BHP Labels Nickel as 1 of its 3 Future Commodities

Canada Nickel Co Inc.
  • TSX-V: CNC
  • Shares Outstanding: 68M
  • Share price C$1.66 (11.09.2020)
  • Market Cap: C$113M

Stay ahead with our weekly Nickel Market Insights with Mark Selby, Nickel Market Commentator and CEO of Canada Nickel Company (CNC).

Let’s get straight into it. What is the major nickel news this week? There has been a major price move, with nickel now trading at $15,000/t ($6.75/lbs) and this momentum is continuing to grow. Iron ore prices are up to a 6.5-year high, copper price have broke through the $3/lb barrier. The growth of these industrial metals has been greatly aided by the Chinese reflation package, a typical Chinese go-to strategy for much of the last 30 years, which aims to kickstart the Chinese economy post-COVID lockdown with investment in industry and infrastructure.

Though the pace of the reflation trade has slowed somewhat because of poor weather, multiple commodities setting new multi-year highs cements a sense of bullishness. In fact, China has reflated so ferociously that year-on-year (YoY) numbers actually look strong, despite months of COVID-induced stagnancy. As the hub of stainless steel growth and nickel supply/demand, alongside Indonesia, China is a great indicator for global nickel performance, and with a continued rate of c. 17% growth YoY, and stainless steel prices going up more than 10% in a week, things look like they are only going to go north from here.

On the fundamentals side of things, nickel looks strong too. With ore prices, MDI prices and stainless steel prices going up, it finally looks like the stars might be aligning for a meaningful nickel bull run.

Another big piece of news that has created excitement within the nickel and EV investment community emanated from a BHP report. As one of the world’s leading resource companies, BHP probably knows what it is talking about, and it has labelled nickel as one of its 3 future commodities, the other 2 being potash and copper. This is quite ironic considering BHP has spent 7 years of the last decade trying to sell its nickel business! Even the doubters are becoming believers. This is a full 180° flip, and if a major player like BHP has done it, nickel and EV investors can expect to see many more follow suit. RioTinto, Anglo American and Glencore are all names that Selby touted. If big takeout are going to take place, these are the players with the cash necessary to make things happen.

Over on the macro/geopolitical front, investors are beginning to appreciate the scale of the EV opportunity, especially in China. Companies like Ideanomics, who we interviewed recently, are looking to take advantage of the huge opportunity that presents itself to provide electrical power to the vast fleets of new electric Chinese vehicles. As the transition from fossil fuels to electricity accelerates, so will the development of new charging infrastructure. In fact, the number of public charging stations for EVs in China surged 50.5% in May. This is only the beginning.

The growth of the EV thematic has continued to drive battery demands up, despite short-term consumer capital difficulties caused by COVID-19. Investors who bought good battery metal stocks in recent months will have made more money than those with money in most gold companies. This is a rare occurrence and is especially remarkable given the huge run that gold has been going on, breaking through the $2,000/oz barrier at one point.

Elon Musk’s quarterly conference call attracted much interest from the investment community. He appealed to nickel producers to make as much clean, efficient and sustainable nickel as possible for use in Tesla batteries. However, a recent Bloomberg article questioned this strategy, claiming that ‘Elon Musk Is Going to Have a Hard Time Finding Clean Nickel.’ Selby thinks Bloomberg did a great job with this article and so do we. It is a very comprehensive look at the logistics behind these “giant contracts” that are being offered to clean miners and the disparity this has with the mining industry’s messy track record. The CEO of CleanTeQ, which is developing an Australian mine to supply nickel for vehicle batteries, pointed out the folly of the current EV supply chain. Whilst no gas is being using to fuel the vehicles during daily operations, gas was certainly used in their production, because ‘Nickel projects being built in Southeast Asia will rely on coal, fuel oil or diesel to run their operations and will leave a very large carbon footprint.’ The industry needs a top-to-bottom transformation; that doesn’t happen overnight.

Moreover, recent high profile accidents, such as a diesel spill in Arctic Russia and a burst waste pipeline in Papua New Guinea, suggest the industry with struggle to reform and fulfil Musk’s appeal for a large quantity of “efficient” and “environmentally sensitive” nickel. What do you think?

What did you make of Mark Selby and his nickel investment coverage this week? Comment below and we will respond. You can listen to his weekly commentary on nickel investing at cruxinvestor.com/club

Company Website: https://canadanickel.com/

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.

Nickel Prices & Demand Up, Inventory Down. What Next?

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

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

What has been going on this week in the world of nickel? This week, we talk to Selby about market fundamentals, both in terms of base metals and battery metals like nickel. The Chinese market is absolutely key to nickel demand and with the price of nickel creeping up with inventory reducing, what geopolitical events will unfold in the near future? China is driving most of its investment into manufacturing, infrastructure and primary industry. There has been an utter startling 17% increase in the consumption of the nickel 300 series (chromium-nickel alloys). The Philippines is currently the only source of nickel supply and Selby covers the potential ramifications of this.

In addition, we ask Selby some questions about the nickel space that have been provided by our Crux Investor viewers. We also cover Canada Nickel Company’s Crawford Nickel-VMS Project in relation to Elon Musk’s recent quarterly conference call. Canada Nickel is one of the few nickel players than can produce with no carbon footprint, but are nickel investors attributing value to this and do they even understand it?

We Discuss:

  1. 2:51 – Week Overview
  2. 6:02 – What’s Happening in China?
  3. 7:59 – Price Up, Inventory Down: Who’s Providing More Nickel?
  4. 11:00 – Demand and Intermediate Material Solutions
  5. 14:10 – Efficiency and Innovation in the Nickel Space
  6. 17:48 – Elements of Control: “Control the Mill, Control the District”
  7. 21:00 – Forward Guidance: Why Do Nickel Producers Need it?
  8. 22:43 – Shaky Economics: Manipulations of AISC
  9. 27:14 – Clean vs Dirty: Lower Mining Ethics Mean Lower Cost?
  10. \30:43 – Understanding NetZero: Are People Buying it?
  11. 32:28 – Funding Nickel Companies: Changing Criteria
  12. 34:21 – Insight into Partnerships: Orford Minerals

CLICK HERE to watch the full interview.

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

Mark Selby: Very well, Matthew Gordon, how are you?

Matthew Gordon: Not bad, but then I haven’t had the car journey you have just done. Tell us all about it? You told me before we started, I was impressed. Where are you?

Mark Selby: I am in Timmins which is an 8-hour car journey North of Toronto. I had stopped in Sudbury on the way up and got up here. It’s trying to minimize contacts. Things in Ontario are pretty good, but it’s safer to drive than to fly at this point. So rather than take any additional risks with contact at home with some higher risk people I got to see a good chunk of Northern Ontario that I hadn’t seen before.

Matthew Gordon: That’s rather gorgeous. And a lot of thinking time, a lot of phone calls made I suspect. That would be like the entire length of Britain and some. In fact, a little bit more, about an hour into The North Sea. So that’s very impressive. We’re here for our weekly catch up. What’s going on in the world of Nickel? We talked for the last 2-weeks about fundamentals. We have also talked about price in the market and this week has not disappointed.

Mark Selby: Nickel continues to surprise, and I was wrong once. What we’d seen the last 4 to 6-weeks, you have seen some momentum stuff come in. Last week was obviously the Elon Musk comment that popped Nickel prices up about 4%. And then. just yesterday, in the last 72 hours, Nickel prices have moved up another 4% or 5%. And in this case, we’re finally seeing some real fundamental numbers come through. What was amazing was Chinese stainless-steel production. And, 2/3rds of Nickel goes into stainless-steel. So that’s the big number and China is about two thirds of all stainless steel these days. Their year over year, 300 series, which is the one that has the most Nickel, was up 17% year over year.

I’ve ranted on a few prior conversations about analysts being very, very nervous about stepping away from a 2% to 3% growth number. The reality is in Nickel, it has these kinds of moves. So all of a sudden, people’s demand forecasts for Nickel and then, what you’re going to use this year as a base and then go forward, all of a sudden the base is going to be materially higher the amount of extra Nickel that will now need to be consumed in an analyst forecast is going to be raised by several hundred thousand tons over the next 4 or 5-years.

I don’t think this one month is a blip; the good thing is you have seen stainless prices go up during that timeframe. People are really demanding it. You are seeing inventories drop. There’s a whole set of now fundamental numbers that are finally pointing in the right direction. We didn’t see those fundamental numbers showing up, which could suggest that there was a bunch of hidden stocks that are taking care of whatever additional demand is coming through. And maybe that was the case, but now obviously the call has gone out.

In terms of the Nickel market, the other part that is constructive in terms of where we are at this point is you’re seeing ore prices also move up with the stainless price, the Nickel price, and the ore price has moved up. If there was enough Nickel pig iron floating around right now, the NPI producers wouldn’t necessarily be bidding up ore prices to produce a bunch more. So that suggests that as things are produced, they are buying more ore at higher prices because they need to.

These moves are good. We’ll see how the fundamentals hold up here. But, holding USD$60, if we end up with between USD$6.25 and USD$6.50 through the end of the year here, then that is a great position for what’s coming down the pipe.

Matthew Gordon: What’s happening in China. What is happening in China? Because there’s a lot of stimulus, but they’re coming out at a different way from the West where we’re just helicoptering money in, dropping it, scattering it and throwing it in a very random fashion. These guys seem to be driving it towards infrastructure, manufacturing, and obviously, primary industry we’re seeing we’re seeing here. Because to get 17% year over year on the Nickel 300 series – that’s nuts. It’s insane. So what’s happening?

