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

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

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

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

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

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

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

Matthew Gordon talks to Mark Selby, May 2020


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

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

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

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

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

Check out another interview with Selby here.

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.

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

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

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

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

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

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

We Discuss:

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

CLICK HERE to watch the full interview.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mark Selby: Not quite.

Matthew Gordon: No?

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

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

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

Check out another interview with Selby here.

Company Website: https://canadanickel.com/

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#5 Nickel Forecasts, Importance of Indonesia & Red Flags (Transcript)

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 round-up on Nickel.

ARTICLE FOR THIS INTERVIEW IS AVAILABLE HERE.

So, what should investors make of what been going on in the world of nickel this week? It’s been something of a sideways week, with nickel price ticking up by c. 1%.

Big news this week was one of the more followed nickel analysts lowered prices by 6-7% from 2021-2025 – LT price intact

Why? 2 big drivers – current demand pullback combined with more NPI production from Indonesia

Nickel & Indonesia

– Why is Indonesia now such a big part of the market?

– Why didn’t it happen before? Nickel just didn’t magically appear or get discovered – deposits there all known since the 1970s

– What are the implications for the overall market?

– Where does it go from here

We Discuss:

  1. 1:58 – Quick Update on What’s Happening in the World of Nickel
  2. 3:21 – China Coming Back with Vengeance: Will the West Be Buying, Though?
  3. 7:43 – Impact of the Steal Market on Nickel
  4. 9:18 – A Look at Indonesia: Why Has its Importance Grown Recently and What are the Implications?
  5. 14:47 – An Investor’s View: How do I Make Money, What Opportunities are Out There?
  6. 17:19 – Sulfide vs Laterite: Pros, Cons, and Costs
  7. 26:31 – Reservations of Financing Expensive Projects in a Volatile Market: Comforting Factors and Blue Sky Possibilities
  8. 29:25 – Peculiarities of Nickel Investment: Parallels with the Uranium Market, and Credibility of Studies
  9. 34:24 – Self-Reliant Automotive Industry Ecosystems: What are the Implications and Opportunities
  10. 37:34 – Tiny Update on Canada Nickel Company

CLICK HERE to watch the full interview.

Matthew Gordon: Mark, how are you doing?

Mark Selby: Good, Matthew.

Matthew Gordon: We are here for our weekly catch up. We are going to do this weekly update. We are going to educate people about the world of Nickel. I’m excited.

Mark Selby: Week 2 to week 1.

Matthew Gordon: We have agreed to talk about a few things this week, because we’ve kind of, there’s a lot of ground to cover, most of us are starting from a fairly low base. What has happened in the world of Nickel this week?

Mark Selby: Yes. This week, as I thought last week, it was going to be sort of a sideways week, and that is really what’s happened. Nickel price has ticked up 1% since we last talked, which is within the margin of error. And yes, no, we haven’t seen any substantial moves with stocks prices, or anything sort of on the supply-demand side. The one thing that I encourage people to sort of keep an eye on is the price of ore from the Philippines, that is continuing to tick higher. So that’s a sign the Chinese are still a little bit nervous about, am I going to be able to have enough ore through the remainder of the year? So that’s the bull scenario. The bear scenario is the amount of, the increase in Nickel Pig Iron (NPI) in production coming from Indonesia.

And I think the key piece of news this week is, I think one of the more followed Nickel analysts took his medium-term forecast down by about USD$1000/t from 2021 through 2024. His long-term price is still untouched, but it’s a combination of the demand hit that we’ve seen from COVID-19 plus this continued ramp up in Indonesian NPI, which has caused them to sort of pull this price deck down in that intermediate period. And this is a person that a lot of people follow.

Matthew Gordon: That’s kind of interesting, isn’t it? Because China has kind of come back with a vengeance; they have said that they are getting back into production. They are ramping things up to get it back into production. The question was, would the West be buying the things that they’re making, right? That’s the kind of big unknown at the moment. What are the sorts of things that the analyst was concerned about? Was it just that big question or was there more to it?

Mark Selby: No, I guess in terms of the near term, right? China went through its big crunch in Jan, Feb, March. We saw indicators showing that the demand was going to come back and yes, one of the Chinese firms just published their May calculation of demand, and that’s actually up year over year. Where his concerns are, we’re now seeing the worst of the data come in from the rest of the world. So, the rest of the world went into lockdown in March and April. We’re seeing sort of the worst of that data. And, unlike China, there was not that sort of direct fixed asset investment, that they are going to start ordering steel next week. In Canada, the United States and Europe we are going to have, it’s going to be a slower process to get off the bottom. And I think we talked last week that what is going to happen is that they are going to have to do more stimulus packages to get the economy re-growing. We think a lot of that stimulus is going to help things like the EV sector. But we are going to go through this rally where Chinese demand is going to be up Year over Year for them, right through the rest of the year. But demand from the rest of the world is going to be down significantly: down like high single digits, and has been down double digits through March, April. But again, I think we’re through the worst of it now. Everything should be starting to move higher. But as I said, we won’t get back to Year over Year (YoY) increases from the rest of the world probably until the year end at the earliest.

Matthew Gordon: There has been a bit of setback. I’m just trying to understand the things that the analysts are concerned about. Obviously, the Indonesian ore ban, we talked last week about Tesla shifting the shape and design of the battery in terms of non-Nickel batteries. And was that in the conversation? Were those some of the factors quoted?

Mark Selby: Oh, yes, so the demand side was one aspect of it. And then the second aspect was this ramp up in Indonesian Nickel Pig Iron (NPI) production. So that, when you take Indonesia and China combined, it should double from 2018 through to 2025 and grow at a pretty healthy clip. You’ve got 3 or 4 very large-scale projects that are continuing to add pretty substantial amounts of Nickel production capacity. It’s that sort of better visibility about this pipeline of Nickel pig iron projects delivering Nickel into the market that was the other sort of key piece of concern for that analyst.

The thing, and I think I highlighted this on our discussion last week, the problem is that Nickel demand is higher than the other metals.  And analysts, he is better than most in terms of having realistic demand numbers, but even with the dropdown, you have to compensate for that – the market will rebound in a pretty meaningful way after that. You have to put some very high demand numbers when you come out of the rebound in future years. So that sort of demand growth over that period reflects kind of 300,000t to 400,000t from EVs plus 2% to 3% trend demand growth. And so that’s a good 1 or 2 percentage points slower than what trend demand growth has been for the past 10 to 15-years. So if you add that extra 1% or 2%, and then you get to deficits at the end of the year. I’m glad I don’t have his job of having to try and sort of guess what that 2023, 2024, 2025 demand is, but that’s really the two factors is, okay, Indonesian plus Chinese NPI, plus overall demand growth – where are those 2 lines going to cross or not cross, that’s when you move forward?

Matthew Gordon: Well, I suppose the good news about being an analyst is that you get to change your mind every quarter, quite frankly, when your data comes in, right? But let’s talk about something, again, we’ve talked about it a few months ago, which was the impact of the steel market on Nickel. It shows you, well, it gives you some clues. I saw some data, which said that China and Indonesia, which has been historically not a significant player in the market, and that represents 65%, I think it’s around 60% to 65% of global production for 2020. I mean, that’s huge.

Mark Selby: Oh yes, no, well, China plus Indonesia, maybe stainless steel would probably be close to that number. And I think by 2025, that’s where you’re looking at Indonesia on its own being close to 45% of global supply. I’ve got a chart that I use in my Nickel presentations talking about the fact that New Caledonia, Philippines, Indonesia, as a group, control just over 50%, which is as much as OPEC controlled at its peak. And given that Mr. Friedland’s ‘Nickel is the new gasoline’; sort of the theme here, they are going to have a lot of power over the market. When you then factor in that huge amount of growth coming from Indonesia, then their share of global supply is going to increase dramatically because literally Indonesia is the only place, we are going to have supply growth. Most of the other production for most of the other regions globally has been shrinking over time. And we don’t expect that trend to slow down dramatically for the foreseeable future.

Matthew Gordon: Let’s talk about Indonesia. It is becoming more and more important for Nickel, and therefore in the steel market as well. I’m trying to understand why now? Because those deposits have been known since the sixties and the seventies. This is not new news. What is driving that?

Mark Selby: Yes, so I’ve always referred to Indonesia as sort of, for a decade or so, as the ‘Saudi Arabia of Nickel’. The bulk of the sort of developed reserves in the world globally are in, and again, it’s not everywhere in Indonesia, it’s just in a few islands. It is in Sulawesi and then a few other islands nearby. And so on those islands you’ve got a bunch of large reserves, most of which were discovered back -in the sixties and seventies. Inco had concessions over most of the Island of Sulawesi at that time, and drilled a bunch of this stuff off. And then as well, anything else was discovered sort of in the early two thousands. So yes, the stuff has been there for a long time.

What has really shifted over 50-years is the importance of the stainless-steel market: so it has gone from being kind of one third of stainless, one third of Nickel demand in 1968, to being more than two thirds of Nickel demand going forward. And what the Chinese, sort of with the development of Nickel pig iron, what they realised is that they’re not in the Nickel business, they’re in the stainless-steel business. And what they needed to think about, and a company like Tsingshan from day one, was really smart about is, we need to make the lowest-cost stainless steel possible, starting with the resource in the ground. The guy who runs Tsingshan is, I think, one of the visionaries in this space, and he quickly realised, okay, math-wise, the best place to do is basically put a stainless-steel mill on top of a laterite deposit in Indonesia. And starting in 2007, when he first started talking about it, that had been the plan all along. And they realised that vision in 2015 and built one of their largest Nickel productions and integrated stainless steel facilities in the world. That one single plant produces more stainless steel than most countries other than China and Japan, to give people a sense of the scale of it. So that was the big driver.

Matthew Gordon: I’m wondering what are the implications of this? You’ve got the Chinese teaming up with the Indonesians – it’s about steel, it is not necessarily about Nickel. There is big money required to put these things together. What does it mean for the rest of the world?

Mark Selby: Yes. So it has reshaped a big chunk of the Nickel and the stainless steel industry during that timeframe, and it’s going to continue to do so going forward. So again, what he realised was that Nickel pig iron, Ferro-Nickel, that if you just add on AOD and a caster, then you have a stainless steel mill. He realised that it wasn’t much of a technology jump. And that’s where people, I think, think there is some mysterious technology. They basically took stuff off the shelf and put it in place. By doing that they became, you’ve seen stainless steel production in most other regions, parts of the world, shrink, because the combination of Indonesia and China is just that much more cost effective than in a bunch of other regions.

And now, so they’ve sort of squeezed the rest of the world during this process. Now the battle is actually going to be between Indonesia and China. The only mistake they made through the whole process is they failed to realise that a lot of incumbents, particularly even in China, wouldn’t be happy that their businesses would be squeezed by this new source of supply. You actually saw tariff barriers go up all around the world, including China, against stainless steel coming from Indonesia. They’ve had to shift so that they’re not producing nearly as much stainless steel as they have capacity for, and are going to shift Nickel pig iron into China rather than stainless steel. And so what the combination now of this continued growth in Nickel pig iron from Indonesia, with the Indonesian ore ban, which is pushing up prices from the Philippines, it means that the margins for the smaller-scale standalone producers in China are really going to get squeezed over the next few years.

