we were going to trade sideways for most of the balance of this year until the EVs really started to rebound through. But yet again, the world of momentum trading has pushed Nickel up another USD$0.05 to $0.10/lbs this morning. I haven’t quite seen where it is. We’re doing $6.05, $6.10/lbs, or up to the $13,400/t, $13,500/t range. Well above that key USD$6/lbs threshold. It wasn’t the Chinese exchange this week. It was, again, signs that you’ve got macro money pouring into the space.

The price of Copper has gone up $0.15/lbs since we talked, +$300/t, since we talked last week and is closing in on the $3/lbs level. We have been trading right now around USD$6,500/t. This is up above where it was pre-COVID. We were 5% higher than we were pre-COVID. And it has been nearly 2-years since Copper has been back to a USD$3/lbs level. So again, if you want some confirmation that we have got a strong Chinese rebound coming, we have got macro money coming into the sector, Copper has the added  overlay that COVID is really having an impact on production in Chile and Peru, so you’ve got some additional supply concerns mixed in with it, which is why it’s trading up above where it was pre-COVID. And, as Copper is one of the big LME metals it helps put some upward pressure on all the LME metals, which I think has benefited Nickel during the past week.

So we will see, hopefully next week, it’s good to be wrong in this direction, but again, I just don’t see on a fundamental basis that we are going to see these things sustained, unfortunately, sustained for the next until we get closer to year end.

Matthew Gordon: It is interesting that you say that because we have been talking to a few companies, Gold companies, who are now washing themselves with cash because of the gold price, but they’re looking at Copper as a hedge to their Gold investments, which I thought was an interesting take on things that could influence, things like the Copper price, which in turn puts upward momentum on things like Nickel and all the other  base metals. What were we worried about? This COVID thing was meant to knock the market for 6, wasn’t it?

Mark Selby: Yes, I know it has, but you are the reflation trade happening. We are seeing it first here in China in terms of them pouring money into the sector, which is in turn flowing into commodities, as again, China is doing fixed asset investment to help boost their economy. I think we have discussed before. What we’ll see in the West and, again, Korea  joined the party this week, with this  new Korean new deal. Which is along the lines of: countries want to get their people working again, their economy is growing and in the process help how we shape their economy to more of what they think they should look at in the future. So, there were some other electric vehicle infrastructure, electric vehicle benefits there that, not today, but over the next few years, should help benefit the metal sector, particularly, for all those metals that are involved in that whole infrastructure chain.

Matthew Gordon: This is going over conversations we did have previously, which was about, it’s all well and good these people producing stuff, but the West has got to buy it. And if we don’t buy it then producing it is not going to matter for toffee really, they are going to stop producing it because we have stopped buying it. And that cycle slows. It is a downwards spiral from there. Isn’t it? What are you saying? You said it earlier: it’s going to have a little reset. It’s popping up now. It is going to have a little reset. When, and what does that look like?

Mark Selby: Well, to prevent that this recovery stalling, you’re just going to see governments continuing to throw stimulus at it, to err on the side of overshooting rather than undershooting. Because, once you lose your momentum and you start to stall again, which we saw multiple times in Japan over the last 30-years, that again, the governments will err on the side of overstimulating the economy versus under stimulating. And, that is why Gold is close to all-time highs because to do that, the governments are going to be printing lots of money, which should be good for Gold. Gold is one metal that I will never ever forecast, but coming back to that natural hedge. In my past life at RNC, part of the reason we liked Beta Hunt was because it was a Nickel and a goldmine. So you had this one operation where again, they’re not completely anti-cyclical, but you do get some natural hedging between both of those commodities, which again, should help your cash flow be a little less volatile than it otherwise would be, which investors tend to like, based on what they tell me.

Matthew Gordon: This is an educational series. We are trying to learn about the Nickel market. We are trying to understand what it is used for now, what the future could look like. You are helping us with that. In the past couple of weeks, we have looked at the EV thematic, and why Nickel is important to that. We have also last week realised that actually, stainless steel is a much bigger component for Nickel, but there is still more; there’s a few more uses, and it might be worth covering those off. So why don’t you skip us through some of the other uses that perhaps most people aren’t aware of?

Mark Selby: Yes, sure. I think today EVs are the future and the stainless is the as is, and 2/3 of Nickel consumption now is stainless steel. 5% or so is the EV market. And then that’s going to grow very, very substantially over the next 15-years. But there was about 30% of the current uses which have a fairly diverse set of uses of roughly 10ish% each.