Mark Selby: The Chinese, the way they reflate their economy is to basically get a bunch of infrastructures built, get a bunch of housing built. Social housing is a big driver in China. And so, we see that the East coast, which is very well developed now, but there’s still hundreds of millions of people who still haven’t fully participated in what Shanghai and Beijing look like today. So, the overall macro theme you see in a bunch of numbers, so Copper production, they’re running at 101% of capacity right now, year over year. Steel production is in very healthy growth territory. So, they’ve done it in 2003, 2008, 2009, there’s been a number of cycles where there is the button that the Chinese government hits to try and build up their economy. This is going to continue for a good 6 to 12 months and perhaps longer. And we’ll just have to see where the Chinese economy lands.

Matthew Gordon: We will also be able to work out who got it right in terms of their approach to stimulating the economy, which is a fascinating one. We are going to talk to a couple of US funds about next week. But prices are up, inventories are down. Imports are on the rise, where are they getting it all from?

Mark Selby: Right now it’s just the Philippines. The catalyst for the end of the year is that they need to build inventory, or inventories, because the Philippines has the rainy season from November through February. And if they haven’t built their stockpiles up, things will get even tighter by the end of the year.

There was news yesterday: New Caledonia approved 2 mines: Agoro and another mine to export about 2Mt each of ore. That will work out to, depending on the grade, 50,000t to 70,000t of additional Nickel ore availability. But we lost several hundred thousand tons of availability from Indonesia when they put the ban in place in January. It will help a little bit, but it’s not going to change the fundamental picture.

And New Caledonia is really the only proximal source of large volumes of additional materials. So, that’s it that can come to the market, from the biggest potential supplier, then that’s a good medium-term view. You may see some additional quantities from West Africa, Guatemala and a couple other locations, but there’s not another Indonesia they’re waiting with ore ready to go to China. It really does help the end of the year picture and into 2021.

Matthew Gordon: New Caledonia is 2 x 2Mt – that’s 4Mt in the market, but it doesn’t touch the sides. If Indonesia continues with this ban on exports, things are going to get tight for sure. Is there any chance that the Indonesians say, ‘well, actually, we’re going to come back on online. We are going to be supplying to the market’. Is there any chance of that?

Mark Selby: No, that would be zero. This has probably been the most successful developing country mining investment program ever. They’ve literally seen tens of billions of dollars of investment pour into the country. And, I would love to see someone put a chart together of what that investment looks like over the last 5-years. And they’ve got to be top of the list in terms of attracting investment. They flipped themselves and in 2014, and that was really in response to a short-term issue where that the home team player, PTN Tam who the government also owned, was really struggling to produce enough of ore to meet Chinese demand from the plants that had been built at that point. And they pulled the ban forward this time to make sure that they were going to get the investment that they wanted. So there’s zero chance that they would flip it back at this point in time.

Matthew Gordon: Let’s talk about where the demand is coming from. You mentioned a few of the places that that’s going to come from, and you have got lots of different grades and scales of operations, but something that you mentioned in the past, and it’s question that has been sent in. We’ve talked about intermediate material and how that may be a solution for this demand that’s coming, coming down the line. Can you just remind people of what the intermediate solution is and perhaps how that could affect the market?

Mark Selby Yes, so over the 3 or 4-years, and as capacity starts to get built, to continue to supply the EV market, what you’re going to see and what makes most sense from the supply chain for the auto industry, what’s the lowest cost to get it out of the ground and into an EV is to really make the highest quality intermediate product that you can from either a laterite or a sulphide deposit, and then take that product and then put it into a plant, that then takes it down the path into a product that’s much closer to what can be used for the auto company. There are 2 main reasons for that. One is, if you’re going to make a Nickel sulphate, there’s a huge amount of the cost is crystallizing the sulphate out of solution. You use a massive amount of energy, and then the first step in the next process that uses the sulphate then re-dissolve it all. In terms of that end to end cost, that’s a very wasteful step. The other piece of it is a lot of Nickel intermediates on the laterite side. You can have material that’s 45% to 50% Nickel and other ones that are 65% Nickel. But a pure Nickel sulphate, just because you stick a bunch of…it ends up effectively water molecules in there. It’s only 22% or 24% Nickel.

If you then have to ship it somewhere, it’s much more expensive per unit of Nickel to ship that material around. And all you’re doing is at taking a bunch of sulphate, paying for a bunch of sulphate ions to travel around the world.

So for those 2 reasons, the companies that I’ve been discussing, that’s very much conceptually where they see the industry going. And so producers who are looking to get into production over the next 3, 4, 5-years, that needs to be where you head to.

Matthew Gordon: We have interviewed a few companies recently who are looking to, because the market is tightening, and they’re seeing the ability to capture value further down the supply chain. Nickel is seemingly a quite expensive industry, just the mining component. You need to raise a lot of capital. The CAPEX is vast. Are there solutions that you think, looking forward, this is stemming from my question for someone saying, well, could innovation, is there innovation, that’s going to come into the Nickel space from the likes of people like Elon Musk, with that comment last week saying, well, there must be a more efficient way to capture Nickel, to be able to provide high-grade Nickel to battery manufacturers. Are you seeing much innovation? Are you seeing people wanting to move down the supply chain or just is it miners focus on mining and processors focus on processing?

Mark Selby: There was a whole flurry of people talking about making Nickel sulphate at their mine site or somewhere in between, if you’re in production right now you still have avoid the ‘cartel’, the oligopoly that really manages Nickel supply. It is good to have some downstream path, but don’t build the plant at your mine site. The industry is definitely talking about it. That’s where they want to go.  it will be the next generation of plants that get built, will be  built with that concept in mind. The challenge for them is, there isn’t a lot of intermediate. It’s a bit of a chicken egg: there’s not 5 x 50,000t p/a Nickel production plants coming online outside of our mines coming online outside of Indonesia. And the Chinese are busy basically getting their plants in place in Indonesia, so that they’re going to own the entire chain right through to final product, so it won’t be available to Western suppliers.

Matthew Gordon: Talk to me about this next generation of plants. What do you mean? What are they going to do that the current plants don’t do?

Mark Selby: Right now, they’ve been quite happy to buy sulphate from Glencore, Vale, other producers. But right now, we’re just in the baby stages of Nickel in the market; it’s basically 3% or 4% of overall Nickel demand, and we’re talking about going from 80,000t to 400,000t to 500,000t by 2025, and 1Mt to 1.5Mt by 2030. They were thinking about, ‘how do I make the 8x, the 5x the amount of Nickel I need by 2025’. And as they gear up to get that level of production in place, they’re thinking about, ‘I was fine when I was buying 20,000t of Nickel sulphate, but then when I need 5x that then I need to start to think about what that cost looks like and how I want to position myself I going forward.

One thing that Tesla has been really focused on is just scale. The Gigafactory’s: they are huge, they are built to be expanded even further. Because they realise there’s a scale curve to this production. And they just want to make sure they’re as far out in front of the rest of the pack as possible to be able to have a cost advantage versus them. And in the production of the products that are necessary for the chain, scale will help, because in the auto industry, it’s all about trying to be the lowest cost supplier and continuing to modify your supply chain. It’s the absolute lowest cost possible.

Matthew Gordon: Talk to me about this oligopoly, because when you say words like that, it says, well, they can control pricing in the market. They can control supply processing which may affect my decision making as an investor. So was it tongue in cheek, or do you mean there is something that we should be aware of?

Mark Selby: It’s tongue in cheek, but 10 and 20-years ago the reality was there was really only a handful of downstream smelter refiners, but unlike Copper and Zinc where you have benchmark treatment terms that are negotiated with some competitive tension between producers and suppliers, in the Nickel space. They effectively had a lot of pricing power over miners in terms of who got what share of the profit from digging it out of the ground. That has been loosening as these alternative production channels open up in China, pricing terms have moved higher. But we’re still, we’re only about 20% of the way down that path. In another 3 or 4-years, you’ll see a lot more capacity come on in China to handle Nickel intermediates to get them into a form that can be used by the auto industry. That this is exactly what happened in Cobalt in the mid-2000s, and I expect a similar thing to happen in the Nickel space here.

Matthew Gordon: There’s a saying in mining, which is: ‘he who controls the mill controls the districts’. Been around for a long time. There is certainly something to it. Is that even more the case with things like Nickel? We’ve talked about it in the context of Cobalt previously and Copper, but is that the case now with Nickel or is there a bit more to it?

Mark Selby: It was definitely the case like 15, 20-years ago. In the past, the Inco and Falconbridges’ of their time, it really helped limit supply. As a miner, couldn’t really get a path to market for your product other than selling it to them at a price that ensured they made a lot of money on it. Today, that’s less the case, but you need to further process your material to actually get cash. When I was with RNC, when we looked at Dumont, that’s where we came up with this roasting approach, effectively that gave us a channel to bypass the existing smelters and refiners to get material into a much more competitive market where there’s dozens and dozens of Nickel pig iron producers to take advantage of. Miners need to think that way, but over the next 3 or 4-years, that hold on the market that the existing players have is going to continue to diminish as these alternate paths to market start to appear from China.

Matthew Gordon: Just a few questions that have been sent in by people who listen to the series. A lot of questions around the same thing. I’m going to paraphrase them. People want to try and understand what do you mean by, and in one case, ‘would challenge your assertion’ around the need for forward guidance in the automotive industries. Shouldn’t you be able to just stand on your own 2 feet and get on with it in a bear or a bull market? Why do you need guidance from the automotive industry?