The thing is, Indonesian production is going to grow, but Chinese NPI and stainless production, we may see that actually shrink over time as the higher-cost, smaller-scale producers get squeezed out of the market. And again, if I’m Ching Shan, and I can produce a lower cost Indonesia versus producing in China, I’ll just produce in Indonesia all day long. So that’s sort of the next dynamic that’s really going to happen in the stainless-steel market.

Matthew Gordon: If I bring it back to, as an investor. Because that is big. It is state-owned enterprise. There’s no way of getting involved with that. How do I, as an investor make money? Where does the market go from here and what are the opportunities that I’m looking for elsewhere in the world?

Mark Selby: The key thing is, given sort of, you’ve got this big block of production and costs that operate a certain cost in the Nickel space and in the stainless steel space, you need to look at where are the places around that where you can still generate massive free cashflow? Because having this large source of supply, if you’re to the left of it on the cost curve, then that gap on the cost curve means you’re going to make a lot of money. The steel business globally is, like just regular carbon steel is a zero-profit zone in most places, but BHP and Rio Tinto make the bulk of their profits from selling iron ore into that very low profit steel sector. The same thing in the Nickel space with steel and then EVs coming is, as a Nickel producer you want to find a way to produce the highest value, lowest-cost product to basically feed into that chain. So that again, before Nickel sulphide producers had one option you just had to sell to the smelter refinery. And because it was an oligopoly, you as a miner got squeezed. Now there are multiple channels between stainless steel, between EVs, and so if you can help your downstream partner make a little bit more money than they otherwise would, then hopefully you capture the bulk of that value. So that’s where you need to look for those mining companies that are thinking about that and are able to tailor their products a little bit to be able to just sort of fit into that arc of reality.

Matthew Gordon: Okay, well, let’s break that down because that’s really, really important here. Okay. Because again, we talked in the past about the way you insert yourself into a supply chain and where you maximize the value. If you are feeding into stainless steel, you’re slightly out of control here. And that’s why people are talking the language of, our Nickel is going to go into the battery revolution. That’s where we’re inserting ourselves, because that’s where the money is. That’s where the margin is. For the sake of people listening to this, it’s probably important to break down if we will. I know we, I think we’ve agreed to get into some level of detail next week or the week after on the vocabulary, but for the sake of today: we have got sulphide? Which is somewhere between 28%, 30% of the market>

Mark Selby: Yes.

Matthew Gordon: And then we have got laterites, which is the rest. Let’s break those down for people and the pros and cons of each.

Mark Selby: For laterites, they are very low cost to mine because it is basically dirt that you dig out of the ground. And a laterite mining operation in the Philippines and Indonesia is literally a few trucks to shovel and then you put on a barge which puts it on a boat and that boat goes to China. That is what is involved in laterite mining. Where the laterite gets tricky is where you have to build a big plant because you can’t upgrade the ore at all. You basically have to dump it all into a furnace to melt it and pull the Nickel out, or you have to dump it all into a vat and dissolve it all and then pull the Nickel out that way. And both of those steps require a big chunks of capital. And that’s always why these things were slow to develop; they required a fairly significant investment to be able to make that, they were in remote locations because laterite deposits tend to be found around the tropics to create the conditions to form, to make the laterite actually happen.

On the sulphide side of things, the mining tends to be trickier: again, higher-grade underground mines. You have to build the mine, dig a deep hole in the ground to get a larger-scale, open pit mine, like we have at Crawford where there is an open pit. The advantage is that you start out with a lower-grade material, but with that very, for not a lot of dollars, you can build, you operate a mill.  Again, the mills themselves aren’t cheap, but that’s the big chunk of the cost for a sulphide operation is you build the mill and then you can upgrade the ore. In our case, well, deposits like this from say, 0.3% Nickel, the 20% Nickel where a laterite deposit starts with around 1% – 1.5% Nickel. Dry with a third water, which makes their 1% product that you have to all dump into a furnace and you don’t get any upgrading initially.

So, those are the sort of the 2 sets of costs. The way the deposits are structured in 2 ways. And then, historically, it was either Ferro-Nickel for laterites or integrated producers for sulphides. But now the fact that you have these different market channels opening up, those companies that are able to find an edge to make another 5% or 10% of the price, and have that come back to back to them and back to their shareholders, then you’re going to have those operations should do well going forward.

Matthew Gordon: Let me get this right: laterites account for 70% of, in terms of volume globally. Those are, it’s literally, as you say, it is moving dirt, right? It is big, expensive, CAPEX-intensive projects typically, right? So, and again, we know there’s sort of a billion bucks minimum, but usually go on to be a lot more than that, depending on the scale, even where you are putting the operation on top of the ore body, they are seriously expensive in terms of CAPEX. Is that right?

Mark Selby: Yes. In most of the world, the one operation that the Chinese did with Indonesia is, the Western companies would always try and build the biggest furnace ever built. Every new plant had the biggest furnace ever. The Chinese kind of said, Oh, that’s nonsense. We’ve already got one that works. We’ll just make, we’ll just copy and paste that x20. Because we know the cost of the 20th is going to be a lot less than the cost of the first one. So they’ve kind of made it much more scalable. But it’s still a pretty hefty, it’s a multi hundred million dollar price debt for the Chinese ticket to get started.

Matthew Gordon: And that’s because, so it’s multi-hundred million, so it’s not necessarily $1Bn, but that’s because it is sitting on top of the body?

Mark Selby: Yes.

Matthew Gordon: So as an investor, I’m thinking, am I more likely or more unlikely to be investing in a laterite project if I am interested in Nickel?

Mark Selby: There’s one example: Nickel Mines has basically joint ventured with Tsingshan. They basically own a portion of Tsingshan’s plant in Indonesia. It effectively allows Tsingshan to give a market window on the economics of their business. That’s why it makes sense for Tsingshan to do that deal. So that is a way to get exposure to a market leader in that case. The other way to do it, you’ve got a few pure players like Inco where again, they’ve got a large resource and a pool of sunk capital. You, as an investor, benefit from the fact that they built that plant back in the seventies and expanded into the nineties and expanded again in the 2000s. There’s not as much, you actually see some free cashflow because they’re not having to continually reinvest it in the business. But then a lot of the other laterite projects are embedded into other larger companies. And, again, there aren’t a ton of new, there’s only a handful of standalone Nickel laterite projects as well. There are not a lot of ways for investors to play this space broadly.

Matthew Gordon: Because I guess the thing that terrifies me is that you have got to pay that money back. If you’re talking about hundreds of millions of dollars at best, and probably into the billions of dollars, and you’ve got to pay that back, it’s going to take a long time or you have got to have a big operation to do that. So me as an investor, I’m looking at that and that is the thing that makes me nervous.

But let’s come onto sulphide operations because again, there, companies that are building these things that they need to have access to a plant. Either they build it ,or they have access to it down the road. And margins are controlled there. So again, for sulphide companies, if I’m thinking of investing in sulphide companies, what are the things I should be looking out for in terms of their ability to control costs?

Mark Selby: Yes. The key thing there, you’ve got sort of 2 groups: there are basically people who either just mine, or mine with no operations that feed into a chain. And there are a number of companies in Western Australia who operate there. The key thing there is you just need to be able to see what their operating costs are relative to where Nickel prices are, and are they able to negotiate terms with the downstream person that they have to supply to, to actually earn any profit? The thing that is changing, and I think that is what’s going to be somewhat appealing to sulphides in general, is again, for the electric vehicle sector, you’re going to see a bunch of processing capacity develop to convert Nickel, in whatever form it is in, into a product for the battery sector. The oligopoly will start to break down over the next three to five years. Nickel sulphide resources, in my view will, as that oligopoly breaks down and more value flows back to the miner, the value of the sulphide resource in the ground will increase significantly relative, as those options become available to the market.

The other part, even a lot of sulphite operations, Nickel is a fairly capital-intensive business all the way around. And one of the challenges of investing in a laterite versus sulphite, is just happens to be where these deposits are typically located. Again, there’s nothing wrong with, if you have to make a significant capital investment. In iron ore, BHP, Rio Tinto, those are hugely profitable businesses, but they have to make that upfront investment, but they’re able to do that because they’re operating in Australia. They have 50-years reserve, and they’re going to just mint a huge amount of free cash flow over that time period, without any risk that that project will be either physically or economically confiscated by the local government or the country.

Sulphide deposits, you tend to find them in lower-risk political jurisdictions. In Gayton in Canada, you can spend $1Bn knowing that the government is not going to change the rules on you and make it impossible for you to realise that cash flow. I would caution people; when you’re looking at laterite projects, just look at that jurisdiction to see, okay, if they are able to raise the billion dollars to build the plant, is there any risk that the government is going to do something to confiscate some of the value there. In the Copper space, those companies that tried to operate in the Congo and Zambia for many decades, it has been pretty challenging during that timeframe. And there are other jurisdictions where there are Nickel laterite deposits that are almost as challenging as those countries,

Matthew Gordon: But it’s still a lot of money. You mentioned it’s a billion dollars, right? That’s a lot of money. So, as a lender, in a market like Nickel, which is quite volatile, what are the comforting factors? How do I know I’m going to at least not lose my money, let alone be able to expect to be repaid the, whatever coupon I’m charging for it? What are those comfort factors? I mean, you’ve been in negotiations all through your career. Bankers don’t understand Nickel like you do. They can look at the numbers and that’s it. What are the questions they ask you? What questions should we be asking companies?

Mark Selby: It is really about where you are on the cost curve. Like again, you don’t fear big producers who are to the right of you on the cost curve, as long as they’re willing to turn that production off, then if you’re to the left of them and lower cost, then you’re going to continue to make money across the cycle. So that’s where, as a lender, they look at cost curves and they’re going to say, okay, we know we’re going to assume that prices will drop to a point somewhere on the cost curve for a period of time. And we need to test your project to see how much cash comes out of it if that sort of worst-case scenario happens on the cost curve. So that’s what you need to look at. You don’t want, in today’s market with the China-Indonesia going on, you don’t want anything that’s in the same spot on the cost curve or to the right of that. That’s not going to get funded in our lifetime. But if you are to the left there, and if you’re sufficiently to the left there, then those become very, very, very attractive investments.

What helps make iron or such a profitable business is that you have a big chunk of iron ore production in China, which is relatively high-cost, and continues to sort of come in and out of the market. And what that does is okay, at USD$85 p/t, at $85 or $80 or $70 or $65 p/t you have this Chinese production that kicks in or kicks off. And it keeps iron ore prices at a relatively high level to say, if I’m producing in Western Australia for $20 p/ton.

I know, as BHP, as long as that production is helping sort of buffer changes in supply-demand, then I am going to print money all day long. And it’s the same thing in all the commodities; you just want to make sure that you understand where that swing capacity is, what the cash costs look like, and then where you stack up relative to that.

Matthew Gordon: Mark, I want to ask about the current Nickel market. I think it would be quite easy to talk about the generalities of the risks in mining here, but with Nickel these are such big projects. We’ve talked about billions of dollars, or at the very least, hundreds of millions of dollars projects. There’s not that many of them. It’s not like Gold mining, getting into the first pool with the goldmine. It’s not like Copper. These are well understood. Well-trodden. Lots of them. There’s not that many people in Nickel, involved in building Nickel mines and plants, et cetera. And it touched on something that we were covering in the Uranium space recently where some of the old hands were saying, there are skills being lost in the market because there aren’t that many new mines being put into production. Is that not the case with Nickel?