The first one, and this has been a very strong source of growth long-term, is a category called high-nickel alloys. In stainless steel the main Nickel stainless steel use is about 8% Nickel, and high-nickel alloys, you are looking to use materials which have got 15% – 70% Nickel in them.

And, you are alloying them with things like Cobalt and Molybdenum and Chromium and Iron. And what you’re trying to achieve is a set of properties in terms of strength, in terms of being able to have strength at very high temperatures, being able to stand a lot of pressure, be super, super corrosion resistant, and in some cases, have some certain magnetic properties because , that’s what high-nickel alloys are. So anytime you are sitting in a jet airplane and you look out the window, those jet engines next to you have a couple of tons of Nickel in them because those Nickel alloys are the most durable alloys for use in those type of applications. Obviously, historically that has been a great source of demand because airlines aren’t going to change the alloys they use to save $2, it is a pretty extensive permitting process to permit an engine and permit the materials that can be used in an engine. So that has always been a very non-price-sensitive source of demand for Nickel. Obviously, with COVID and the collapse in travel, that sector has been hit really hard over the last 4 or 5-months. Another area where those go into is in oil & gas. So again, both of those areas; high-nickel alloys, for the last 10-years has been a pretty strong, robust source of growth, and is actually going through a lot of pain. I know one of your talkers talked about the Cobalt market and talked about the world of pain Cobalt is in. And, Cobalt is commonly alloyed with Nickel in these types of applications, except it’s a much bigger part of the Cobalt market than it is the Nickel market. So that’s why Cobalt is getting disproportionately hit there.

So that’s one sector: high-nickel alloys, and the next one is alloy steel. And so, this is an area where you are not necessarily creating stainless steel per se, but you’re looking to throw a few percentage points, or again, up to 10% or 20% of Nickel to get some specific properties, again, just to make it a little stronger. There’s one common alloy that doesn’t change size based on temperature very much. And, places where you want things to be a little magnetic. They mix a little Nickel in. So again, that group of applications is roughly 10% of the market.

And the last sector, which has been shrinking over time, is the plating market. That used to be a super-big application back in the sixties and seventies. And it has moved around the world in different locations, as Palladium is not necessarily the most environmentally sensitive process. It has unfortunately migrated to places that have the lowest regulation from time to time. If you think of big cars in the 1960s with great big Chrome-plated bumpers, even though they’re called Chrome-plated, that plating is actually a series of layers of Chrome and Nickel which make it resistant to rust. Things like shopping carts and all kinds of things, wherever you saw Chrome-plating there is a little bit of Nickel in that application.

Now, with the big spike in Nickel prices we saw back in the mid-2000, people really don’t care whether their shopping cart is chrome-plated. And so those applications tended to get shifted over to other non-Nickel uses at that time. Now most shopping carts are basically coated with some plastic or other non-metal coating to be able to make them corrosion resistant enough for the underlying iron that they are made of. And so again, this is an application that’s 5% or 10% of the market. They are not the big story, but they continue to have, from time to time, influences in terms of where metal demand is going. I thought it would be good to it round out, so you now have the entire 100% of the demand pie.

Matthew Gordon: People are looking to, obviously stainless steel as you said last week; it’s huge. That’s not going to change anytime soon. And the market we have just talked about today with being high-nickel alloy, and alloy steel and plating, that’s not a growing sector as such; the growth demand is all coming from EV?

Mark Selby: Yes. That’s correct. And, right now the high-nickel alloy sector, because of its dependence on air aircraft and oil and gas, has been a drag on overall demand growth over the last 6 to 12-months.

Matthew Gordon: That is interesting, that does help us understand where Nickel is being used, and there’s no new applications for Nickel, Nickel is just looking 100% at EV and saying, that’s where we want to play.

Mark Selby: Yes, for sure. That is the current big, big source of new demand. One little, one off piece: there were some stories this week where people had patented a Nickel-coated air filter, not Nickel coated, sorry, a Nickel-alloy air filter where you basically put it into a  air conditioning, air circulation unit in commercial buildings. And as the air gets pulled through, they basically zap the COVID viruses that are in the air. And the reason they’re using Nickel is you can heat up this filter so that it gets hot enough that if the COVID touches it, it kills it. And a lot of metals, if you heat them up it causes them to corrode more quickly, in this case the Nickel prevents them from corroding too quickly. We will see whether that becomes an application, but it was an interesting, just to highlight how Nickel has a lot of properties that make it very, very widely used in a bunch of different applications.