Mark Selby: I was talking about it when Nickel was USD$6/lbs. At $6.50, it’s better for the miners, but at USD$6/lbs, there are no projects outside of Indonesia that can move forward at a USD$6/lbs price. Elon Musk, in his set of comments, he said, ‘don’t wait for prices’. One of them was, don’t wait for prices to go back to prior levels, and that is a reflection of there aren’t projects that can go ahead at the current level. They do need higher prices to be able to get going. And, it’s fine for him who’s not investing a billion dollars in capital, to say, ‘trust me, we’re going to use all the Nickel you need just go ahead and spend that billion dollars and yes, don’t worry about it’. If they want the Nickel, they’re going to really need to provide guidance to the market as to how much Nickel the market is really going to need in that 2025 time period to 2030 time period, to be able to help shift the investment community. To be ready to write a cheque to the mining companies, to be able to build these projects that’s the bottom line and that’s why I made that assertion.

Matthew Gordon: ‘No companies outside Indonesia are going to be economically mining Nickel for under USD$6/lbs’. That is what you just said. Because you and I’ve been on the finance side of things for long enough, and we’ve done enough in mining to know when a company’s going to splurge the AISC numbers. Those numbers can be managed, manipulated to a degree. We’ll just say that. That’s just a big macro statement, not a reflection on your companies or any company specifically. I’ve been in rooms where that happens and things can look economic when you’re using a AISC. It gets really difficult when you have got companies that are saying: hey, we’re economic at USD$5/lbs Nickel. But the underlying reality is that they need USD$6 Nickel to actually be profitable. So that happens. And I’m talking about Gold and Copper, Silver, all companies play, that game. So your assertion that no companies can economically mine for under USD$6 is what?

Mark Selby: I wouldn’t say economically mined. It’s basically to get a project financed. So, if you need a billion dollars…Voisey’s Bay underground, Voisey’s Bay is USD$1.5Bn. Onapping Deepest Glencore’s project, that’s USD$800M. Those are the scale of the tickets that are required to bring new Nickel production in. And the cash costs can, using Dumont Feasibility Study numbers as an example, the cash costs are around USD$3/lbs, the All in Sustaining Cost is well below USD$4/lbs. They will print money at a USD$6/lbs Nickel price in the future. It’s just a matter of getting enough, getting a billion dollars to be able to build the plan, to be able to make that quantity of Nickel to generate a return on that billion dollar investment.

This is something you bring up the case of the C1 and AISC, I would really encourage investors… high grade is sexy and it looks great, but I would really encourage investors, if you’re looking at a high-grade operation to go to the free cashflow page, because the issue with a high-grade mine is that you have the exploration costs. You then have to develop the mine to get out to where you just found the Nickel that you just drilled, and that number piles up pretty quickly. And they might say, ‘oh, we’ve got this cost and then we’ve got this cost’, and you think, they should be making USD$2/lbs to USD$3/lbs. And then you go to free cash cashflow statement, and you look to see actually how much free cash flow they generate, and none of it’s there. Because when you do All in Sustaining Costs, that’s one of those things where companies play a little shell game in terms of, ‘well, that’s not sustaining capital, that’s exploration and development, so we’ll leave it on that side of the fence’. So their AISC number looks lower.

So yes, I would highly encourage people to do that. There’s one example in the industry that has very much twisted the definitions of C1 costs more than –

Matthew Gordon:  we all know who you are talking about.

Mark Selby:  a lot of people would be uncomfortable with this.

Matthew Gordon: Let’s definitely not mention any names, but I don’t think it’s unusual; it happens all the time. I see it across all commodities, it’s the dance that the CFO plays and that’s why fundamentals have got to be there. You do need to look through them.

Mark Selby: The cash flow statement never lies. That is the best of all of the financial statements.

Matthew Gordon: So maybe that’s something we can pick up on another time, just to maybe help people understand it and go through that more in the actual reality of what some of these costs are.

The next question was: since you have come up with your ‘NetZero’ trademark, or pending concept, and you’re starting to talk about it in the marketplace and we’ve seen it everywhere. You have got some amazing coverage from that from mainstream press as well. It was really good. People are starting to come to us and talk about the difference between clean Nickel and dirty Nickel, and some are saying that sulphites are cleaner than laterites. And somebody was saying some of the practices are cleaner than others. This whole ESG component is so, so important. Elon Musk said it was so it’s got to be true. I’m thinking for example of practices, what is the actual cost of trying to be a clean, responsible, ethical miner v miners who don’t have those problems in some jurisdictions where they’ve got deep-sea tailings, where they are literally dumping stuff out deep into the sea, ‘but at very big volume so it shouldn’t be a problem’! How do you balance that off? Because obviously with lower ethics come lower costs, potentially, and with the ESG come higher costs, potentially. What’s your take on it?

Mark Selby: Yes. And that’s the thing, it is the opportunity, and this is why we want it to be so far out in front of it is, there are situations, and our project is there. There are other projects that have a set of an intersection of things that make sense that allow them to do it. When we look at the ability of the location where we’re at with the hydroelectricity, and then the nature of the rocks themselves to absorb CO2. What we need to do to get there is because we’re starting out and we’re going to design it in from the beginning, our expectation is as we go through the engineering here that we’ll have basically, minimal to no impact on capital cost and minimal to no impact on operating costs.

Every operation can’t say that, but it’s those opportunities and that’s where people, one of the dimensions now, as you start to look at mining projects is to say, okay, is it a good deposit? Is it in a good location? And then the next question, and if you want to really make a lot of money in mining is to identify those opportunities where you can mine at zero or close to zero carbon going forward. It is an equal pillar in the the pillars of what you need to look at as you look at new projects.

Matthew Gordon: So now I know what you have got. There are other companies who have similar capability and similar situations, spent on similar situations. I’m going to be careful. This is a macro show. I don’t want to say that some companies are perfectly capable of achieving the same goals as you, some a lot less. They’ve got a whole different set of problems. And we just want to talk about it, because we must have 40 questions here about clean and dirty Nickel and investing in ethical investing, and what’s going to get funded, what are institutions looking for? You have answered some of those questions over the past few weeks. Are you getting much feedback as part of your NetZero conversations? What are people trying to understand about NetZero, and do they buy your version of it?

Mark Selby: Yes, the feedback over the past week has been very positive in terms of making that an objective. And, I’ve had a number of conversations with a number of different mining companies and other groups in the last week and a half here. And, with people that I’ve known for quite a while and aren’t afraid to tell me that I’m full of something on something. And, I’ve had no pushback in terms of the concept itself, because, there’s no rocket science involved for our particular project. And given the location that it’s in, to be able to do that, there’s a couple of engineering issues in terms of how you would take off gas and what’s the right way to blend it in with the tailings. But other than that as an issue, there’s really not any anything particularly fundamental at that point.

And, there’s more operations now. You’re starting to get more electric mining fleet become available. For some underground operations that are going to an all-electric operation that opens up the possibility for those types of operations to be able to do it. It is just looking for the right set of opportunities: deposit, location, and now it has to be net zero carbon potential is one of the key colours as you look at projects that you want to get involved in.

Matthew Gordon: We’ve mentioned in the past people like KoBold and the BlackRocks of this world, are they actively now seeking like yours or making demands of projects, which perhaps aren’t, but could be, or should be? How are they affecting funding in the marketplace? Because they’re slightly unconventional in a way because they are coming from non-money backgrounds, but they’re seeing opportunities. They are hedge fund-ish in their approach, and saying, ‘well, if we put money into the right companies, but even we have standards’.

Mark Selby: Yes, in terms of the larger, there are more and more large investment funds that are, ESG is part of the large funds are deploying capital and they have added that 3rd column in terms of where they’re evaluating companies. If you’re a junior, if you’re now operating in that industry you are now being evaluated on that column, it would be good to take that column and put it into your day to day investment decisions. With the energy metal space. KoBold, it is good to see  Silicon Valley money coming into the mining sector and think about ways to try and find more, they’re focused on looking at trying to find other sources of Nickel and Cobalt that aren’t in the Congo, and in the places that have some political and environmental challenges associated with them.

So, I’m hoping that is a sign of more capital to come from that space. We’ll see what happens over the next four months. We’re at day nine post-announcement so it’ll take a while for it to trickle through. But I’m hopeful as we go through the rest of the year here that we should have some pretty interesting discussions with a bunch of investors that we wouldn’t have been able to talk to before.

Matthew Gordon: I don’t like rumours, but I’ve heard one: Orford, West Raglan partnerships, what can you tell me?

Mark Selby: So yes, full disclosure: I’m chair of Orford as well as my role at Canada Nickel. Yes, the reality is there are very few high-quality Nickel sulphide projects globally. The West Raglan property we picked up at RNC in 2014. It was one of our first acquisitions of something else other than Dumont. We continue to look at all Nickel sulphite opportunities, and when it makes sense for us, we’ll look at doing something with that Nickel sulphite property. But at the current time, there’s no deal on the table or anything like that. But it’s great, as an Orford mining chair, it’s a great opportunity.

Matthew Gordon: I was looking for signs, Mark. You have got your poker face on, and I know you’re a very good poker player, so I got nothing from you. Mark, thanks for this week’s roundup. When we first started talking about it, we said, ‘well, things don’t move that much in the world of Nickel. We’ll see how it goes. It may not last’, but here we are 10 episodes later. It’s getting exciting.