Mark Selby: Yes, there’s stuff outside of China, Indonesia. There are thousands of new engineers in China who understand Nickel, but in the rest of the world, because rest of the world production has been shrinking during this timeframe, that’s definitely the case. As an investor I really pay attention to the people involved in the project. It is not like Copper and Gold where I can find 25 people who have done it, and just grab one of them and they can help build this mine for me. In terms of processing Nickel, and there have been some huge disasters in the past that have made big, real money investors, a little more cautious in the space. So that is something I would definitely, definitely zero in on as you are going through, looking at the different opportunities for Nickel investing.

Matthew Gordon: So, been there, done it before, built a plant, got into production: very important. Because not many people outside of China and Indonesia who have done that. So that’s a great point to make. And just sort of on a similar theme here when we’ve looked at some of the Nickel companies, the publicly-listed Nickel companies, we’re looking at, they’ve got their PFS, they’ve got their Scoping Study, the PFS, the PEAs; they look great on paper, but I’m seeing them sitting around and no one’s putting the money in. Why?

Mark Selby: Yes, I know that’s the toughest part. Again, people see 43-101 or JORC and think that, okay, it’s been approved by somebody, again, at the end of the day, it’s whoever is comfortable to sign off on those numbers and accept the payment as a third party engineer on that report to sign off on it. That’s it. As long as they meet the minimum standard to be someone who can sign those reports and they can sign those reports, it has no real comment on the validity of the numbers that are in there. Particularly on the engineering side, the Resource stuff, there’s a bunch of very rigorous standards that have to be followed, but once you get into the operating and capital costs then it gets very fuzzy very quickly.

I would really encourage people, when you’re looking at a company and you see a technical report, look who did the technical report. Is it a company that just does studies? Or is it a company that does studies and builds actually builds projects? Because those companies that actually build projects, they know they may be on the hook for them, or someone’s going to compare another project of theirs to the one they just wrote about. You get a much more realistic capital and operating cost numbers out of those really good quality engineering firms. Again, if you really want to do your homework, just Google that engineering firm and just see what other projects they’ve done and how they’ve gone relative to those numbers. Because again, it’s a red flag. Market conditions may cause a project to get delayed for a period of time, just because the pricing is nowhere near where it needs to be to allow new projects to get going. But then the other part of it is, if you see a project, ‘Geez, it’s 50% after tax return projects. Why hasn’t it been financed? If it has been sitting on the shelf for a while, there’s probably some real issues with both the capital and operating cost numbers that the real money people just go, ‘Oh, I don’t want to take away that.’ Because the reality is, there has been a working range of mining companies. It is quite clear – if you get an after-tax return on a reasonable price stack for a large-scale project in the mid-teens, that’s a good number, these 25% – 30% after tax. You do get some of them and they can be smaller high-grade ones. But again, once you start to get to any kind of scale, you very quickly get down into kind of typical, mid- teens type returns, unless there’s some sort of either deposit breakthrough or technology breakthrough that is a step change in operating costs relative to the rest of the sector.

Matthew Gordon: Okay. So, like management; been there, done it before, track record. You need to know that the person signing this off knows what they’re talking about. It’s not just theory. They’ve done it. Got it. Good.

Let’s talk about, if you don’t mind, we’re just going to finish off on this one, which is the around the automotive industry. We’re looking at different ecosystems being built around the world. There’s the China ecosystem. Europe is building an ecosystem system. The US is building up its own ecosystem. And this there’s a little bit of protectionism in this, but whatever we all think of that in terms of trade wars and so forth, it is what it is. It exists. We’ve got to deal with that. What I’m seeing is that these different ecosystems don’t necessarily want to rely, for any component, outside of their own ecosystem. European automotive manufacturers don’t want to rely on China or Indonesia necessarily for their Nickel. There’s a great opportunity outside of China for producers and owners of Nickel to actually feed into these different ecosystems. What is your sense of what is going on there? Do you see opportunities?

Mark Selby: Oh yes, most definitely. from discussions in a past life, when we were advancing, looking at Dumont, the battery supply chains are outside of China, very much access to non-Chinese supply. And so, again, part of the reason I’m here with Canada Nickel is this is one of those real true market opportunities because the United States has no Nickel mines. Europe has one significant Nickel operation. East Asia, outside of China, has been squeezed out by China in most of the key supply regions. The ability to provide Nickel supply into one or more of those ecosystems is a huge benefit. So again, being in Canada we’ve got access to both Europe and North America, and it’s not too far from Korea and Japan as well.

So, you know, I think that’s a massive opportunity to be around the edges in a low-risk jurisdiction to be able to provide that supply to the market needs. And another dimension of this that we’re going to be talking about some more in the coming months is again, is the environmental footprint. Indonesia is this massive new source of supply, but it takes a lot of coal to turn that soggy dirt into a piece of Nickel. And so again, as the EV markets starts to matter more how are people going to be starting to look at those kinds of dimensions? We think they are. I think that’s one of the key things that people are going to have to start thinking about in another 3 to 6-months out.

Matthew Gordon: That wraps up another week. It has been a quiet week, but I think there is a lot to discuss there. And I think what you’re going to help us with as well is just, again, just getting used to this vocabulary, the terminology, the things that are important, the things are not important. And maybe give some clues, as investors, the things that we should be pointing at and going, okay, that looks good, or not good. Looking forward to it.

Mark Selby: It will be good.

Matthew Gordon: And how are things at Canada Nickel? We caught up with you last week. Sounds like you got exciting a few months ahead of you.

Mark Selby: Yes. Drilling is going well; metallurgy work is going well. And then on track for a PEA by the end of the year. And again, to my point around the engineering firm, we are working with the Asanko. They built up a bunch of large- scale sulphide processing mills, and their team was involved in the ramping up Mount Keith in the mid 1990s, which was sort of the breakthrough in terms of these larger-scale, lower-grade operations. And it operated successfully for 25-years. Having tapped into that experiences is what we want to be able to, again, to build a project we can actually build and get financed.

Matthew Gordon: Beautiful, Mark. Thanks again. Appreciate your time. I’ll speak to you next week.

Mark Selby: All right. Thank you, sir. Take care.

Check out another interview with Selby here.

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.

#5 Mark Selby – Nickel Forecasts, Importance of Indonesia & Red Flags

Nickel Market Insight 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 round-up on Nickel.

What has been going on in the intriguing world of nickel this week? It’s been a quiet one, with metrics mostly tracking sideways. The nickel price has seen a c. 1% uptick, and the price of ore from the Philippines is continuing to tick higher; this has been instigated by continued Chinese uncertainty surrounding the country’s feed supply of nickel pig iron (NPI) for its manufacturing sector, created by the Indonesian export ban, with Indonesia supplying c. 350Kt of nickel to China in 2019: around 40% of its total ore imports. However, general market trends have been unremarkable.

Matthew Gordon talks to Mark Selby, 9th July 2020


In recent weeks, China has been ramping up production and manufacturing in an effort to kickstart its flagging economy. There have been doubts by many commentators regarding the demand side of this equation: will the West be buying right now? Selby states that China went through its “big crunch” in Jan/Feb/Mar, but indicators at the time showed that demand would come back. This has now been exemplified by the May calculation of demand by a major Chinese firm. Demand is actually UP year-on-year if you can believe it. However, with the rest of the world struggling, without the direct, fixed-asset investment infrastructure of China, stimulus packages will be needed to get the economy going again. Chinese demand will continue to rise, but demand from the rest of the world is going to be down significantly.

Nickel demand has always been underpinned by its most important demand driver: stainless steel production. From 2006-2018, total nickel use was as follows: 683,000t in stainless steel, 103,000t in batteries and 105,000t for other uses. However, the projection we are now seeing, which takes into account the EV revolution, is much more exciting and transformative, with 2018-2030 demand being speculated to be 729,000t in stainless steel, a 46,000t increase; 825,000 in batteries, a massive 722,000t increase; and 119,000t for other uses, a 14,000t increase. Nickel now has a crucial second demand driver that can be a catalyst for major industry growth. The EV thematic is especially prominent because nickel is the largest metal by mass within the cathodes of EV batteries.

By 2025, 45% of global steel supply will come from Indonesia. It really has become the “Saudi Arabia of nickel.” With the rise of NPI, China has realised that it is not in the nickel business; instead, it is in the stainless steel business. This has reshaped a “big chunk” of the nickel and stainless steel industries and will continue to do so. By using technology that was already on the shelf and putting it in place at deposits that have been known since the 1970s, stainless steel production in most other regions of the world has shrunk because of the cost-effectiveness of the China-Indonesia combo. However, the battle is now set to be Indonesia vs China. Indonesia is now not producing anywhere near its capacity for stainless steel, instead choosing to ship NPI into China. This will continue to compress the margins of higher-cost, smaller-scale independent Chinese nickel producers over the next few years. Selby states that investors should be looking at projects outside of this big bloc that fall into a lower cost quartile. These could be prime opportunities.

It’s important for investors to know the difference between nickel laterite and nickel sulphide. Essentially, nickel laterite is cheap to mine but expensive to process, and nickel sulphide is expensive to mine but cheap to process. With nickel laterite, it is considerably easier to mine because the material itself is rock that has been converted to dirt over time, and all mining companies have to do is dig it up and ship it off. However, costs are much higher, including the enormous amount of electricity needed to melt the laterite to create NPI, or energy in the form of acid to break bonds, liberate the nickel/cobalt and create a US$1Bn+ HPAL plant. With nickel sulphide, deep underground mining is usually required with only a few open pit project globally. This is obviously expensive. However, sulphide ore is easily upgraded. The process is uncomplicated and inexpensive; it needs to be smelted, refined, and then the process is complete.

The reality is that most financing institutions will be unwilling to splash the cash on nickel right now in a period of such economic volatility. Selby claims that if a company can produce at a lower cost than its competition, it will always make money and attract attention in a nickel cycle. A company’s position on the cost curve appears to be the real deciding factor right now.

Outside of China and Indonesia, expertise has been siphoned away by increased foreign supply. This draining of talent is similar to what we’ve been witnessing in the uranium space for the last few years. Nickel bulls will be hoping the approaching nickel super-cycle encourages new minds and new ideas to enter a space that has become relatively stale, in stark contrast with the demand projections we have seen.

What did you make of Mark Selby this week? What questions would you like us to ask next week?

Check out another interview with Selby here.

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 Investors Excited as M&A Hots Up – #4 Mark Selby (Transcript)

Interview 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 round up on nickel!

1. Market Update – INSG data is out – Chinese demand almost fully recovered, nickel supported by COVID-19 mine closures, earthquake near Sulawesi helping support ore prices.

2. Market info – Tesla using an LFP battery in one of their Chinese models – is this sign nickel going to be substituted out like cobalt?

