Blackstone Minerals (BSX) - Accelerated Nickel Precursor Producer

The market reacted negatively to Blackstone Minerals recent scoping study. Why? We ask Scott Williamson, MD, and does it change their approach to the project. 

Blackstone is an Asian nickel player with a primary focus on exploring its large-scale Ta Khoa Nickel Project, situated in North Vietnam. On paper, Ta Khoa is relatively advanced; the project includes an underground nickel mine that operated between 2013 and 2016, and it also features a 450ktpa processing plant. Blackstone Minerals also owns 2 Canadian projects: the Gold Bridge Cobalt-Gold Project and the Cartier Cobalt-Nickel Project, and 3 Western Australian projects: the Silver Swan South Gold-Nickel Project, the Middle Creek Gold Project and the Red Gate Porphyry Project.  

Matthew Gordon talks to Scott Williamson, November 2020

The company intends to optimise Ta Khoa to serve Asia’s growing demand for lithium-ion batteries. The company is currently progressing to the next stage of its PFS-level studies having completed a recent scoping study. 

Ta Khoa will consist of an open-pit mine at the Ban Phuc Disseminated Sulphide (DSS), upstream processing and downstream processing to produce a precursor product. It is clear the company is focussing on downstream products in an attempt to capture more value. It is important for potential investors to understand the difference between concentrate production and precursors. This is a slightly different model to other nickel players out there. 

EcoPro, Korea’s largest cathode manufacturer, is a substantial shareholder. EcoPro is going to need scale, and that is exactly what Williamson and his team are pursuing. They are on the hunt for massive sulphides and hope exploration will offer resource expansion opportunities via a phase approach. At the time, Williamson remarked that the company was aiming for a 12-month deliverable timeline for a PFS at Ta Khoa: an aggressive, accelerated strategy. The PFS is expected to be delivered by Q1/21, but in the meantime, the company has released a scoping study, which details some strong economics:

• Gross revenue: ~$3.3B ($2.95B to $3.6B);
• Net pre-tax cashflow: ~$1.2B ($1.03B to $1.37B)
• Pre-production capital cost: ~$314M including contingency
• Pre-tax cashflow: ~$179M pa ($155M to $210M)
• Pre-tax NPV(8%): ~$665M ($550M to $780M)
• IRR: ~45% (38% to 50% IRR)
• Capital payback period: ~2.5-years.

This scoping study is based around the maiden Ban Phuc DSS indicated resource: 44.3Mt grading 0.52% nickel for a total of 229,000t of nickel and an inferred resource of 14.3Mt grading 0.35% for 50,000t. This means annual production of c.12,700t of nickel for an 8.5-year project life. With nickel performing as strongly as it has in recent weeks, this project could be about to gain some momentum. Blackstone Minerals will be hoping this accelerated path to production can reward shareholders. Once the mine is in production in around 3-years' time, exploration could hold the keys to value, and EcoPro will likely demand it, especially if an expanded partnership is on the cards. 

Aside of the exploration upside, by-product credits could provide this story with additional promise. These elements include copper, gold, rhodium, platinum and palladium. The company needs work out if these can be economically extracted and what the contribution could be. There was also other regional deposits and targets, such as Ban Chang, Ta Cuong, the King Cobra Discovery Zone and as many as 25 untested massive sulphide vein targets. 

The staged approach is intended to allow for a rapid and more affordable advance towards production, with investors then becoming more interested as nickel begins to be produced and operations ramping up. Williamson did state that the numbers stated will be improved.

The total investment in Ta Khoa by previous owners exceeded $136M. It has been on care & maintenance since mid-2016 having generated $231M in revenue over 3.5-years despite falling nickel prices. What could it do in a positive price environment?

The company is on the lookout for sales and spin-out options, with a formal process underway at Gold Bridge. Williamson previously claimed there was "a lot of interest" in the company's gold portfolio, but this has yet to materialise despite a notable gold bull environment. 

As of September 30, Blackstone had $3.1M in cash and $147M credit facility. Williamson stated the company had a burn rate of $500,000/PQ in our last interview in July, so this has clearly been bumped up by substantial expenditures at Ta Khoa. 

To find out more about Blackstone Minerals, check out the company website.