Mark Selby: The thing with Nickel is it’s always been the most volatile base metal. I would encourage people to not wait for the perfect set of indicators to come in place. The mid-May trade in the base metals that I said was the right time to step your foot in. This has been great. And, now that we’ve got this momentum, the moves over the last 6-weeks, 8-weeks have been momentum based. This is real, solid fundamental, there’s a set of fundamental things that says, this level is going to be interesting for a period of time. And, now with New Caledonia just providing a little more and a lot more ore to the market. It will set up an interesting end of year 2020 to early 2021 timeframe. So yes, stay tuned.

You can watch, listen and read Mark Selby’s insightful weekly Nickel investing commentary at cruxinvestor.com/club

Company Website: https://canadanickel.com/

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.

Elon Musk wants Green Nickel – What Does This Mean for Investors?

Canada Nickel Co Inc.
  • TSX-V: CNC
  • Shares Outstanding: 68M
  • Share price C$1.78 (17.08.2020)
  • Market Cap: C$121M

I just finished writing an article about Mark Selby’s recent interview with Crux Investor. He discussed the nickel market fundamentals a market dynamics that dictate nickel market behaviour and require the attention of investors if they want to make informed decisions. I’ll put a link to that article here.

I mentioned at the end of that article that I would be looking at a unique element of Canada Nickel’s Crawford Nickel-VMS Sulphide Project, which plays nicely into the green energy/ESG thematic. I’ve also decided that, while we’re at it, why not weigh up most of the nickel players in the space to give investors some perspective on the extremely volatile space?

We recently spoke to Selby about NetZero. Canada Nickel has really started talking it up this week; why? If you remember Elon Musk’s statement in his recent conference call, he appealed to producers to immediately start producing as much “green, efficient and sustainable nickel as possible.”

Matthew Gordon talks to Mark Selby, August 2020


Let’s put some emphasis on the “green.” Courtesy of environmentalists and the scientific community, enormous pressure has been placed on battery metal supply chains in recent years; the Responsible Cobalt Initiative is a great example. Institutional investors have been paying attention and for good reason. It makes no sense creating a green solution to our transportation problems, in EVs, if the front end of the process is occupied by environmentally detrimental mining practices and dirty nickel. Why would we create a large environmental footprint to contradictorily ‘solve’ climate change, requiring individuals to drive the EVs for years before they can offset their carbon footprint? Neometals’ Li-ion battery recycling project is a great example of a company creating a coherent, clean green circuit for batteries. Battery recycling resolves the end of the battery production cycle, but how will the front be resolved?

Away from the Class 1 (battery-grade) and Class 2 (NPI, etc.) debate, investors need to compare nickel sulphide and nickel laterite: the two most common nickel projects globally. There has already been an article on the Crux Investor website regarding the key differences between these two categories. Essentially, sulphide is high-cost to mine but low-cost to process via conventional smelting methods. On the other hand, laterite is cheap to mine but is extremely expensive to process and requires expensive HPAL plants that have only been built commercially for a CAPEX of over US$1Bn. However, I didn’t touch on a key consideration: environmental factors. Is laterite dirty nickel?

Musk’s demands for clean, green nickel will be followed by the large funds and automotive manufacturers; there is no doubt about it. Canada Nickel recently created a wholly-owned subsidiary, NetZero Metals. It aims to begin the research and development of a processing facility that would be located in the Timmins, Ontario region with the goal of utilising existing technologies to produce zero-carbon nickel, cobalt and iron products. The company has applied for trademarks in the US, Canada and other jurisdictions: NetZero NickelTM, NetZero CobaltTM, and NetZero IronTM.

Canada Nickel already has the scale to be attractive to majors, considering Crawford is the 11th largest nickel sulphide resource in the world after just 6 months of development. Now, it appears to have the green credentials that Musk and other major institutions will demand. However, Selby was keen to explain that laterite projects may now have moved to the back of the queue when it comes to financing. Who is going to foot the bill for a US$1Bn+ HPAL plant when it will be producing dirty nickel with a high carbon footprint? I imagine that many CEOs of companies with laterite assets will be sweating right now.

This image has an empty alt attribute; its file name is Canada_Nickel_Company_Inc__Canada_Nickel_Launches_Wholly_owned_N.jpg
SOURCE: CNW Group/Canada Nickel Company Inc.
Y-axis = tonnes CO2/tonne of nickel produced

Crawford is a relatively low-grade bulk-tonnage nickel sulphide operation, and Selby believes he can get that carbon footprint down to net zero.

So, with this in mind, and with an emphasis on the green side of things, how is the rest of the nickel market shaping up?

Cassini Resources

  • The company made a great decision to return value for its shareholders by selling its 30% remaining interest in Nebo-Babel.
  • Promisingly, its land position is on the same set of discovery as Chalice Gold’s discovery.
  • Its flagship West Musgrave Project is in the early stages of exploration. The first few drill holes haven’t exactly thrown up any sexy high-grade numbers, but there is still lots of room to go.

St. Georges Mining

  • Many investors have been excited by some really impressive shallow high-grade intersections at its Mt. Alexander Project on multiple targets on the same set of structures that host multiple nickel deposits.
  • However, the company has yet been unable to continue extending these structures much, predominantly because it is busy talking about new targets.
  • I actually took a look at the company’s website, and this is where things get confusing. The company is already talking about mining, but I can’t even see if it has defined a resource.

Glencore

  • It is obviously a massive nickel trader, but like most of the majors involved in the nickel space, the nickel component of the company is not large enough to provide investors with meaningful exposure to rising nickel prices and demand.

GIGA Metals

  • GIGA Metals’ flagship Turnagain Project is a massive nickel and cobalt resource in Northern BC. It is a low-grade, bulk-tonnage operation like Canada Nickel’s Crawford, but it does appear to be in a much more remote location. GIGA Metals is likely to have to shell out cash on infrastructure.
  • The company has previously had issues with lower grade concentrates, but it has now found its footing and seems to have come up with better grade concentrates.
  • GIGA Metals has zero carbon potential, which means it could fulfil some of Musk’s appeal for green nickel.

FPX Nickel

  • The company’s PEA-stage Baptiste deposit has the potential to become one of the largest nickel deposits in Canada.
  • It is a large, low-grade awurite deposit, and it has suffered from being the first of its kind. The market doesn’t seem to fully understand the value proposition.
  • The management team has done well to keep the share structure tight and intact.
  • Baptiste is in quite a remote location, but not as remote as GIGA Metals’ Turnagain project. It would require cash for infrastructure and plant development/construction.
  • FPX Nickels needs to do large-scale met testing in order to confirm the recoverability of the nickel product. This will take time and cost money.
  • It also has zero carbon potential, so could plug some of the gap for Mr. Musk and other battery/automotive manufacturers

Talon Metals

  • The Tamarack Nickel-Copper-Cobalt Sulphide Project is an exploration play that is actually really promising. However, it is situated in Minnesota, US, a horrible mining jurisdiction. The company is likely to take at least a decade to be permitted, if not longer. If one wants to see evidence of this, they only need to check out what Polymet/Glencore have been through with their Minnesota-based project
  • Moreover, the project is a JV with Rio Tinto, so investors won’t even receive access to all of the upside. The original deal was poor. It has since been renegotiated by it is still far from ideal. Talon Metals doesn’t appear well-positioned for a takeout by a major.

Garibaldi Resources

  • Its Nickel Mountain discovery was originally drilled in the 1970s, and the company has discovered a really exciting 3 massive sulphides in 3 years.
  • The company has hit some super high-grade sections and has been talking up its ‘global’ potential. However, most of its 3 years of drilling has been in the same little patch of ground.
  • This isn’t to say that the company won’t find some more exciting prospects in other parts of the property; it just doesn’t seem in a hurry to do so.
  • At one point, the company was valued at c. $300-400M. The value has since tailed off to $85M today, which still looks a little overpriced to me.
  • Feel free to check out some of the Angry Geologist’s blog posts about Garibaldi Resources.

Chalice Gold

  • A new Aussie discovery. It is in a brand new region for nickel and appears to have good potential.
  • It is very well-funded.
  • There has been a huge run up in the share price on the back of several good drill holes, but it appears the company is struggling a little with the continuity of higher grade material.
  • In fact, Chalice Gold is morphing into more of a palladium story with a nickel by-product.

Legend Mining

  • Like Chalice Gold, Legend Mining is a new mineral explorer based in Australia. It is a brand new discovery in the same region as the Nova Bollinger nickel operation.
  • It is backed by famous West Australian explorer, Mark Creasy (27%).
  • Again like Chalice, the company hit several good holes, had a massive run in the share price, but now it is tailing off because it is struggling to get continuity. It is tough to enough to get a high-grade nickel hit, but it is even more difficult to get any continuity.
  • Legend Mining is quite early-stage, but it seems to be valued like it already has a sizeable nickel resource.

Centaurus Metals

  • Centaurus Metals has one of the best nickel sulphide projects. I’d say it looks like one of the best chances for a new nickel mine in the next 5 years.
  • It is located in Brazil’s world-class Carajás Mineral Province, which is a great mining jurisdiction if not as stable as Canada.
  • The company has a sizeable 1% resource with potential for higher-grade areas with plenty of exploration potential.

What is your nickel stock pick?

Company Website: https://canadanickel.com/

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.

Elon Musk Statement Shakes Up Nickel Market – Time to pick some Winners

Canada Nickel Co Inc.
  • TSX-V: CNC
  • Shares Outstanding: 68M
  • Share price C$1.78 (17.08.2020)
  • Market Cap: C$121M

With nickel shooting up to US$6.50/lb, the nickel space is finally starting to deliver on its lionised potential. Most excitingly, things might just be getting started.