Matthew Gordon: I’m not going to follow up on that one because that’s, everyone is trying to come up with a way that they can get on the COVID bandwagon for funding. So, the headline won’t be, ‘Nickel cures COVID.’ It is  amusing, because we also had a guy talking about Copper this week, and he was talking about the long-held health benefits of Copper as a potential market, which is well understood: people drinking from Copper cups and Copper bracelets and so forth, but it is probably not going to drive the market. And I suspect neither will these air filters.

Mark Selby: Yes, I know it does. Copper has these really good antimicrobial properties, Silver is the only thing that is better than it, but for whatever reason, to date it hasn’t caught on. So I don’t know whether COVID will cause more people to find ways to create Copper coatings to be able to make them more antimicrobial. But I think it’s a big TBD at this point.

Matthew Gordon: I saw something this week with regards to Centaurus in Brazil, what’s happening there? we talked the past, there’s a lot more M&A activities, a lot more news. Nickle is getting noticed again. What can you tell us about Centaurus?

Mark Selby: What was great there…we have talked about sulphide and laterite before and then  the sources of supply and again, the key thing why I’m doing Canada Nickel is there’s really very few new sulphide discoveries in the market. So, there’s very few Nickel stories and ways for people to invest. I’m glad to see more and more stories come to market. They published, I think the week before last, they published their first resource since they picked it up, which was just under 50Mt of Nickel at just over 1%. And again, it’s a Nickel sulphide project. The key thing there is that it is just over 1% and with a portion of it that’s open pittable, it is pretty attractive. I was very glad to see that come to market.

They picked it up from Vale. They traded another asset for Vale. Vale initially discovered it a while back, and it wasn’t quite big enough for Vale to move the needle for Vale. But, there’s a lot of room between zero and, what moves the needle for a USD$40Bn company. So, they’ve been drilling it off. They’ve got some pretty nice intersections and stringing it together to resource. Because the one thing that is tricky with sulphide is, and as a word of caution for investors, if you see a new discovery that’s got a 2% or 3% Nickel drill hole, that’s good, and that’s exciting. Definitely pick it up if it’s trading very cheaply. The challenge with the way a lot of Nickel sulphide deposits are structured is you may get a small slice of it where the material is pooled, that you get a higher-grade slice through it. But oftentimes that’s a very small portion of it and it’s attached to a bunch of a much lower-grade Nickel so that when it comes time to do your resource, this 3% or 4% Nickel intersection turns into a 1% Nickel grade. That’s not very exciting. This is not the case with Centuarus. They’re coming along with some very, very good drill holes and it is open pittable, so we will see how that one evolves. But again, we need new discoveries, we need more Nickel. The auto industry is not going to rely solely on Indonesia to deliver all the Nickel it needs. And, the biggest problem I hear from a lot of investors is there’s just not enough ways to really trade Nickel as there is in Copper, Gold and Silver, where you literally have dozens, if not hundreds of companies to buy. It’s a pretty small group of companies that are publicly traded today.

Matthew Gordon: So interesting.  it’s interesting in that there is so much attention to this news happening now. Actually, we were meant to be doing this week, the Q&A with people, but I think there is a slight problem at my end. Someone didn’t quite get around to doing everything they should have. I apologise. it’s our fault that that’s happened, we have got about half the questions we wanted, but we wanted a proper session with you next week. So that’s coming up next week. But one question which does keep coming up, and I think it’s maybe just worth spending a few minutes on now, given we are talking about the M&A type of activity that’s going on, where people should be looking at the sorts of deals that are happening and we do need more Nickel in the market is: ASX versus TSX. Because you mentioned in the past that ASX, they like Nickel deals. They understand Nickel deals. What is the difference between an ASX investment and a TSX investment in Nickel?

Mark Selby: Sure. That’s a good question. So the key difference is, the bulk of the TSX Nickel stocks., so back in 2005, 2007, the last Nickel cycle, you had Inco Falconbridge, Lion Ore, Cameco and several other companies all got acquired, FNX was another company that got acquired during that timeframe. You had a whole set of small, medium and large size companies that all got acquired. So all of a sudden, in terms of the investible universe for Nickel, it collapsed down to literally a handful of companies by 2008, 2009. And it happened at a time when Nickel fell out of favour with most investors. It was like, ‘well, I don’t like Nickel that much’. There are very few ways to play it on the TSX. So literally, the biggest challenge I had with RNC and Dumont through the 2010s was trying to, if I could sell an investor on what the long-term Nickel story looked like, was what? I’d love to invest in you guys, but there’s literally, there was us, there was Sherritt and there were a couple of other smaller companies at various stages of exploration and development. The total market cap, the entire market cap that was Nickel was a pretty small number. They said, ‘I just can’t, as a fund manager managing USD$300Bn to $500Bn, I can’t justify the time to spend it on Nickel to then make a decision about buying a Nickel company’.