3. Industry news – don’t look now – 2 best low-grade nickel deposits quietly acquired in Australia during past month – BHP bought Honeymoon Well project from Norilsk – no price published – Rumour has it they were looking for $100M previously – OZ Minerals paying $76M million for Cassini Resources for remaining 30% of Nebo-Babel project

We Discuss:

  1. The Macro Picture of Nickel: COVID-19’s Impact on Supply & Demand
  2. Solutions for Market Recovery
  3. Erratic Times Call for Erratic Prices: When Will it Normalise?
  4. Clues for the Future from The Largest Markets and The Automatic Sector
  5. Tesla’s LFP Batteries vs Nickel Batteries: Complete Obliteration or Worthy Competition
  6. Battery Standardisation Processes: Who and What Will Decide the Future?
  7. Large Companies Acquiring Minuscule Projects: Implications of M&A In The Sector
  8. Funding Nickel Projects and Getting Exposure to the Market

CLICK HERE to watch the full interview.

Matthew Gordon: Hey, Mark. How are you doing?

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

Matthew Gordon: Well, thanks for joining us. In fact, you are going to be joining us a far more regularly. We have agreed to do a weekly catch up in the world of Nickel now that people seem to be turning their heads towards it.

Mark Selby: After a decade in the woods where people weren’t particularly interested in the metal, I think the EV overlay and I think a lot of people are realising that Nickel is going to be the most important metal and the cathode in the battery,  seeing much more interest. I’m glad people actually want to hear about it.

Matthew Gordon: Oh, they do. They do. And we have had a lot of inbound questions. We’re going to talk about some of those today. And if they want to continue sending those questions in, you will be here to answer them each week. I think that will be pretty exciting stuff.

Mark Selby: Yes, looking forward to it.

Matthew Gordon: Well, let’s start with the macro thing because people need to believe the Nickel macro thesis. There’s been a lot happening.  when we first started talking about this before Christmas, I think you were the first one to call the fact that there would be a dip, and we were  riding on a bit of a high at the back of August, September. And you called that right?

Mark Selby: Now hopefully, you get lucky every once in a while, but hopefully I’ll be a little more right than wrong as we go through. You guys can keep track. I always like to keep track of my predictions. You have got a little scorecard.

Matthew Gordon: We will, for sure. Back to today, obviously COVID has had a massive impact on supply chains all around the world, on all commodities, on all sectors, quite frankly. And I think there’s been a lot of guessing, second guessing as to what the brave new world will look like and, how companies and commodities will fit into that. So, there’s some news out from China, and we did talk about it a couple of weeks ago. You said that they are recovering?

Mark Selby: We talked about a month ago, and I think a month before that, I said, when you get to a bottom, these are the kinds of indicators that give you a good sense that things are moving higher. So, I’m pretty happy that since we talked, we have seen Copper prices move up more than 10%. Some of the other commodities have also moved up in that timeframe. I think you’re continuing to see those macro set of indicators to show that China is giving things a big infrastructure push, and that is translating into demand across the entire metal spectrum, bulk space and so forth. And that’s not going to slow down. I think as the other countries come out of their COVID crunches, you’re going to see similar programs come to the fore.

Matthew Gordon: But if we think about that, obviously COVID has not only affected supply chains across the world but mining specifically; we have produced less of a lot of commodities during this time. Even people who managed to keep the mines open are struggling to some degree or other, and they had some impact on the bottom line. What are these supply deficits going to do specifically in Nickel?

Mark Selby: So that’s a great point. COVID has had as much of an impact on different metal supply situations. And that’s, I think, critical to understand which metals are going to come out of this better, better than others.  Where Nickel was really impacted was, Indonesia not so much, but the Philippines, which supplies the bulk of the ore that is needed to make Chinese Nickel pig iron. Large portions of those mines had to shut down. So, you had literally, INSG put out their April numbers a little bit ago, and you had global supply strength by about 12% year over year. And a big chunk of that was in the Philippines. You had a few other remote mines shut down during that timeframe, but that huge chunk of ore not being there caused ore stockpiles in China to drop down to multi-year lows. That is what helped push Nickel up. Nickel went first versus some of the other metals back in March, April, because it was clear to the producers there; it was like, ‘Oh geez.’ The Indonesian ore ban came into place in January. Our really only source of Nickel ore is going to be the Philippines and COVID just shut that off as well. So that caused a little bit of not panic, but concern which led to people really restocking material to make sure they had it just in case the Philippines ore ban shut down for longer.

Matthew Gordon: What is the impact of something like that? Because if I look in the Uranium space, you’ve had two very big producers shut down because of COVID. They are still not back up and running. They’ve got a whole different bunch of issues around pricing, et cetera, price discovery. But in this instance, do people like the Philippines say, I tell you what, we have been shut down, but we’re going to play catch up here. Or do they say, well, actually it suits us well because it could be the beginning of driving the Nickel price back up. How do they react?

Mark Selby: Typically, the mines have some ability to crank it up a little bit, but in this case, a lot of those mines are able to  push out capacity as much as, they’re literally just digging up dirt. That’s what that laterite ore exports look like. They have pushed to capacity already. And where they sometimes are able to provide more supply is where they may have lower grade stockpiles that they don’t ship because it doesn’t meet a minimum cost. But because the Indonesian ore ban was pulled forward to January of this year, those Philippine ore stockpiles basically any Philippine ore that people could get their hands on went into China already in the second half of last year.

It where really has an impact is, there’s an X amount of production that’s not there. That’s going to reduce X amount of stockpiles, which is just going to tighten up the supply-demand balance in the material available for that particular metal. So, no, coming back out of it, the Philippines won’t be able to  turn it up another 25% or 30%. They were planning to do that already because of the Indonesian ore ban. So yes, they are not going to be able to fill it up too much.

And the big issue for this fall, so I think we’re going to trade sideways with Nickel through till September, October as here it is rain season – you can’t dig up dirt when your trucks just sink into the mud. There’s a 4-month period where Philippine ore exports drop off. And the same thing used to happen in Indonesia. And when both of them were there they were a little bit off sync. So, in terms of supply to China, across the entire year it was relatively smooth. But now that Indonesia is out of the picture, the Philippines now needs to produce everything, not just for a 12-month period, but basically to produce everything for a 12-month period and get it shipped out in 8-months. The Chinese market is going to have 4-months where there is not going to be a lot of ships coming in from anywhere with ore supply. So that’s going to create an interesting dynamic in October, November, December, January, later in the year.

Matthew Gordon: It started to get really interesting because you’ve got Indonesia out of picture. I get it. We have talked about that previously and we’ll put a link to that video in here. Philippines, struggling. Rainy season is a big impact. I hadn’t appreciated that. We have had a big supply disruption for the last 3-months or so. I’m trying to understand pricing. It has been a fairly erratic pricing. We talked about super cycles and we have talked about scrap impacting pricing, and now you’ve got all of these issues that we have just discussed. When is Nickel going to find its feet? When are things going to settle down in terms of the supply in the market? The demand is there, but when are they going to be able to get control again?

Mark Selby: Nickel has always been volatile, and I think it’s going to continue to be volatile. So, if you look back over the last 12-months, so we first talked in September last year, it was $18,000/t, they said, hey, that’s not sustainable. Scrap and Nickel pig iron production is going to take it down to $12,000/t to $13,000/t. COVID took it down to $11,000/t in February. We saw the market, because that supply from the Philippines came out, that really tightened up the market in China, so we started moving back up to say, $12,000/t relatively quickly. And we have flirted with getting up to $13,000/t in the last few weeks. But with the macro indicators in the March, April timeframe, that sucked a bunch of material into China. You had people export to finish Nickel to China. In China right now, everything is, stockpiles are starting to creep up again. Pricing has come off a little bit. And so, yes, that’s why I think from now until October the gap that opened up in March, April has now been filled up. And I think we are going to trade sideways here for 3 or 4-months. And the big question for next fall is going to be okay. Yes, Chinese NPI is reliant on this material coming from the Philippines. Indonesian NPI is ramping up. You’ve got a bunch of plants ramping up as expected, and you’ve got large amounts of Nickel pig iron coming from Indonesia to China. The key question in that October, November, December, January period is: okay, how much stronger is Chinese Nickel and stainless-steel demand growth going to be? I think it’s going to continue to be strong as China and the world tries to reflate its economy. Indonesian Nickel pig iron will be strong. They are going to continue to push out as much as they can out of Indonesia as these plants ramp up. And then it’s going to be, how much ore is the Philippines actually going to be able to deliver in time and build up stockpile. You need to build up stockpile for that 4-month period. And what’s that going to look like? It’s going to be an interesting 4-month period. It’s going to depend on the rains in the Philippines. The ramp up in Indonesia. And then where global stainless demand is going to come out. I think we’re going to be at a net positive by January, February, we’re going to be up 5% or 10% from here. But it’s going to be that dynamic between those three key variables.

Matthew Gordon: Okay. And there’s also been an earthquake.

Mark Selby: Yes, things popped up a little bit last week or two, because there was a, I think, a magnitude five, literally just off the coast of Sulawesi where there’s a bunch of plants. I don’t think there was any significant damage, but it allowed the traders to squeeze out a few more dollars per ton than they otherwise would

Matthew Gordon: China. Okay. China. It is always China. They are going to spend a lot of money trying to get the economy going. Big infrastructure projects. I haven’t seen the same moves from anywhere else in the world at the moment. You must look at the macro story in it because you’ve got all of this quantitative easing going on. There is lots of money being pumped into the economy and different countries are approaching it in different ways, but are there any clues there on the macro side that suggests the US is going to do infrastructure projects which they’re going to need Nickel for? Or across Europe, or any other big centres? Because I’m not seeing it yet. But if it does come, it would be quite an interesting spot for Nickel. And I guess the other question is, what’s your view on the automotive sector as well? During the crisis people were a bit nervous about, consumers wanting to spend a lot of money on a big unit cost like a car, having just experienced one of the worst periods of their lives, probably.

Mark Selby: No, I think where it’s going to be more manifest, globally, there will be some infrastructure spend, in the West it’s consumer spending, that’s the big driver and then consumer goods that consume a lot of metals. And, I saw your interview with Andy Home, I always enjoy his commentary, and I would really want to echo his comments there; I think that the theme that you’ve heard from politicians in the West is that we need to reshape our economies, because let’s take advantage of this catastrophe, in terms of the COVID crisis, as an opportunity to reshape our economies in the way that we want to. Politicians have realised, okay, we now have license to spend a lot of money.

I think you’ve already seen it in Germany and France. You’ve seen, I think Australia, New Zealand are looking at incentives. I think, one of the big winners of this is going to be electric vehicles. Let’s take this opportunity to get people, to spend money by buying cars, because they are big ticket items. And the incentive is going to be to buy electric vehicles. China has made steps down this path. France and Germany have as well. And I think you’re going to see programs all around the world that will incentivise people to go more towards electric vehicles, which is just going to pull that curve forward than it otherwise would have been. Nickel, Cobalt, Lithium: all the battery materials are going to be the big winners in that environment.

Matthew Gordon: Well I hope so. I hope we do take the opportunity to reshape our future and redesign it. And, obviously, I think batteries; people were unsure for a period there, but I think you’re right. That’s the feedback we are hearing. And Andy Home was a great proponent of that. He is the Reuters Senior Metals Correspondent. We spoke to him last week, but others too. I’m trying to find unbiased voices saying the same thing, it is important, but then there’s some clues in the marketplace.