So, what are the main catalysts behind this nickel value bump? The Chinese reflation is ongoing, with infrastructure and industry experiencing heavy investment. Considering that the primary driver for nickel market growth right now is industrial demand for stainless-steel, it is no surprise that demand fundamentals suggest there is more to come.

Ore imports for June 2020 have dropped YoY, primarily because Philippines miners can’t make up for the shutdown of the key Indonesian nickel projects. Whilst ore stockpiles are growing, they are only increasing slowly. There will need to be a huge multi-million tonne build up during the Phillipian wet season and ore imports drop off.

Matthew Grdon talks to Mark Selby, July 2020


Another bullish stat is found in stainless steel imports, up substantially YoY. A leading, reputable nickel analyst has claimed there is enough NPI currently floating around to cover all nickel demand until 2025.

Then, came the real surge of momentum: a CEO of a major EV manufacturer talking up nickel demand. We’ve all heard Elon Musk’s comments in his most recent quarterly conference call. He stated that Tesla wants nickel producers to produce as much clean, green and sustainable nickel as possible, and it sent a wave of bullishness through the industry. If, as the aforementioned analyst claims, nickel is covered by Indonesia until 2025, why did Musk talk about nickel as a primary constraint for the growth of Tesla, and why did he ask for nickel producers to pull the trigger now rather than waiting for higher prices?

However, whilst nickel is up >5%, it doesn’t yet appear there has been any fundamental change to nickel market dynamics. This appears to be the first indication of what to expect in the near future. There is still no clear and definitive support for higher nickel prices right now, and nickel supply/demand fundamentals remain nebulous for the time being with no concrete numbers on the table. Moreover, there is yet to be an outright number communicated to the market regarding the quantity of nickel sitting in inventories. We all know what a lack of certainty equates to in the world of investment. In the meantime, let’s explore what we do know.

Some industrial metals with major EV battery applications have been performing exceptionally, even more so than the soaring gold market if you can believe it. If copper investors picked a copper winner like CS, TKO, or any other copper stock with liquid high torque at the right time, their investment would have outperformed the majority of gold companies. If that isn’t a reason to be bullish and believe in the macro story, I don’t know what is.

Nickel commentator Mark Selby, CEO of Canada Nickel (TSX-V: CNC), recently spoke to us about Musk’s demand for a new wave of nickel production. We covered some really eye-opening topics about nickel and arrived at some robust conclusions based on what we know rather than what we might know somewhere down the line.

A common misconception in the nickel space is that there is a premium for nickel sulphate. Around 40,000t of the highly soluble blue-green salt is produced each year, and it is predominantly used for electroplating for nickel. Selby was keen to dispel any misconceptions: the nickel sulphate premium is not sustainable. There will always be additional transformation costs, but by and large, the premium should be zero or close to zero.

This image has an empty alt attribute; its file name is company-profile-ad-copy-1024x115.jpg

We then touched on a topic we’ve previously mentioned in an article: Class 1 (battery-grade) and Class 2 (NPI, etc.) nickel. It has been getting a huge amount of air time from many, with many commentators seeming to think it is an integral part of market dynamics. However, as we previously concluded, it is not really an issue of note. Nickel will flow through from ore source to end product regardless of its purity or status as an intermediate. This is because of simple supply-demand laws and the ability of the Chinese, the biggest consumers of nickel to quickly respond to any market arbitrage opportunities. China will always ensure it has sufficient processing capacity to produce enough nickel for its needs. This renders the intricate chemical differences almost irrelevant in an investment context. However, nickel sulphide vs nickel laterite vs nickel saprolite vs nickel limonite is an entirely different debate…

EV investors have seen the sky-high projections for nickel demand. It is the largest metal by mass in the cathodes of most EV batteries. Its main competitor is lithium iron phosphate streams. However, nickel will have a unique, symbiotic duo of growth drivers: industrial and EV. If we look at the nickel that is coming out of Indonesia, most analysts are expecting the country to be producing 900kt pa more nickel by 2025 when compared to 2018. While some may use this statistic as a means to fortify the argument that Indonesia has got nickel covered, where is the remaining 1.6Mt going to come from by 2030? It quite clearly doesn’t add up, and the supply deficiencies of nickel are now beginning to be exposed for all to see. New capital will need to start flowing into some of the better junior nickel projects, and Canada Nickel’s Crawford Nickel-VMS project will look to benefit.

Nickel is very high growth and very volatile. Some years it grows 8-10%, which exemplifies just how much value investors can squeeze out of nickel investments if they know how to play the market. However, there are also years when nickel dwindles and grows 0% to -2%, which we have been going through for the last year-or-so. Investors should note that when nickel rebounds, it has always rebounded with sizeable YoY growth. On a peak-to-peak basis, nickel ends up with a 4-5% trend for demand growth.

Realistically, with no definitive forecast from consumers on their electric vehicle consumption, analysts will really struggle to produce an aggressive forecast for nickel supply-demand. It is all up in the air at the moment, and investors should take all forecasts with a pinch of salt.

So, whose responsibility is it to provide the data that the nickel analysts need to gear up and produce it? The onus clearly lies with auto manufacturers; they are the ones asking for more nickel than ever before after all! It is obvious that every automaker’s projection will be idiosyncratic and proprietary, but they can at least provide a range to the market so there is some transparency. If the automakers don’t release such numbers, investors will not cotton on to the nickel value proposition, and the automakers will have to pay more to access the limited supply of nickel. It is in everybody’s best interests that we now mobilise the nickel industry and start edging towards the EV revolution with more unity and less uncertainty.

Selby had a final few areas of interest he discussed with us. First, the high-carbon, non-Chinese ferro-nickel producers will be squeeze by this new ESG/green wave of momentum, and he expects this to offset the rest of nickel supply growth from Indonesia. Western automakers will quite simply never use high carbon footprint nickel in the production of their vehicles. Does this mean they won’t be relying on Indonesia/China as a primary source? Will they instead be looking for greener, cleaner nickel sulphide projects? Canada Nickel’s Crawford Nickel-VMS Sulphide Project certainly has the scale to be relevant here because of its unique carbon credentials. Check out my next article to see exactly why…

Company Website: https://canadanickel.com/

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.

Tesla, “Produce more Nickel. We will give you long-term contracts”

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 invest 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.

Matthew Gordon: 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. There nothing is impossible. But for miners, there are different constraints, price being one of them and the cost of money being the other.

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: You are encouraging Elon Musk to be more like Eric Sprott. 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. And coming from a private equity world, patient is definitely not a word I would put with private equity. And because of the impatient nature of private equity, it drives people to do better. 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 him 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:  Elon Musk’s statement was, ‘Mine more Nickel’. It came with some conditions to it: it needs to be environmentally friendly and efficient, which I am reading as economic.

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. 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: 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.

Elon Musk talks about his Gigafactories. And we talked last week about the fact that currently Nickel is used mostly in stainless steel. But going forward, the Gigafactories are going to be built. Is there a number that people are attributing to them as a percentage of the Nickel 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: They were talking about mega packs.  They’ve got big plans. 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. 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?

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: Another week in the world of Nickel. What’s interesting is the amount of M&A that’s happening in this space now. It helps with Elon Musk saying what he said.

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.

You can watch, listen and read Mark Selby’s insightful weekly Nickel investing commentary at cruxinvestor.com/club

Company Website: https://canadanickel.com/

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Tesla Calls for NetZero Nickel and Efficient Nickel

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/lbs
  • 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.

Company Website: https://canadanickel.com/

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 (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)

FULL ARTICLE FOR THIS INTERVIEW AVAILABLE HERE.

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). https://cruxinvestor.com/opinions/class-1-class-2-why-does-it-matter-for-investors/

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.

Company Website: https://canadanickel.com/

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.

This image has an empty alt attribute; its file name is company-profile-ad-copy-1024x115.jpg

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.

Company Website: https://canadanickel.com/

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.

Karora Resources (TSX: KRR) Finding Value When The Market Has Lost Its Mind (Flashback To March)

Karora Resources
  • TSX: KRR
  • Shares Outstanding: 645M
  • Share price C$0.78 (29.07.2020)
  • Market Cap: C$503M

Investors will have been closely observing the panic selling over the last few days. The FTSE 100 & 250 has fallen off a cliff edge and Wall Street has experienced its biggest drop since the Black Monday crash of 1987. Investor sentiment has been obliterated by COVID-19 uncertainty and by a reactionary response more similar to the aftermath of 9/11 than the global financial crisis of 2009.

These are horrific times for humankind, but what does the market crash mean for investors? If anything has served as a perfect example that the market is strongly influenced by sentiment, this is it. In this short series of articles, let’s take a look at some market valuations of a couple of my favourite stories from the last few years.

Karora Resources

Crux Investor has followed Karora Resources, then RNC Minerals, closely, penning numerous articles and conducting several interviews. Karora Resources caught our eye after Paul Huet took the helm in mid-2019. The CEO transformed Karora Resources from a flagging nickel producer into a robust and consistent gold-focussed producer. In our most recent interview with Huet, things were still looking up.

After stabilising Karora Resources and consolidating its share price for nervous investors, it looked to be the next stage for Huet’s company: growth. In our most recent interview, Huet took a firm, logical stance on the company’s royalty arrangement with Maverix Metals. He commented on RNC’s 2020 guidance (http://www.rncminerals.com/2020-01-23-RNC-Minerals-Provides-2020-Production-Cost-Guidance-and-Strong-Operational-Update) Things appear to be looking up for Karora Resources, with projected total gold production of 90,000-95,000oz, and that’s excluding any exciting contributions from coarse gold occurrences at Beta Hunt. Moreover, Huet and his team expect coarse gold in 2020 based on their interpretation of the Beta Hunt shear zone/Lunnon Sediment intersection horizons. The AISC looks a solid if unspectacular US$1,050-$1,200 per oz, but the introduction of an ore-sorter could bring this number closer to the magic US$1,000 per oz.