On the ASX, there were some acquisitions, but by and large, you still had, Western Mining was the big one that BHP took out, but you had a very well developed set of companies. Western Australia has been the long-term producer in that market. You had Panoramic, Poseidon, you had a bunch of exploration-stage companies that had different deposits. In the mid-2010s, I have talked about serious resources before, and the Nova-Bollinger discovery, that was literally the last hole of the last campaign. It was trading at USD$0.2 and then it was a hundred bagger. People tend to remember those. You have always had a very investible set of companies on the ASX, which has now been joined by Nickel Mines which owns a chunk of one of Tsingshan’s plants in Indonesia.

So, for Australian investors, they’ve continued to stay invested in Nickel all through that timeframe because it has been a large enough investible universe. So again, why I’m excited to see Centaurus’ of the world starts to emerge with what looks like a pretty interesting deposit, is just we need to continue to expand that investible universe to give the investors the full set of options so they’re like, okay, I’m going to learn about Nickel and I’m going to commit capital to this space because I’ve got a different a bunch of different ways I can play it as the story of old.

Matthew Gordon: But the typical thing for the TSX is you’re not seeing management groups going out and being able to find good Nickel projects there. There is still literally a few handfuls of Nickel companies, and most of them are quite early stage. We have talked about your company, Canada Nickel Corporation, where you’ve got the world’s 11th largest ore body. You got lucky in a way, and you are hitting the cycle right. I get that, but there’s not a lot of people going to be able to do that just because Nickel is on the up now, going out and finding something is really, really hard.

Mark Selby: Yes. So, the key, I think what we are starting to see in Australia already is you’re starting to see a bunch of emerging exploration stories. So again, when a sector starts to come in to view, 2 things tend to happen: 1 – you see the money first go to cashflow producers. And typically, the ones that have the highest torque are the ones that go first, then it spreads out to the average producers. And then once people start to believe, okay, there’s a longer-term story in place, you’ll start to see dollars flow down into the exploration side. So again, like we have seen in the Gold market, it took a while, it was all the major Gold stories that moved for the first while, and all the Gold explorers were like, Oh, everyone is excited about Gold, when am I going to be able to raise $5M to do some exploration? And over the last 2-months, we have seen a huge amount of cash starting to get invested in earlier-stage exploration. That has already started to happen Australia. You’re starting to see a bunch of earlier-stage exploration stories evolve. And again, some of them will work, most of them won’t; that’s the joy of early-stage exploration, but we’re at least starting to sow the seeds of having companies that will start to move up the chain.

With Canada Nickel because of the nature of the deposit and in our experience, we’re able to advance it very, very quickly there. That’s not going to be the case with everybody. But again those are the opportunities; if you get in early with the company at a relatively low valuation, they could go to zero, but also those are the ones that give you the chance to having those 10, 20, 50 baggers that we all dream about in our portfolio.

Matthew Gordon: And I hear about every day – 50 baggers all the way. But tell me this: we’re interviewing a lot of people, we are interviewing a lot of CEOs, a lot of market commentators, we are actually interviewing a lot of investors as well actually, we interview investors every week. People are getting excited about mining again, partly because of the way that the rest of the world seems to be imploding with regards to quantitative easing, et cetera. People are very, very nervous going forward. Precious metals are doing well, but so it seems are a lot of mining commodities at the moment. I mean, what are you seeing in terms of conversations that you’re having? Are you having conversations with more generalists coming into this space now?

Mark Selby: Not yet, but that is coming. These moves now, and this momentum trading; it is those generalists who are starting to deploy capital. They say, okay, the central banks are panicked about deflation, given what has going on with COVID. And all of these central banks and all of these governments are going to throw huge amounts of money to try and make sure they can reflate their economy and avoid any deflationary pressures. The beneficiary of those are hard assets and things like metals and mining. There is that one thematic that is going to cause more money to slide that way. The other big thematic that will benefit from there is, again, just relative valuation.  I remember back when I joined Inco in 2001 as Head of Market Research, and we had Morgan Stanley’s chief strategists come in and talk about long-term cycles and everything like that. And what was fascinating was, literally, again, this is a pretty common theme in investing generally: the hottest sector this decade unsurprisingly turns out to be the weakest sector, even though the decade following. But again, it’s one of those facts of the market that people just seem to forget every cycle. It’s like, ‘Oh, I love tech. It’s up about 1000%. I think it’s going to go up another 1000%.’ And the reality is, over the last decade, mining and metals has not been a very strong performer relative to the tech sector. If you’re a generalist, do I want to buy Apple at a 52-week high, it is up 100% over the last 12-months? Or do I want to buy up this beaten-up stock that is trading at 2x cash flow, that if commodity prices go anywhere close to where I think it is going to go, the value is going to go up 5x or 10x?