Mark Selby: I think, just watch the programs as they are, we are going to be tracking that, encourage investors to see, if, heaven forbid that the United States actually does something like that in more states, either at the federal level, it won’t be the federal level under Trump, but maybe the next government, or at a state level. Because the key thing here is one of the challenges about selling the electric vehicles future is that it’s going to be cleaner, and people go, okay, well, how clean can the air be? But because of COVID and traffic disappearing in so many places all around the world, people are like, ‘Oh my God, that’s what blue sky actually really looks like. It’s like this is how clean the air could be.’ I think there’s a real generation of people who are very focused on it. And I think they have actually seen this very credible, a real sign of this is what it could look like every day. I think that is going to help drive the politicians to do something to get there.

Matthew Gordon: That’s assuming there is Nickel in batteries. Because if I listen to Tesla, LFP batteries are the future.

Mark Selby: Yes. Oh no, that was… it’s all over. Nickel is done before it even got started. No, I think the key piece here is, the battery component of an electric vehicle and that whole delivery of electricity into the motors, that’s going to be the key differentiator for electric vehicles. Like the engine is for a car. We don’t have one engine for every single car globally. And it’s going to be the same thing for electric vehicles. You’re going to have a small, low-end option, the 1.2 litre or the 1.6 litre, and then there’s going to be the 2-litre turbo equivalent. And in this case, it’s going to be around range and energy density.

So, you’ll have a low-end, a medium, and a high-end. Nickel is what gives the batteries the range. In China it was a specific situation. They needed to hit a specific price point. In a low end, if you need something that’s going to go a few hundred kilometres, if you have 2 cars or if you live in a very dense city, that’s all you need. My view was always, and I think I’ve said it in one of my videos earlier, that I’ve always seen that this is the way the market is going. To have a very cheap battery chemistry that will be short range, but it is perfect in North America for a second car and perfect in Asia and highly dense cities for that scale. You are going to have your mid-range ‘Camry’, Honda Accord, Civic, whatever the equivalents are in Europe of your average car. And that’ll be a good Nickel chemistry battery. And then there will be the high end that gets you 200 extra kilometres and gives you this much faster discharge so your car can go even go 300km kilometres, zero to 300km in 4 seconds, as opposed to 5 seconds,  and that’ll come at a premium.  But Nickel is going to be a big part of that battery.

So what I was surprised at is just before COVID got going and  got lost in the COVID noise, was that GM, who is very middle of the road, I was shocked that they basically said, look, we have got one major battery technology and we’re going to use that as the base battery for our platform. And it’s 90% Nickel. The same amount of Nickel that Tesla is using in the rest of its batteries, GM is planning to use that as their base battery across the bulk of their fleet. I think it underscores, A – the damage that the massive price spike in Cobalt did to its market. People accelerated that switch to 80% or 90% Nickel batteries. I think that the fact that they know that that’s the key to customer acceptance is you don’t have to worry about running out of the battery at some point during your day, you’re going to have more than enough range to get wherever you need to get to go.

Matthew Gordon: It is fascinating times. Obviously, it is very early days. That said, it is a nascent industry in that sense, where we’re going to have to work out are there going to be some standardisations of batteries, not just in one auto manufacturer, but across several? Will there be specialist battery manufacturers, or will the automotive companies want to retain that control in-house? Because it will become very, well, critically important to their brand.

Mark Selby: I think if you look at  what Tesla has done, over the last 10-years the battery has been a key focus for them because they realise, okay, they have grand plans and they’re going to get very big, but they’re competing against Toyota, GM, Volkswagen, who have tens of millions of car units. The scale of those businesses is always going to give them some advantage. They realise the one component in the electric vehicle, which is unique to the electric vehicle is that battery component. They need to get as far ahead of everyone else on the scale curve and on the product development curve to try and keep two steps ahead of the giant elephant that could come in and squash them.

So that’s why they are getting right out of the gate. He was talking about a Gigafactory and you think, oh, they sell a thousand cars. Why is he building a plant to supply batteries for 50,000 cars? It is because he realises that he needs to always stay ahead of everyone else on the scale curve. Like everything else, if you look at all the key components of the automotive, you will end up with a handful of winners who will become the main battery component suppliers. And for the big, big companies, they don’t make much of their cars anyway, they just assemble them, right? And they rely on their partners to build the various components. I think you’ll have a few electric vehicles specialists who will maintain control over as much of the supply chain as possible. And then for all the other car companies, it’s yes, there will be 4 or 5 key battery supplier winners who will provide most of the batteries for all of the cars sold.

Matthew Gordon: I want to know more about this because there are so many derivatives and spinoffs and there’s going to be end of life battery recycling requirements, all the people who maintain your cars and your fleets, if you’ve got a corporate fleet. You’re going to have battery experts rather than engineers. For us, it’s a really big change to society in the way we behave, because it’s hopefully cleaner, cleaner fuel, but there’s also going to be a lot of new industries spinning up as a result. It is absolutely fascinating.

We should talk about what’s happening out there in the world of mining because this is all very interesting to have batteries in the future and so forth, but us investors want to make some money and we want to see what is happening. We have talked about your projects, your business model about getting to market quickly. You have got a very accelerated timeframe, and we’ll talk about that another time as well, but you have identified a model that is going to work for you during the cycle. But I want to talk about some of the M&A activity that is happening in the market. I think BHP and Oz Minerals have been busy, but it seemingly doesn’t look that exciting, but it probably is. This low-grade Nickel – is that interesting?

Mark Selby: It’s fascinating. So for context; BHP spent most of the 2010s trying to sell their Nickel business. In fact, in the early 2010s, the rumour on the street was that they were negotiating with the buyer for the payment that BHP would have to pay them to take the asset and assume the large environmental liability that was in place. That was how much BHP didn’t like Nickel back a decade ago. Fast forward and you now have the CEO talking about it, and to their credit, they are putting their money where their mouth is. Three years ago, their Mount Keith was the template for the large, low-grade mining operation. It opened in 1995 and has been running during that time period, but it’s coming to the end of its life. And they spent money about three years ago to open up a second deposit nearby. And they’re going to maintain production out of that operation. And it’s a fraction of the sexy, high-grade core that you see in a lot of places. And what was fascinating in the past two weeks, I did not expect it this quickly in the cycle, but BHP Billiton bought another large, there are two good large, two of the better low-grade Nickel sulphide assets in Australia. And both of them are now gone. BHP just bought a project called Honeymoon Wells from Norilsk. They didn’t disclose the price tag. I know, 10-years ago, a rumour on the street was they were looking for around $100M, in that dollar range. I don’t know if we’ll be able to see from anybody’s financial statements, whether it shows up in a note somewhere. But the second one, which was a clear market, one was Oz Minerals has a joint venture with a company called Cassini Resources for the Nebo-Babel deposit. This was discovered in 2000 by WMC and has been advanced. And it’s in a more remote location, which if you’re going to build a low-grade operation it is tough because you need a lot of infrastructure and capacity to process that material. But yes, they paid AUD$75M roughly for 30% of the project that Cassini own. So that put a $250M price tag on that asset. And I valued it at 0.3x, 0.4x NAV of the Pre-Feasibility Study (PFS) that they had done on the project. We’re just getting started in the Nickel space, and Oz Minerals has made several smart deals over that time period. It is nice to see smart money starting to pick up Nickel assets this early in in the story. I think it bodes well in terms of what might be coming down the pipe.

Matthew Gordon: It does. It does bode well. But I’m interested in the types of deals that the big companies are looking at what are these big companies looking for?  BHP – they need scale, right? That’s fine. But there is going to be more and more M&A activity. Because there are companies out there with Nickel projects that haven’t got the funding, are incapable of getting the funding because they don’t have the management team to give confidence to institutions or family officers to get them over the line. There are stranded assets out there. Do you see more M&A coming up from Nickel, if not this year, next?

Mark Selby: For sure. I guess a couple of things: one is in terms of large, low, lower-grade deposits. Looking at the Copper space, BHP and Rio Tinto, I’m sure would love to buy a 2% or 3% Copper project that can produce hundreds of thousands of tons of copper a year for 30-years. But I think we found the last one of those deposits in 1910. So, where they are now is that their portfolio, the majors, the mid tiers, their portfolio of Copper is 0.4% to 0.5% Copper. Some new discoveries are a little bit higher than that. But that’s what they buy because they need something that’s going to generate multi-hundreds of millions, or billions of dollars in revenue for 20 or 30-years.

The best Nickel discoveries of the last decade, the high-grade Nova Bollinger was the one that got acquired in the mid-2010s. And that was the best discovery of that decade. But that started with a 300,000t Nickel resource that produces about 25,000 tons of Nickel per year. That was a perfect deal for Independence Group, given the size they were, that materially moves the needle for them, but that barely scratches the needle for a Rio Tinto or BHP. I think they want assets that are of a scale and have a life span that do it. And in the Nickel space, it’s either large Nickel laterite deposits, which have their own challenges, or are typically found in some higher-risk jurisdictions. But in the low-risk jurisdictions, it’s basically the only deposit that fit that bill are these larger scale, low-grade deposits.

I’m not surprised to see these start to go already. But I think that’s the thing investors need to get their head around is that, oh, okay, why didn’t BHP go buy some of these new high-grade discoveries that look, from an investor perspective? Oh, that core is very shiny. That’s exciting.  Why didn’t Oz Minerals buy one of those projects?  It’s like, no, they need something that moves the needle, and you need to find a large enough resource to be able to move the needle for these companies.

Matthew Gordon: But there is going to be, I don’t know if there’s going to be, but do you think there’s room for consolidation in this space? If people can get the money. Because once the price gets back up, the bankers start listening and they start sniffing around and they are asking how they, they’re trying to work out how they deploy capital. We used to do it. We used to chase deals. Okay. And when we were chasing these deals, the most fun we had was consolidation, because you could put something together, sum of the parts, et cetera, and you could walk away and everyone has made a lot of money, so it’s great. But then you have got to make those things work, which is the operation team’s problem, not the bankers. So, are you seeing talk like that in the market or has everyone just got their head down at the moment, focused on their own projects?

Mark Selby: No, the tough part for Nickel is relatively consolidated already. Most of the supply growth has happened in Indonesia, which is a no-go place for most Western mining companies. The issue that they’re more struggling with is, okay, how do I get a toehold? How do I get a foothold in this business? From a portfolio perspective, the majors for the last 10-years have really been about the bulks, right? Thermal coal, iron ore, thermal coal, well, thermal coal for the majors is now on its way out. And the challenge in China going forward is, you’re going to have the new course of the scraps steel are now ramping up in China in a big way, as scrap becomes a bigger part of that market.

Iron ore and met coal is going to be a little more of a challenging market going forward. They need to find some more ways to keep moving the needle for their hundred billion-dollar businesses. And battery metals is attractive because it’s going to be a very high growth metal for a period of time. But the challenge is that Nickel and Lithium are the only 2 that are big enough as a space that matters. And there’s just not that many big assets outside of Indonesia for companies to get to.