Huet then moved into the area of particular excitement for investors: growth. Exploration is a priority for RNC in 2020 as it looks to reward investors who have been more patient than most. The renegotiation of the Morgan Stanley Royalty at Higginsville Gold Operations (HGO) has unlocked an unexplored 1,800km2 land package. The Pioneer deposit, Two Boys extension, Paleochannel extensions, Baloo-Sluth trend, and Zuleika parallel mineralised structures all look promising. Karora Resources’ 2020 exploration budget of A$9.5-A$10 million, allocated across HGO and Beta Hunt, means the company has the capital to get this exploration moving forward nicely, and Huet’s strong management has given me confidence that this will be achieved.

However, if one is to take a look at Karora Resources market performance, they might get sweaty palms; that’s if they don’t know any better. Karora Resources’ share price is currently sitting around C$0.20; that’s down from C$0.48 less than a month ago. Panic selling has gripped the company’s stock, just like it has for every one of its peers.

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It’s time for investors to get real. Karora Resources has just achieved a remarkable turnaround. Real growth appears to be on the agenda for 2020, and operations are as solid as ever, but the share price has fallen? It doesn’t take an investment virtuoso to work out that this doesn’t make any sense.

In my opinion, there is no way a company like Karora Resources, that has performed so consistently since Huet took charge, deserves the kind of low valuation it is sitting at today. All Huet can do is keep on hitting operational targets, which I have no doubt he will continue to do.

The situation is clear: institutions have taken their profits off the table, and the reset button has not so much been hit, but rather smashed with a hammer. These market conditions are producing some bargain opportunities for brave contrarian investors with confidence in a company to pick up some cut-price stock.

If investors have confidence Karora Resources can keep producing as it has in the past and can ride out the storm until COVID-19 scurries off into the sunset, if could be a good bet for them right now. Karora Resources has a crucial edge over the competition: cash flow. It does not need to go to market and raise expensive capital in this current environment. It has plenty of cash for all its explorational plans.

Karora Resources is just one of a number of companies we’ll be covering in this series over the next week. If you judge market performance in isolation, you’re selling yourself short. Look at the history. Look at the context. Look at the facts. You could be onto a winner.

Looking back on this article, in hindsight, I was definitely proven right.

Company Website: https://www.karoraresources.com/

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) – Higher-Grade Drill Results Reinforce Large-Scale Value Proposition (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).

FULL ARTICLE FOR THIS INTERVIEW AVAILABLE HERE.

Nickel expert, Mark Selby, has turned the Crawford Nickel-Cobalt-Palladium project into the 11th largest nickel sulphide resource globally in just 6-months.

That accelerated delivery looks to continue; he wants to hit this nickel cycle and sell. He’s now targeting the completion of a Scoping Study by year-end, a Feasibility Study by the end of 2021, and production-readiness by 2025. This is an accelerated monetisation event that nickel/EV investors should investigate further.

Recent drill results have thrown up some higher-grade at-surface results, including some high-grade by-products. The company has recently shored up its land position, aiming to increase the already impressive potential scale of this junior. The drill numbers are looking positive, an experienced team is in place, and the mining jurisdiction is favourable.

Now, Selby needs to bring some institutional names/funds into the story as he moves towards the financing of the FS. He’ll need C$10-20M and will raise it by the end of the year. He is confident that he can secure it, as recent nickel market M&A suggests that the nickel market is hotting up again.

What did you make of Mark Selby? Is nickel a commodity that excites you?

We Discuss:

  1. Company Overview
  2. Track Record and Lesson’s Learned from Dumont
  3. The Nickel Market: Never a Better Time to Invest in the Battery Space?
  4. Timing Time-Consuming Projects: Confidence in Predicting Cycles
  5. Location Location Location: Importance of Infrastructure, Timings for Permits and Licenses
  6. Large Scale; Why Pick Up Additional Optional Projects?
  7. A Look at Drill Results: What’s to be Excited About?
  8. Preparing for Success: Canada Nickel’s Approach to the Market and Cycles
  9. Talking Money: Cash Position, Burn Rate, and Further Financing
  10. Marketing the Story: Lessons Learned from the Time at RNC Minerals

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Mark, how are you doing?

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

Matthew Gordon: People may know that we caught up earlier this week and we were  going through some of the macro components to do with the Nickel cycles and super cycles and so forth, and we picked up a trick or 2, but today we’re going to talk about your new project, which is Canada Nickel.

Mark Selby: Sure. This is a brand-new company centred around a brand-new Nickel Sulphide discovery, which in just 6-months of drilling, we have already made it the 11th largest Nickel Sulphide resource globally, on less than 20% of the structure. The key thing, why I have most of my money in this company, is 1. You need to have the right project that is the right scale that is going to attract a major. 2. It needs to be in a location where you can develop it, build it and develop it in a rapid timeframe. And 3. You need to get the timing right.  A great project will allow an investor to get an excellent return in a relatively short period of time. When you have a great project, which we think we have with Crawford, and you’re able to hit the commodity cycle, the key part of a commodity cycle. We think we’re hitting another Nickel super-cycle by about the middle part of this decade. So, we think with the right project and the right place, with the right timing, it creates one of those once every decade investor opportunities. That’s why I’ve got most of my non-real estate capital in the company.

Matthew Gordon: Mark, so those are 3 key points. I want to talk about those, but first I want to talk about your track record. You’ve been in the Nickel game for some time now, so it might be worth having a romp through that. I’m interested in what you learnt during that time.

Mark Selby: I was outside mining for 10-years with private equity management consulting. I joined mining in 2001. I joined Inco as head of commodity research in 2001. I’ve been following Nickel now as a commodity for almost 20-years. I joined after Inco got taken out by Vale. I was head of strategy. We tried to merge Inco and Falconbridge together. It unfortunately didn’t work. I left and I joined RNC Minerals in 2010. And we took Dumont from an early-stage resource to a fully permitted construction-ready project. And this is a large, low-grade sulphide project. And our Crawford project is literally, it’s in a different province in Canada, but just 200kms away. And because there’s so many characteristics that are similar between the 2 projects, all of the time and investment that we made in Dumont, we can leverage that to be able to advance Crawford in a much more cost effective, much more timely manner. Which just means, better shareholder returns on the capital that we need to advance the project.

Matthew Gordon: I’m going to hit those points. We are going to hit those points, but I’m interested in the macro here for people who are thinking about Nickel, they are looking at the market and going, hey, this battery revolution, this EV revolution, it has probably taken a bit of a whack here because of COVID, is now the right time to be investing in battery metals?

Mark Selby: Yes, I think the key is to get the right battery metal. And the one thing about Nickel, it’s not just a battery metal. the thing that has created these super cycles in the past: late sixties, late eighties, mid two thousands, and why we think we’re going to see it again in the mid-2020s, is that Nickel is primarily using stainless steel, which has been a very high gross 5% or 6% a year material for many, many decades. And that is not going away anytime soon. Stainless steel is still just 3% of the carbon steel market. So that underlined demand force is going to continue going forward. On top of it, you now have this new use of Nickel in electric vehicles. And I think the key thing for looking at the commodity is, it is not just about demand, you have to also look at the structure of supply. So, the reality in the Lithium space is there are vast, dried-up oceans of salts in various, through the Andes and other places, that can provide a significant amount of Lithium to the market. Same thing with Cobalt, there’s a significant amount of Lithium Cobalt in places like Congo that can come to market at the right price and right time. With Nickel, we have a big source of supply in Indonesia, but the reality is, it is when you step back and look at how much Nickel do we need to meet continued growth for stainless steel? And then you layer in the forecast in terms of how much Nickel you need to make electric vehicle batteries. There is nowhere near enough projects in the pipeline, including, developing everything you could possibly develop in Indonesia.

And so the other key thing in terms of your battery metals, Lithium is always going to be on one side of the battery, but in terms of the mix and the cathode, Nickel is the element that gives the car the range, and it is cheaper than Cobalt. The industry has very rapidly shifted towards 80% to 90% Nickel batteries from, say, one-third Nickel batteries. That shift has happened much more quickly because of the spike in Cobalt prices. As an investor, you want to go to where the metal demand is going, not where it has been. And so, in terms of battery chemistries, demand is shifting to Nickel, and it is going to continue to shift to Nickel more and more.

Matthew Gordon: You think future demand will come entirely from the automotive industry? I know your views on steel, but what’s the ratio there in terms of what the future demand looks like?

Mark Selby: Oh yes, if you go out to 2025, we are going to need about a half million tons more Nickel, and there’s about 2.5Mt of Nickel produced today. So about 20% more than today. But when you get out to 2030, you’re looking at 1.2Mt, 1.3Mt from the auto for EVs. And then you’re going to need another 1.2Mt, 1.3Mt just to meet trend demand growth for all the other uses that Nickel is used for. So that’s double by 2030, what we actually produce today.

Matthew Gordon: If you look at the use of Nickel in batteries, obviously we’re reading about Tesla reducing, or trying to remove the need for Nickel. And I understand that different batteries have different functions, but you still think there will be a big need for Nickel going forward?