And then I think that the big guys, the larger investors, the BHP, Rio’s, that mining has been a horrible destroyer of capital over time, which has made it difficult to always have those long-term investors stay with you across the cycle. They have been very disciplined to date in terms of starting to return money back to shareholders, which is why we’re actually in business. I’m hopeful that as this reflation trade happens, and the rest of the markets stays relatively highly valued relative to the mining-metal sector, we will start to see some more money coming our way.

And, given the relative scale of these, that’s the other thing we really want to point out is that these are massive amounts of money that are deployed in other sectors, and if you even get a small amount of this generalist money start to be reallocated to metals and mining, it will just seem like a deluge of capital coming into the sector.

Matthew Gordon: That’s exactly the point. Because we have been approached by a couple of handfuls of generalist funds looking at, and they’re looking at the fundamentals of certain commodities. I won’t get into it, but they are basically looking at roll-ups because there are a lot of companies who are starved of the oxygen of cash, but the fundamentals of the business: the commodity, the macro story going forward are there, and maybe it’s even the management team who aren’t up to scratch. And just talking to us about some of the opportunities in the different commodities, and it’s not just the EV thematic here. There is some very unloved sectors, which are just throwing off a lot of cash, but which I think there’s opportunities in too, but it is always interesting to me. And I’ve been saying this over the last 2, 3-weeks; that when you start seeing these generalists who are heavy on cash, light on knowledge, something is up. And I think that is what I am seeing.

Mark Selby: I would completely agree. And, that’s where, why do you wake up? And you go, Oh, jeez-everything has just gone up this much in the last 2-weeks. And, Copper prices were up $0.50 again from where we talked 2-months ago. That’s a huge move if you look on the charts. And that has happened on the back of some good Chinese news, in that Covid wasn’t as bad in some places, outside the United States, as some people were expecting. No, that is just what happens. It is just a little bit of generalist money in a small percentage of reallocation and sectors can really, really take off. So, pick up quality names, pick up quality names at different stages because they’ll all trade differently as the money comes in.

Matthew Gordon: Yes, I think that’s right.

Mark Selby: It could be a fun couple of years.

Matthew Gordon: Yes, it could be a fun couple of years. I would say to retail investors now, listen out for trends, listen for the commodities which people are starting to talk about more and more, on not just the usual supply-demand over the next 2, 3-years; if I see another one of those charts or the first 5 pages of presentation telling me the macro thematic. It is just that what people are about is some big clues. Because, if generalists start listening to this, if retail start listening to this, there is this momentum story where big fundamentalists, like you, because we understand that certain commodities operate within upper and lower thresholds and all the rest of it. That said, you can get really, really cute with it. But trends is a big part of this; just listening to what is happening, what people are talking about. So not to be ignored.

Mark Selby: Yes. If you end up with a pile of exploration companies, if you buy 10 exploration companies, again, 1 or 2 probably may go, but there is a chance you get 0 for 10. And Matt, the commodity prices may have unfolded exactly how you expected and you end up blowing up all your capital. Again, buying Rio Tinto or BHP or Glencore is not going to be nearly as sexy, and you can’t tell your friends that you got a 10 bagger on Glencore, but if you identify and get the trend right those companies will benefit, not with the same leverage. But if you can sprinkle it around, it’s just, you will be making money as much as preserving capital as choosing winners. So yes, that would just encourage people to try and do that as much as they can.

Matthew Gordon: Investing is easy really, isn’t it?

Mark Selby: Not quite.

Matthew Gordon: No?

Mark Selby: Try not to do stupid things, cycle in, cycle out.

Matthew Gordon: Mark, thanks very much for this week’s run through of Nickel. It has helped complete that picture. There is always news in this space, always things moving. I look forward to catching up with you next week and see what is happening.

Mark Selby: That sounds great. We’re looking forward to it and looking forward to the question. So yes. I encourage everybody to throw whatever they want to know at me.

Check out another interview with Selby here.

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