I know a number of corporate development people at some of the larger mid-tiers, and they started looking at Nickel a year and a half ago, and they’re trying to think through, okay, we want exposure to this and how do we do it? Do we buy, let’s say, Vale has been focused on iron or do they still want their Nickel business? Are they going to sell pieces of that Nickel business off? The mid-tiers are thinking, do I, should I buy parts of an existing producer who might be a seller at this point in time? And there’s just not, unlike in Copper where you’ve got First Quantum and Freeport, so you have got the big, the BHP, Rio Tinto, Glencore at the top of the food chain, then you have these large specialists, to an extent. And you’ve got First Quantum and Freeport McMoran, right. And then beneath that, you’ve got large, larger-ish, of various sizes, but in the Copper space in Canada, we have Capstone and Taseko and Hudbay minerals, and a number of other players. There’s a whole tier with a bunch of different assets in the Nickel space.  You have Norilsk, Tingswan Valet’s Nickel business, Glencore’s Nickel business. And that’s a big chunk of what’s not in Indonesia, in the Philippines. So, Nickel assets, when they are required, because there are so few new discoveries, they always tend to trade out at a premium because there’s just very little new product on the shelf, decade-in, decade-out.

Matthew Gordon: That is interesting. It is fascinating to me. It is certainly becoming fascinating to us at the moment. Because you are at an interesting point in the cycle, you have been affected by a lot of different moving parts at the moment. Well, look, Mark, I think we better wrap it up there for our weekly, we are in danger of getting into next week’s topic. So next week, we’re going to look at a few charts. We’re going to look at a few graphs and try and help people understand a little bit more about the world of Nickel. So, I appreciate your time today. Thank you.

Mark Selby: No, thank you. And we’ll see you next week.

Check out another interview with Selby here.

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.

Mark Selby – Chinese Market Behaviour Could Provide Valuable Hints For Nickel Speculators

Canada Nickel Company logo
Canada Nickel Co Inc
  • TSX-V: CNC
  • Shares Outstanding: 57M
  • Share price C$0.88 (29.05.2020)
  • Market Cap: C$51M

Crux Investor recently conducted an interview with Mark Selby, Nickel Market Commentator and CEO of Canada Nickel Company (TSX-V: CNC). He is a regular on Crux Investor and his nickel market commentary is always a breath of fresh air.

Nickel is a complex commodity, but a lot of the answers are coming from Chinese market behaviour over the course of the last few weeks. Things are changing, and Selby explains all of the moving pieces that mean nickel could be in sooner than we might have thought.

We Discuss:

  1. China’s Number Announcement: Situation of the Metals Markets
  2. Catch Up vs Stay at Normal Levels: Chinese Government Decisions
  3. Looking for Clues in Copper, Base and Bulk Metals: Where are These Markets Going?
  4. Nickel Might See Some Blue Sky: Investors are Coming Back?
  5. Canada Nickel: Listing in the US?

Why not watch another interview with Selby here?

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 Company logo

Mark Selby – Is Nickel On The Comeback Trail? (Transcript)

Canada Nickel Co Inc
  • TSX-V: CNC
  • Shares Outstanding: 68M
  • Share price C$1.15 (29.05.2020)
  • Market Cap: C$81M

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

Following on from our recent interview to discuss his blossoming nickel exploration and development company, Selby is back to discuss the state of the nickel market.

First up, what is Selby’s take on the global metals markets? Has the market bottomed out? He thinks in China the market has reached the bottom, based on various metrics. The latest data in China for copper, the largest metal by market volume, has seen the premium of the price in China at 18-month+ highs. Selby likes to use copper concentrate terms as a reference point for the wider market, because at these “inflexion points;” the Chinese decide that the copper price is low and try to obtain as much as possible in any form: cathodes, concentrates, scrap etc. They just want copper on the way at today’s price. Copper concentrate terms are currently at “multi-year lows.” Time to get excited? Is this a sign to make metals investors feel bullish? There are significant Year-On-Year (YoY)increases in imports for a “bunch of materials.”

What strategy will the Chinese government adopt? Play catch up with production or carry on as usual? Selby states that, based on several metrics, the Chinese government is trying to drive metal production via infrastructure and construction spending. 6-weeks ago, cables producers that feed this supply chain have been up over 100% of capacity. Anecdotally, he says that excavator sales are up 60% Year-On-Year. There is clearly a “big shove” happening to get the Chinese economy going again.

This is great for copper, but what about metals with different supply dynamics. He states that while speculation on a several hundred thousand tonnes of copper might be possible, it won’t happen for bulk metals. Iron ore imports have been “rocketing” into China, and iron ore prices are at “very, very, very solid levels.” The fact we are witnessing this sort of market behaviour in copper, bulk metals and in other economic indicators, this helps confirm that we are back on the way up. For nickel, Selby claims stainless prices are up year over year. Stainless steel inventories have come down a little bit, but they still have quite some way to go. In terms of a specific positive indicator for nickel, we are observing the price discount between nickel pig iron produced in China and nickel has closed a lot. On the supply side, all of the mines in the Philippines have been shut down, which has massively hampered nickel supply. We are seeing ore imports on the ground hitting multi-year lows in China.

Investors are now coming into the nickel space as evidenced by Canada Nickel’s rising share price. Selby is hoping to capitalise on this with a U.S. listing for Canada Nickel: this is something that is definitely on the cards in the not-so-distant future.

We Discuss:

  1. China’s Number Announcement: Situation of the Metals Markets
  2. Catch Up vs Stay at Normal Levels: Chinese Government Decisions
  3. Looking for Clues in Copper, Base and Bulk Metals: Where are These Markets Going?
  4. Nickel Might See Some Blue Sky: Investors are Coming Back?
  5. Canada Nickel: Listing in the US?

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Mark. How are you doing?

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

Matthew Gordon: A long time – it has been days. I don’t see you for months and then you show up.

Mark Selby: Bang, bang. There you go.

Matthew Gordon: Fantastic. Good. I’m glad that I’m talking to you because I wanted to catch up on something that we talked about a few weeks ago, which was trying to identify bottoms; bottoms of the market and how you went about doing that. And I know we started a conversation, we said we’d kind of pick up again because the market has been through a few waves, which we talked about, I think way back when, in December about the scrap market being influential about Nickel, but then we’ve obviously had a few market movements as well. So, what’s your take on this with regards to the metals market at the moment? Have we reached the bottom?

Mark Selby: Yes, I think in China, I think we have, based on the various metrics. If you go back to the discussion we had earlier, I talked about a bunch of market premium type information that’s there, taking a look at changes in pricing for very metal and various forms and how that’s stacking up. And then 3, in terms of,  what’s happening in the scrap market, that’s there. So, yeah, no, the latest sort of data over China over the last month or so, Copper is always the biggest metal so obviously that is a good indicator. And so you see, the arbitrage –  the premium of the price in China versus outside of China, so there’s an incentive to import material into China; is that 18-months plus highs?

The one that I always like to see is Copper concentrate terms because what happens at, again, at these inflection points, both top and bottom, we’re talking about a bottom here, the Chinese just decide that Copper is cheap at this price and I think the price is going to go higher, so I just want to grab Copper in whatever form it’s in: cathode, concentrate, scrap, whatever. I just want Copper units on my way, priced at today’s price, and if they get delivered in a month, two months, four months, I hopefully am going to sell that at a great big profit. And so, Copper concentrate terms again are at multi-year lows. So that is a real sign that sort of the buy is on right now.

Another; the Chinese import data for the month of April came in and you see stuff, again, given how brutal things were in February, March, you’re going to see month over month increases. But we’re actually seeing significant year over year increases in imports in a bunch of materials as well.

Matthew Gordon: But that’s them playing catch up, right? All that’s telling us is that they’re playing catch up because not much was happening for a while. So, what do you think the government is instructing Chinese companies to do now? Play catch up or just run along the normal levels here? I mean, because we have been talking to Uranium companies and we have looked at some of the big producers there, they’re saying they’re not going to play catch up, they’re just going to continue at the rates they were pre-COVID, et cetera. So, have you any insight as to what is happening in China?

Mark Selby: Yes, I mean, again, in China, every recession, 2001, 2003, 2008, and slow-down in the middle part of the last year, one of the big levers is just in terms of infrastructure and construction spending; they are sort of the 2 key metrics. There is no one state grid. I mean, the state grid company of China uses a significant portion of the world Copper supply. It’s a pretty crazy percent, I can’t remember exactly what it is, but it’s much larger than most countries in the world, I think, except for China – just with 1 company. But 6-weeks ago producers in China who produce the cables and so forth, that sort of feed that supply chain for state grid, were up over a 100% of capacity at that time.

There are some other metrics that commodity analysts look at, and again, I would encourage people to go and read as many different commodity analysts, because they each, a lot of people have their ‘favourite indicator’. So, one that I’ve seen a couple of times and much like, is excavators, right? You’re not going to speculate on excavators. It is used very broadly. And excavator sales are up 60% year over year in April. So that’s a pretty good sign that there’s a big shove happening to get the economy going from the government in China.

Matthew Gordon: Okay. So, that is great for China, like I said, that’s great for Copper, but are there other metals which will give us clues as to what’s going on, like say bulks for instance. I mean, what’s happening there?

Mark Selby: That’s a very good point. Again, you have to be careful not to just look at one metal because the supply dynamics of that specific metal might be influencing what’s going on. But one of the things I always like to check to see what’s going on is, is if you see a few base metals moving and then you see the bulks moving, because again, it’s easy to speculate on a few thousand tons of Copper and shove it in the warehouse somewhere, but you’re not going to speculate on a 200,000t iron ore shipment and think about storing that for three or four months. So, iron ore imports have been rocketing into China. And so, iron ore prices, again, are at very, very, very solid levels. So, the fact that you’re seeing this in Copper, seeing this in the bulks and then you’re seeing these other economic indicators, you were talking about excavator sales and so forth, I think that really helps confirm that we’re on our way up here.

Matthew Gordon: And what do you think that means for Nickel?

Mark Selby:  I think that the nice thing is, in terms of Nickel, we’re seeing the same sort of things happen. So, stainless prices are up 10% year over year, even though stockpiles again, we talked earlier about Nickel, about how prices were way too high and had to correct. And we’re going to be along the bottom here is a stainless inventories have built up quite a bit in China as we fell down that price. Inventories have come down a bit. They still have a way to go. We’ll see, maybe by the end of the May, we’re a long way back to where we were because stainless prices are already up 10% off the bottom. So that’s a pretty good sign. Again, they’re seeing their order books come in. If they’re already lifting prices with a bunch of inventory on the stainless steel side, still sitting around.

In terms of Nickel metal specifically, what we’re seeing is the discount in China between the Nickel pig iron produced there and Nickel has closed quite a bit. The R that I talked about in Copper is not quite open yet, but it looks like it’s heading in that direction. And then very importantly on the supply side, one of the things, because I had talked before, initially back in September, that we’re going to have a July, August turn and then post-COVID I said, okay, it’s off to year-end. But it might actually be coming back in towards maybe September, October now.

Another thing is that Indonesia banned ore exports in January 2020, that was going to cause stockpiles to shrink. Well, COVID has basically shut down all of the mines in the Philippines, which are sort of the replacement source for some of what Indonesia was shipping. So, we’re seeing ore imports on the ground in China, again, approach multi-year lows. So, that’s really setting up for that supply squeeze within China. Now, Indonesia’s growth there is up by 50% or more in terms of Nickel, pig iron, coming out of China so that’s offsetting some of the gap. But it looks like things will be tightening up, definitely in the second half. So, I am quite keen to see that coming down the pipeline for Nickel.