Mark Selby: Oh yes, definitely. There was a whole flurry of news around: Tesla using Lithium ion phosphate for one battery. I think I’ve said in some talking head things at one point or another over the last eight months is, the battery and battery system is the primary differentiator for an electric vehicle, just like the engine in a car. In the globe, there isn’t one single engine that’s used in every automobile. So, in the EV sector, you’re going to see, basically, a low-end short-range battery, that’s just as cheap as possible. And so that Lithium ion phosphate is perfect for that. And Tesla in China wanted to hit a specific price point, and range is not a big issue in that market.

You are going to have your mid-range battery, which will be more commonly used by 60% of cars. And then there’s going to be the, this is the absolute longest range, the absolute highest discharge that will allow you to go from 0 to 60 in 1.5 seconds, battery, and you’ll have different technologies there. Nickel will play a big role in both of those the midstream, and then the upscale battery chemistries going forward.

Matthew Gordon: People are still excited about Nickel. It has a part to play with battery metals. You think that the demand is there, is what you’re saying? So that’s one thing.

Timing. Cycles. You have talked to me in the past about these super cycles and being able to hit it right. If I’m quite candid, you started Dumont a long time ago, it’s still not in production, right? And I get that you have learned some lessons about the geology and technically and so forth, but why is your project not going to take as long to develop?

Mark Selby: Suffer the same fate? Yes, no, fundamentally for two reasons: one is Dumont was somewhat an evolution of a mining model. And we needed to prove that that evolution was robust economically, and it could be constructed and built and done in a very straightforward manner. We had to spend a bunch of time on engineering and a bunch of time educating investors and so forth. And we did that quite successfully. But that did take a bunch of time and cash to be able to do that. The second part is we were doing it during the time period, and we knew when I joined in 2010, I knew that Nickel pig iron was going to be 5 or 6-years of significant growth. And I can show you a presentation I made in 2008, just saying how big Nickel pig iron was going to be and what it was going to cost eventually, when someone built a plant in Indonesia, which is what did happen. And there was just, we were advancing a project in a metal that people really didn’t care about at that time.

 Today the tables have flipped 180 degrees. You’ve got BHP Billiton who spent that entire time we were advancing Dumont, they were busy trying to sell their Nickel business, and didn’t have any takers, and in the last 24 months, not only has BHP said, we will look at it, we’re committed to battery metals. We’re actually building a downstream processing plant in Australia. Their CEO was quoted as saying, ‘We need more Nickel. We need more future-facing metals. We need more Nickel, more Copper.’ And then, three months later they put their money where their mouth is and they acquired another large scale, low-grade Nickel project in Australia called Honeymoon Well, from Norilsk. They have done a complete 180 degree. You have the world’s leading mining company, committing capital, making acquisitions, in this space. And once one mining company goes, the herd usually follows. We saw Oz Minerals do a transaction to acquire the 30% of a project, Nebo-Babel. They acquired a company called Cassini resources, which put a USD$250 million value on that. We already have a multiple of contained Nickel and a resource bigger than that project. And we have a huge amount of exploration potential to go. I was very excited to see that transaction. I knew they were coming. I didn’t think they would come this quickly. So, as of right now, the three good, large scale, lower-grade Nickel deposits in Australia are all gone. Yakabindie – BHP is now advancing that to fill in for them as their Mount Keith mine is down. Honeymoon Wells has been acquired and Nebo- Babel has been acquired.

And so literally, in terms of large scale, low-grade Nickel projects in Australia, that’s it of any scale. I think it speaks in terms of what is to come for other low-grade, large-scale deposits, like what we have at Crawford.

Matthew Gordon: It sounds like it is exciting time for Nickel if you are in a position to be rolled up or absorbed into someone else’s business. And the demand is there. I just want to establish the ground rules for investing in this space. And then we have got to talk about location. Tell us where you are, why that’s so good, and why that’s working for you?

Mark Selby: Yes. There are basically three components to location that matters. One is, do you have all the infrastructure in place to be able to build the mine, or do you need to spend a billion dollars to get water, rail, power, electricity to your project before you can start building your project? We’re literally just outside the town of Timmins, which is a 100-year old mining camp. And all that infrastructure is already in place. Number two – is the community and the First Nations in your area, supportive of resource development in the broader area, in terms of getting your project permitted and being able to operate in the way you want to. If the community and First Nations are supportive, then you are able to do that in a much more, faster, much more efficient method. And this Timmins is an area where there’ve been a number of projects permitted over the past decade.

And then third – you don’t want the government, after you’ve done all your work, to confiscate either directly or effectively, financially through changes in taxes, royalties, ownership regimes, once you have spent a bunch of your shareholders’ money taking to the goal line. So, in Ontario, in Canada, it’s about as good a jurisdiction as you can get.

Matthew Gordon: It is good, but permitting, there’s something we keep coming across in Canada: the time it takes to get things permitted. What do you know?

Mark Selby: Yes. The key there, every country is different, for sure. Every province within a country is different, even within a province it can be very, very different. What is great about the Timmins and the broader activity area that’s spans both Ontario and Quebec, you have had a bunch of the largest mining operations in Canada permitted during the last 15-years in a timely fashion. You had, within a 150km to 200km radius of Crawford, you’ve had Cisco’s market project permitted. You had Detour Gold’s mine permitted, you’ve had Dumont permitted on the Quebec side. And then recently, IAM Gold had their Cote Gold project, which is just to the southwest of us, also got permitted.

The local community the provinces, both Ontario and Quebec, have very well-defined permitting processes. And when those things come together, you can get through, you have to spend time getting through it, but you can get through it in a very well-defined basis. There are other parts of the province where the ownership and relationship with First Nations has not been well established. And so, as a consequence, companies get tied up in those kinds of issues. You have other places where they’re pretty remote. And you need to build a lot of infrastructure across and through a lot of communities and a lot of First Nations groups that you need to get them all coordinated to be able to build that infrastructure before you can build your project. The fact that we will have a, it will be large, but a very compact and in a single location is very, very advantageous.

Matthew Gordon: So that’s great. But the question I was asking was timing: how quick is it? Are you waiting 10-years? We have talked to companies where they have been sitting around and 9 to 10-years later, it’s still not permitted.

Mark Selby: No, this is not, no. In Ontario, each of those projects got permitted within a three-year window. Part of the reason why we’re going to have a scoping study done, literally just a year after we have started drilling last fall, is because we want to have that information to be able to start that permitting process as quickly as possible. We can be in a position as early as possible to begin construction to be able to get what we think is going to be a good Nickel cycle.

Matthew Gordon: Let’s come back to the first point you made, which is around scale. Okay. You said that’s really, really important. What do you know about what you’ve got today? Because you are relatively new. You can’t have that much information. So how do you know you’ve got scale?

Mark Selby: Well, the benefit of, A – doing it for a similar deposit like Dumont, and then the type of deposit itself; being  a large disseminated ore body, has allowed us, we started drilling last September, and by the end of February, we had the 11th largest resource, two thirds of which was in a measured and indicated category. And we know because we have done the drilling and it’s already that large, and we know we have only drilled off 20% of it. And because the geophysics has been very helpful in terms of showing where the resource is, we are confident that we can make considerably larger, and the potential to be higher grade as well, as we continue drilling here.

Matthew Gordon: Given you’ve got this huge-scale resource, why bother with picking up these additional options?

Mark Selby: About a few weeks ago, we closed the transaction that we had announced earlier, where we picked up five other options on five other land packages that have, we think similar ore, and potential for more large-scale Nickel deposits. I’m not here to drill my brains out and build a large resource, but it’s really about, okay, is there a potential for multiple deposits in a large district that we wanted to make sure that we locked up what we thought were the best targets. The good thing for us is that the geophysics really does, in the area we’re in now, has been instrumental and really zeroing in on the highest-grade part. What I want to get from those other option properties is not necessarily just a bunch of, 0.25% Nickel tons, it is really, can we find more places to get more of this 0.35&, 0.4% material? That is all about front loading the mine plan and the PEA with as much high-grade and as much cashflow as possible.

Matthew Gordon: Okay. And you’ve done some drilling. And what do you know about the grade at the moment? Because I know we talked about a month or more ago. We were talking about some by-product upside for you here as well. Can you just talk about what you’ve learnt through the job?

Mark Selby: Sure. There are 3 things. What intrigued me about the project from the first four discovery holes that were made was there was this potential for a higher-grade core. And so that came through very nicely in the initial resource. We had 250Mt out of about 900Mt, which was about 15% higher grade than the average, and about 15% higher grade than Dumont. And then within that, we had higher grade shales: 96M tons of 0.34%. And within that, 28Mt of 0.38% that came right up to surface. So that would allow us to start mining.

It is so critical in a mine development that, particularly for larger scale deposits, if you can spend, take three years, five years, seven years of feed at grades that are 30% or 50% higher grade than your average, all of that incremental grade is free cashflow, right? It’s incremental free cashflow, which at the end of the day, that’s what makes, that’s what investors are investing in you for. So, the more free cashflow you can generate earlier in the mine life, it just helps the project economics immensely.

So, the things that have come out which have been nice added bonuses, were 1 – we found this separate PGM zone that runs parallel to the Nickel deposit. It is literally, if you think of a curtain, or wall of PGMs that’s 400m high, that’s bigger than most office towers in any major city. And so, we have defined it across several kilometres already, and it’s basically 3m to 5m wide, and it is just outside the Nickel mineralisation, so we would be mining where it sits anyways to push the pitfalls back. We will be mining this material, which will be a nice by-product. If you are mining in any ways, if you can generate a pile of cash out of it, it just helps the overall economics.