Matthew Gordon: Yes. That’s fantastic. I mean, that’s very good news for Nickel, but what do you think it means for investors? You had said, okay, this may be a few months out here, but now with what’s happening in the market are you seeing Nickel investors coming back in? I know you at Canada Nickel, your share price has tripled and it’s all good news for you, but what about some of the other bigger players, are they seeing a renewed interest in the market?

Mark Selby: I don’t know in terms of how the equities have yet to respond to that. Again, prices of commodities have come up off the bottom. But the thing I would encourage investors is, is again, when you have these turns, they don’t happen gradually and you kind of think, Oh, I’ll maybe pick some up next week or in two weeks, or I’ll gradually get back in. You always have a short covering that happens at the bottom and you end up with these, all of a sudden you wake up and copper prices are up 15% or 20% or 25%, and the liquid copper equities have started to move pretty dramatically. And again, in any market turn, it’s going to be the most liquid names that go first and then it starts trickling down. So, in terms of your junior Explorer at this point in time, you still have to sort of trickle down that pipeline. But it’s when you start to see these signs, start to get ready and then watch if you can start to see that cascade happening down towards whatever type of companies you invest in.

Matthew Gordon: Perfect. Can I just ask you very quickly, I know we spoke at the beginning of the week about Canada Nickel, but we’ve had such a good response to that, and some of the questions that came back was, is there going to be a US listing?

Mark Selby: Yes, we’re definitely, that’s the next listing that we want to get done. So, we will work to get a full OTC QX listing, because I know that makes it easy for US brokers to trade the stock for their clients and so forth. So yes, that’s definitely coming down the pipe. And we’ll get back to you and let you know as soon as it’s ready to go.

Matthew Gordon: Okay. Well, watch this space, and look, Mike, thanks very much for coming on and answering some these questions. It helps us to get back to, the viewers and followers of the show, who are always quite engaged when it comes to Nickel so, I appreciate your time and hopefully I’ll see you soon.

Mark Selby: Yes. Most definitely, Matt. Take care.

Check out another interview with Selby here.

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) – The 11th Largest Nickel Sulphide Resource Globally In Just 6-Months

Canada Nickel
  • TSX-V: CNC
  • Shares Outstanding: 67M
  • Share price C$1.33 (22.05.2020)
  • Market Cap: C$87M

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

Nickel could offer battery metals/EV investors a massive upside. Mark Selby has a history of success in the nickel space that extends back to his time at Inco and RNC.

In just 6 months, for just US$4M, Canada Nickel has uncovered the 11th largest nickel sulphide resource in the world, and it has a PGM upside.

Canada Nickel has its skates on and has some big plans for this year and beyond. Is Crawford an exciting take-out target for nickel majors?

We Discuss:

  1. Company Overview
  2. Putting Together Nickel Projects: Timeline and Strategy
  3. Recent Raise: Shareholder Support and Investor Interest in Nickel
  4. What Makes Canada Nickel Different to Other Nickel Companies?
  5. Drilling for Value: A Run Through the News Release
  6. Impact of COVID-19 on Canada Nickel and The Nickel Market
  7. Timeline for Deliverables

CLICK HERE to watch the full interview.

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) – The night is young, And we’re just getting started (Transcript)

Canada Nickel
  • TSX-V: CNC
  • Shares Outstanding: 67M
  • Share price C$1.33 (22.05.2020)
  • Market Cap: C$87M

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

The newest nickel story on the block, with a trebled share price since we last spoke with them around the time of their IPO. Highly impressive. EV/battery metals investors, take note.

Mark Selby is a renowned mind in the nickel space; his experience at Inco and the helm of RNC has given him plenty of experience with large nickel projects: in particular, the Dumont Nickel-Cobalt project. Can he develop the Crawford Nickel-VMS Project in a faster, more capital-efficient fashion? The aim is to complete a PEA/scoping study (C$4M) by the end of 2020, with an FS (C$20-30M) following a year later. This is an accelerated monetisation event for nickel investors.

Canada Nickel just announced some encouraging drill results with an exciting PGM upside: 2.6g/t. Canada Nickel has managed to create the 11th largest nickel sulphide resource globally in just 6-months for just C$4M, and it is little surprise the market has cottoned on to this value proposition. Selby believes we are on the verge of the start of a new nickel supercycle at the start of this new decade, and he believes having one of the world’s few large nickel projects outside of Indonesia will stand Canada Nickel in good stead. The CAPEX is a whopping US$1B+, but he claims the sheer scale of Crawford will be enough to attract a major to take it out, despite it not having the “sexy high grades.”

In order to hit the upcycle, Selby wants to move fast. Canada Nickel has its skates on and it doesn’t appear anything is going to stand in its way. Canada Nickel recently completed a private placement of c. C$4.5M. The original aim was to raise C$2.5M, and now with the share price tripled, Selby feels this has shown the confidence of investors in the EV narrative, even if COVID-19 has distracted. It’s incredibly impressive that Canada Nickel’s share price is up 5X on its February IPO in a COVID-19 market scenario.

What sets Canada Nickel apart from the swathe of other nickel juniors?

A.) This is a new nickel sulfide discovery: something of a rarity right now.

B.) The potential scale of Crawford: big enough to attract a major, and Selby claims Canada Nickel has only just scratched the surface.

C.) The team’s experience demonstrated at Dumont has given investors confidence, taking something from resource to fully-permitted project.

Selby reveals that from the first two step-out holes from its latest drilling operations have more than doubled the strike length already registered. Exciting. Perhaps most importantly, the first assays from the first drill hole were the highest grade nickel intersection in the main nickel dunite area: 55m at 0.42% nickel, with 0.2g/t palladium+platinum. What will capture the excitement of investors is the prospect of filling the mill with as much high-grade ore as possible, and Selby is clear reticent of this.

The third highlight is that Canada Nickel has hit a PGM zone 100m outside of its main nickel resource, and the company has managed to hit it consistently, across several hundred metres down to 500m depth. It has been hit in 2 different spots a whopping 1.2km apart from each other. It is clear that Crawford is shaping up to be a really exciting nickel/PGM project.

What has the impact of COVID-19 been like for Canada Nickel, and what will it continue to be? In Ontario, mining was deemed an essential service, so there has been minimal disruption for the company. The assays have slowed down a little, but other than that, Canada Nickel has mitigated the impacts well and has kept employees safe.

Selby will put out another resource update in July, then another in October, in addition to a whole series of drilling/mineralogy results. these will be the key derisking events. We have no doubt Selby will continue to hit his deliverables. This could be exciting news for nickel investors.

We Discuss:

  1. Company Overview
  2. Putting Together Nickel Projects: Timeline and Strategy
  3. Recent Raise: Shareholder Support and Investor Interest in Nickel
  4. What Makes Canada Nickel Different to Other Nickel Companies?
  5. Drilling for Value: A Run Through the News Release
  6. Impact of COVID-19 on Canada Nickel and The Nickel Market
  7. Timeline for Deliverables

CLICK HERE to watch the full interview.

Hey Mark, how you doing, Sir?

Mark Selby Great. Matthew, how are you?

Matthew Gordon: Not bad. Been a while, been a while, and a few things have happened since we last spoke – good and bad.

Mark Selby: That’s right, we keep moving the ball. And there’s this virus thing that’s appeared.

Matthew Gordon: I heard, I read about that, I read about that. But look, your press release is out. There are a few things on there, which I want to talk to you about. I want to see how things are going because I was intrigued by Nickel generally in this market, and people trying to hit this cycle. There’s a real kind of interest in it. But you guys have done a financing since we last spoke as well, so I want to talk about that. But first, can we just kick off with that one-minute overview for people new to the story and we’ll pick it up from there?

Mark Selby Sure. So, what we have is a very rare thing: it’s a brand-new Nickel sulphide discovery. It’s within 6-months of drilling. We created the 11th largest Nickel sulphide resource globally. We are, because of my experience at RNC Minerals advancing Dumont and I was Head of Strategy at Inco before that, we’re able to move Nickel projects very quickly through so, and there is a scoping study by year end, a Feasibility Study by the end of 2021 because what we fundamentally believe is that Nickel goes through these super cycles which are relatively unique to Nickel, every 15 to 20-years, and we think that with the EV overlay on top of an already strong demand from stainless steel and other traditional Nickel demand sources, that we’re heading for one of these in the middle part of this decade. So, we have got one of the few large-scale Nickel projects outside of Indonesia ready for that market. We think that is going to create a lot of value for shareholders.

Matthew Gordon: It would be great if you can do that. But they are quite expensive to put together, aren’t they? Traditionally?

Mark Selby Oh yes. I mean, Nickel projects at the end are, to build these projects need a billion-dollar capital. And, again, when you look at most people in terms of how much money they need to spend on drilling, the nice thing about these larger-scale, lower-grade operations is, they don’t have the sexy high-grade attached to it. But the reality is, your chances of actually finding a resource of the scale that’s going to attract a major. You can drill these off relatively productively when you know what you’re doing. And so, we raised, we did the first 11th largest from scratch for USD$4M and this PEA is going to cost us about USD$4M to get done. We’ll continue to expand the Resource, the higher-grade part of this resource. That’s really what we’re focused on here – adding value, not necessarily tons. And so, yes, we’ll be able to deliver our Feasibility Study, we hope, for somewhere between USD$20M and USD$30M max.

Matthew Gordon: And what is the timing for all of this? You talked about doing a PEA by, by when? And when’s the Feasibility going to get done? Because if you’re going to hit the cycle, you’re going to need to get your skates on, right?

Mark Selby: Yes, yes. And we have, yes. I appreciate the Canadian analogy there. So yes, no, we’re skating, or skating as hard as we can. So, we’ll have that PEA done by the end of the year, hopefully a little earlier than the end of the year. And then we have got a whole team of people that we have worked with before, we’re getting them into place. And the whole goal with that team is, the scoping study is going to be to pull up before the end of the year. The goal is really having that Feasibility Study done by the end of December 2021. Because the reality is in terms of, you want to be one of the first projects out of the gate to attract the large-scale investors. And then two, in terms of take-outs, valuation wise, if you look at what Nickel sulphide discoveries, large ones, have gone out for it in the past, you get one or two per decade, they tend to get taken out between scoping study and Feasibility Study. So, we want to surface that value as quickly as possible for our shareholders.

Matthew Gordon: Okay. And then you raised this money recently. What type of people came in, because I know everyone’s sniffing around – EV revolution, battery revolution, whatever you want to call it. Nickel is at the forefront of a lot of people’s minds, but there’s a lot of stories out there too. Did you find it easy or difficult to raise capital?

Mark Selby Well, we chose probably one of the sort of second worst months in the history of capital markets to go to raise money, back at the beginning of April. I mean, Gold has been able to raise money, and it has been good to see the money that is being raised in Gold, but outside of Gold there’s been almost nothing raised in the base metal sector. So, I think it is a sign of confidence, A, in the Nickel story generally. And then B, in our project specifically, that we went out for USD$2.5M and we ended up with USD$4.5M, and our share prices has basically tripled since we announced that story.

I mean, we started trading at the end of February, just as COVID was breaking, but our share price is up 5x during that timeframe.

Matthew Gordon: Which is insane. So obviously people are liking what they’re hearing. So, what precisely do you think that’s resonating with them? Because again, we have spoken to companies telling Nickel stories, they’re not getting that kind of reaction.

Mark Selby I think that A, that it’s a new Nickel sulphide discovery; a lot of Nickel projects that are in the market have been around before and then recycled. This is truly a new discovery. B, I think it’s the potential scale of this asset, again, in this market, what has traded well and what gets valued well are those projects that have the scale that can attract a major. And I think our initial resource, which was the 11th largest right out of the gate, and we just scratched the surface of what we have, I think has really got people there. And I think C, I think there’s, we did it with Dumont in terms of getting from resource right through to fully permitted project. I think there’s confidence with the investors behind us that we’ll be able to do the same thing with Crawford, but because we have done it before, we’re going to be able to do it in a much, much quicker, much more capital-efficient fashion.

Matthew Gordon: Okay. Interesting. Let’s get into the news release here, because you have done a bit of drilling. You got some numbers that look good to me, but why don’t you tell us about it?

Mark Selby Yes, I mean there are three key takeaways from those drilling results: first off in terms of the Nickel resource, we drilled off one portion, which was less than 20% of the structure that we have there to deliver that 11th largest resource. These are the first new step out holes. And so, from the first two step out holes we basically confirmed that this is more than double the strike length of what we have got already. So, in terms of resource upsize, that should give you some sense of what the scale of this resource could go. Secondly, and probably the most important point is, the first assays that we did back when the first drill hole was the highest-grade Nickel intersection that we have drilled to date in that main Nickel Sulphide area. So, it was 55m at 0.42% Nickel, and with 0.2g p/t Palladium plus Platinum. And that’s about six times what our average PGM grade is for the resource.

And again, what we’re drilling for is, we’re drilling for value, not for tons. So, what’s going to make the PEA exciting and what’s going to make people get excited about this project is being able to fill that mill with as much higher grade, higher grade ore for the first years of the project. So that is where we’re really zeroing in on.

And then the third, the third takeaway is, we hit this PGM zone setting, about 100m outside our main Nickel resource, and hit it consistently. You could cross several hundred meters down to 500m depth. And we have hit it in two other places. So again, this offset mineralisation that is going to double the strike length, it has been hit in two separate places in the same spot, 1.2km apart from each other. And yes, and then the other place that we targeted to drilling was 1.5km away from our last drill hole on the main intersection. And, we hit 2.7g p/t. So, most of what we hit before was 1.5g/t. This 2.7g/t, and there was actually 3 separate intervals that total nearly 30m of 1.5g/t material. There’s very few PGM hits outside of South Africa. And again, most of what’s in the market today has been around for a while, this is a new PGM discovery on top of what is already a large Nickel discovery. So, I think that’s the thing, people are pretty keen on Palladium and there’s very few new Palladium stories. So, I think, what’s, I know we’re not going to change the name yet, but in Canada, Nickel, the Palladium part is going to be a pretty important part of by-product credit in the economics for the PEA and the Scoping Study.

Matthew Gordon: That’s fascinating. I mean, they are meaningful grades there on the PGM. But can I just come back to, and I’m sure as you drill out more, you’ll tell us more about that, can we talk about what you mean by drilling for value? And people don’t understand this, because I’m not sure I completely understand it either. The old model is drill for resource and you’re building out the size of the ore body and that’s the old way of doing things. You’re trying to do things in an accelerated way. So, you’re trying to bring the good stuff to the fore quicker. Is that, is that what you’re doing? Is that what you mean by that?

Mark Selby  Yes, that’s exactly it. I would say Australian mining companies tend to do it. They tend to build enough resource to get their mine built then they get going. Canadian resource companies have tended to just build up larger and larger resources and that at some point they’ll put some economics around them. But it’s all about making the resource as large as possible. We already, with the first set of drilling, we’re the 11th largest already. The key piece that’s really going to move, and we have enough resource for a 50-year mine life, the key piece is really finding more higher-grade, higher-value material to be able to mine in the first few years of that mine project life. So, the geophysics that we have got sort of points as to where those higher, best areas may be. And so that’s where we have been focusing our drilling, as opposed to just stepping out on a standard basis and trying to add, just maximizing tons for the sake of maximizing tons.

Matthew Gordon: Okay. So, things are going well; share price, I appreciate, it’s great. Well done. The numbers are starting to look good. You are going to try and deliver this PEA by the end of the year. I’m assuming therefore, COVID-19 has not drastically impacted your ability to move things forward. It seems to be what I’m hearing?

Mark Selby: Yes. Northern Ontario, in Ontario, mining was deemed an essential business. So, whereas a number of other businesses and their supporting businesses shut down. In Ontario, we were allowed to continue operating and we were able to, the work that we’re doing, we can still do it in a way that keeps our employees safe, so we have been able to continue drilling. Our assays have slowed down a little bit, that’s where you’ll see there’s nine holes of assays pending. But, by and large, all the suppliers and support industries have been, they’ve been able to keep working safely and we have been able to continue to move things along, which has been great.

Matthew Gordon: Okay. And what’s your view with regards to how all of this, again I’m talking about COVID-19, is going to impact the battery market? Is there going to be a slow down before it gets back up to what it was aiming to be before? Is there going to be an impact? Because we have had a couple of CEOs come on here and go, ‘Oh, it has absolutely devastated the supply chain. It’s going to impact the way people think about these things. What’s your take on it?

Mark Selby: Yes, so I think it’s really more, well, let me talk about the battery market in general and then more metal specific. I think we are going to go through several months of economic slowdown. But I think you’re going to see governments want to stimulate the economy. So, the Chinese have always done it through infrastructure projects. And if you look at the stats that are coming over the last six weeks, they are, you’ve got copper mills running at more than a hundred percent of capacity right now. Iron ore prices; huge amounts of iron are now going into China. And the Nickel market itself, you’ve seen a lot of the physical numbers improve pretty dramatically. So, I think that’s going there.

 I think in the West where consumer spending is the biggest driver, governments are going to have to provide incentives or mail checks to people to help get consumer spending to the point where the economy is going to be growing again. And again, cars are a big ticket item; that is something where you’re going to see government incentives show up. And again, there’s a lot of discussion on non-politicians around sort of using this opportunity to retool or redesign the economy. So, I think a lot of those incentives are going to be geared towards, okay, we’re going to give you money to buy a car, help you buy a car, but it’s going to be only if you buy a clean car. So, for those people who are kind of on the fence about buying one, okay, what if I get a thousand bucks from the government to do it, then I’m going to do it.

So, I’m not as doom and gloom in terms of, I think it is going to be pretty challenging for the next year or two economically. But I think the way out of this is to stimulate the economy. And so, I think those incentives will come. In terms of the individual metals, the metal I feel sorry for the most, I think is Cobalt through this process because  it’s got three whammies: if you look at Cobalt sources of demand, one is alloys for the oil and gas industry, which has just kind of took it in the teeth. The other part is for super alloys in the aerospace sector. And so, again, airplane travel is something that’s going to take a while to fully, fully come back. And then you’ve got the EV market, which has become the third source, which is going to be, again, a few bumps here going forward. So, I think Cobalt has got it the toughest.

Lithium. Again, you’ve just got so much supply sloshing around that as we go through this low point, I don’t think, I might be wrong, but I don’t know how much Lithium production has been impacted by COVID. Where we benefit from Nickel is that one of the major mining sources is mines in the Philippines and those are going to have to ramp up to help make up for the ore that’s not coming from Indonesia anymore. But those mines have been shut for quite a period of time and it’s just been extended again. So, we’re seeing ore stockpiles coming down in China pretty dramatically. I think that’s important for investors, to think about the COVID impact, not just on demand, but on the supply of the metal. And Nickel has come out of this in pretty good shape relative to the other metals.

Matthew Gordon: That’s fascinating. That’s funny. I always love listening to you to see your take and because you understand that, that with the ghost of the micro. So I appreciate that. Well it must be exciting times for you guys. I guess you’ve just got a whole bunch of deliverables to be able to get that PA done. You feeling confident about the end of the year? That’s, that’s definitely going to happen.

Mark Selby: Yeah, I mean, between now and then we’ll have, we’ll have

Another resource update on ode in July, right. Have another resource update in October. So, before we finalize the, the scoping study we’ll have a whole series of drilling and mineralogy results again for these deposits. The key issue is, okay, how much of the Nickel can you actually recover? And again, what we’re seeing so far is very encouraging. But, we’ll have those numbers come out. And again, those are going to be the key risking events in terms of, how do we have done well getting from $0.25 to $1.25 and how do we take this, to USD$5 a share or higher from here. It’s going to be some of that news that comes out, over the summer. And then, the other big thrust of this too is, it’s easy carrying around high-grade core that looks very sexy.

You know, I did that in a prior life with target, rocks with chunks of gold in it. And, that definitely gets investor attention. But I think, in terms of delivering, building a project that the majors are going to be interested in, know large lower grade projects. I, part of the reason I’m so keen to get the economics done is to really demonstrate to people, it’s like, yes, it’s low grade, but you’re going to build an operation that’s even,, equally low cost and you can deliver very good margins., I’ll point people to believe in ATEC mine in Finland, it’s started in Scandinavia, it’s a 0.22% copper where the tiny bit of Silver and Gold is a by-product credit and it is in the first core tile cash costs for copper,, so it has a fraction of the grade, but because it’s in the right location, lots of infrastructure, it has a productive workforce and it’s built to the scale to the,, it’s the right scale for that kind of grade., they can make money all day long. And so, that’s what we want to demonstrate with, with Crawford, know that we’re going to be able to build that kind of scale operation and generate those kinds of cash flows for many, many, many decades to come.

Matthew Gordon: Okay. Well, I appreciate your time today. I’m just, delighted for you, got the ball rolling and got the money in as well. But, you clearly know what you want to do and how you want to do it, which is fantastic. Now you’ve got to go and do it. So, yeah. Over to you. Stay in touch.

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.

FPX Nickel Corp (TSX-V: FPX) – One Of The Largest Nickel Mines In Canada?

The FPX Nickel Corp. company logo.
FPX Nickel Corp
  • TSX-V: FPX
  • Shares Outstanding: 163M
  • Share price C$0.15 (14.04.2020)
  • Market Cap: C$25M

Crux Investor recently interviewed Martin Turenne. He is the President & CEO of nickel explorer, FPX Nickel Corp. (TSX-V:FPX).

For investors with foresight and patience, the EV revolution is something that is hard to ignore. Nickel will be at the heart of any such revolution, and Turenne hopes to capitalise on this and make shareholders money.

FPX Nickel’s exclusive focus is on developing the large-scale Decar Nickel District in central British Columbia. The district hosts the Baptiste deposit, which is currently at a PEA stage. FPX Nickel claims it has the potential to become ‘one of the largest nickel mines in Canada.’ This is exciting news, especially coming from a junior.

We’ve got plenty of detailed nickel-related articles on our platform, in addition to numerous nickel interviews. Nickel investors should check them out!

We discuss:

  1. Company Overview
  2. The Team at FPX Nickel
  3. Positioning in the Market
  4. The Project
  5. Cash Position
  6. Updating the PEA
  7. Investors and Their Concerns

Company Website: https://fpxnickel.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.

The FPX Nickel Corp. company logo.