And then the 3rd piece has been, we have a substantial amount of Magnetite, which is an iron ore product, and in the flow sheet that is the standard for these types of deposits, you end up pulling out this material. We will have that as part of our base case, which should be a separate revenue stream which will create more free cash flow for the overall project. So that’s why I’m very excited to get to a Scoping Study, to be able to really demonstrate to the market, just how robust we think this project is going to be.

Matthew Gordon: And when is the next set of drilling happening?

Mark Selby: That’s a great thing. I wouldn’t wait too long because we have got a whole series of these infill drill results coming out over the next 2 or 3-months. We have got a whole series of metallurgy results that will be coming out over the next few months as we feed all that into the Scoping Study. Those will be, to some serious investors as they start to see that information, that’s the  stuff that will help de-risk it for them and start to want to get into the story at this stage.

Matthew Gordon: Talk to me about this: because I normally start conversations trying to understand the mindset of the management team, their business model, how they intend to play this out. We have gone through a process there from macro down to the project and the geology, which I think has helps me be very clear about what you are trying to build. What I need you to be clearer about now is what’s your approach to market? Because we have talked in the past about accelerated timeframes, hitting the cycle right, so how are you going to do that?

Mark Selby:  Yes. It comes through to key pieces. One is just in terms of approach. And the other piece is around having the right people with the right experience get involved in the project at the right point. So, in terms of approach, I could sit here and drill this thing off all day long, and I could probably end up with the largest Nickel Sulphide resource. A lot of juniors, that’s what they do; it is all about, you know, we just build, we just develop resources and we just keep drilling and drilling and drilling. We already have the 11th largest resource. We have enough resource there for a multi-decade. For me, it’s okay, we have enough on that front. We’re going to make it way better and it will get bigger as we continue to drill, but it’s okay. Now, let’s take what we have and advance it as quickly as possible.

So, Scoping Study at the end of this year, Feasibility Study at the end of 2021. We will get permits done as quickly as possible, which means, likely by 2023 we can start construction, and we will be in production by 2025, 6-years after we start drilling. Right. That’s it, for what will be one of the largest Nickel Sulphide mines in the world globally. Where the location is allows us to be able to move that quickly. So, A – it’s great to put boxes on a timeline, to say, this is what you’re going to do. Then you have to have the time, the people and the experience to be able to do it.

At Dumont, we did 2 Pre-Feasibility Studies and then we did 2 Feasibility Studies. We had to really establish how to get this type of deposit in place. All of that time and all of that money that we invested in that; we can leverage that experience to this project. I’ve got several key people who are involved in the key parts of Dumont, involved at Crawford. Asanko, who I think is one of the world’s leading engineering firms in terms of developing real projects. They not only just do studies; they actually build them. They come up with robust capital cost numbers and robust operating numbers that end up getting hit. And we have them involved in this Scoping Study, and what we have laid out with them is that they will be involved right through the Feasibility Study, to deliver that by the end of 2021. That’s our goal as we move forward here.

Matthew Gordon: So that’s quite an aggressive timeline, but like you say: it’s easy to say, harder to do. And I get that. Pre-Feasibility Study (PFS) is in production by 2025. Fantastic. But you’re going to need to raise capital along that path. I get that you’re saying to me, we are taking what we have learned at Dumont, and we’re going to avoid those mistakes, save that time and save that cost on what we have got in front of us. You are laying out a pathway, which for your current shareholders and potential shareholders go, here are the things I’m going to hit. And if I don’t hit them, you can judge me on that. But the other thing, unfortunately, you do have to bring this money into. So how much money have you got today? And where’s it going to get you through to? Then presumably you are going to need to raise the next chunk of change at some point.

Mark Selby: Oh, yes. We raised money back in April, in the midst of COVID. That will take us through to deliver the Scoping Study. By year end, we will need to raise between USD$10M and $20M to do the Feasibility Study. We will raise that sometime between now and year end. The key thing there is to get, A – either some strategic in there, or some larger mining funds. Because, right now our shareholder base is primarily with, the first round of financing was friends and family. The next round was friends and family and some bigger brokers, some of their clients. And there’s still a huge amount of upside because none of the major mining funds are in our story right now. In terms of taking the share price up to the next level, there’s a huge amount of room to be able to bring these guys into the story, to raise the money we need for the Feasibility Study (FS) and in terms of valuation from where we are now to where, I think, ultimately this project value will surface in the market.

Matthew Gordon: What did you learn at RNC about talking to the market? Because the share price at RNC stagnated for a long time, for lots of different reasons. But what learnings are you taking from that to apply to what you’re doing today with Canada Nickel?

Mark Selby: Yes, to be honest, we went public at the end of 2010. We hit a window, we raised USD$50M, but at the end of 2010, development stories were still, everybody was investing them, and we went out at about USD$2 a share price and the $120M valuation.  I was on the board of a junior company at that time that also had a USD$120M valuation and had an early-stage Copper exploration project. Valuations were very, very high and the entire sector, we traded down from USD$2 all the way down to USD$0.15c or USD$0.20c in 2014 or 2015, as we advanced the project through to Feasibility Study. So less than one is; you have to be in a market that is going to be accepting of your project.

I think we are in a window now that yes, Nickel is in favour, and people want to buy the project in the end.

Number 2 – when I joined RNC in 2010, it had been a private company for 3-years and they had done multiple rounds of financing. And to be honest, we inherited a relatively sloppy share structure and ownership structure. That was a real overhang on the story when you don’t have a tight group of shareholders who come in, who are there because they fundamentally believe that we have one of the great Nickel projects, that we’re going to see through either to construction or get taken out. And so that was a real overhang on the story for a number of years and was a deterrent for some of the new money coming in.

Part of this was a brand-new company, brand new set of shareholders, tightly controlled. As we go through these milestones, we will be able to have that value realised for our shareholders as we move forward.

And then the 3rd piece that made Dumont challenging is that it was a large project. We had to do a bunch of new work that we had to finance. And this project specifically, we don’t have to do that novel development work that Dumont didn’t have to do. We have raised the money. We need to take it through to a Scoping Study, and it’s a fraction of what we needed to do at Dumont. What we will need to do for the Feasibility Study is also a fraction of what we raised at Dumont. And so, that’s why this is, I believe, such a good story.

Matthew Gordon: Because I think that’s going to be a big part of this; is getting assurances. Well, not assurances, it’s hard to give assurances, but you know what – get a sense of the fact that the market is building for Nickel. I think we can safely tick that box. And more importantly, that your model, the way that you are going to deliver this is not heavily dilutive. You don’t need go and raise so much money that the share price just never gets a chance to get out of gear. And you think that this, because I think the interesting thing that you said there is like, we know it’s large. We don’t need to keep drilling it because it’s large enough, it’s the 11th largest in the world. We can tick the large box off, and it’s maybe 20% of the ore body. We can come back to that. But it’s large enough to get people interested. On that basis, I know you’ve been in the industry for 20 years, but have you had conversations? How do you know that the big guys are sniffing around? You’ve talked about BHP and Oz Minerals there, but who else is sniffing around these? Because it’s not just yours, there are other Nickel projects and why?

Mark Selby: Oh yes, I know they’re sniffing around because they have contacted us.

Matthew Gordon: Right.

Mark Selby: So, early stage, just with some of the drilling results and the fact that we could point to what the size and scope of it was, even last winter, there’s been several mid-tiers and several majors who’ve already been keep keeping an eye on things. And typically, where they like to get involved is around Scoping Study through to Feasibility Study. They want to see some economics around the project to make it an easier sell for them within their organisation. If they can point to a third-party report that says, oh, that says it’s worth USD$1Bn, or USD$2Bn, or USD$500M, or whatever the number is going to be in the Scoping Study. But no, that level of interest now that we have got our initial resource out, we will have a new resource out by the end of July. We will see more and more interest as we get through to having that scoping studies delivered by year end.

Matthew Gordon: Towards the end of year end. When is the moment you think people will take notice of you? Do you have to wait for the Scoping Study? Or do you think that you are telling the market the story and there has been interest because we have seen it; people are talking about you. They are talking to us about you. Do you think now, I know you are going to say yes, I know, but do you think now’s the time or should they wait for the Scoping Study? , you don’t need to push it too hard before the Scoping Study comes out, do you?

Mark Selby: No, I think it is much easier for investors and other companies to invest in something when there are 10 other things that look similar, and they can fit it in the box. Our challenge with Dumont was that there wasn’t much else that looked like Dumont that was visible to the market. Mount Keith was a wildly successful a mine for BHP Billiton for a long time. But it was buried two levels down and didn’t really get to, you didn’t see much detail on it for most of its life. Now that there’s all the data points around Dumont, there is BHP making these acquisitions, and some other projects have advanced. Because people can’t look at 10 other projects and say, oh, it’s just like this one. It will be, I think, very helpful for people to see that Scoping Study and say, ah, okay. I had no idea that this Nickel intersection could translate into this much total NPV, right? And that is really what we’re going for now.

In the meantime, I’m going to be pointing that out to people and pointing to that as much as possible. The mining funds get that, and they’ll hopefully be coming in between now and year end, and then we will get that strategic investor really picking up as the Scoping Study comes in and then as we move into the Feasibility Study (FS) process.

Matthew Gordon: I think it’s exciting times for you guys. You’ve got to deliver the Scoping Study at the end of the year. We will stay in touch. We think it is one of the better Nickel stories out there, and Nickel is definitely on the up. Stay in touch and keep us up to date with how things are progressing, please.

Mark Selby: Sure. No, that would be great.

Company Website: https://canadanickel.com/

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