Canada Nickel (CNC) - Just Doubled Worlds 8th Largest Resource?

Canada Nickel Corp. is advancing the next generation of high-quality, high-potential nickel-cobalt projects to deliver the metals needed to power the electric vehicle revolution and feed the high-growth stainless steel market. The company possesses industry-leading nickel expertise and is focused on low-risk, well-established mining jurisdictions. 

Matt Gordon caught up with Mark Selby, Chairman, CEO, and Director, Canada Nickel. Mark previously served as the President and CEO at RNC (Royal Nickel Corporation) Minerals where he successfully raised over $100M to advance the Dumont nickel-cobalt project from an initial resource to a fully-permitted, construction-ready project. He has held a number of senior management roles with Quadra Mining, Inco, Purolator Courier, and was a partner at Mercer Management Consulting. Since 2001, Mr. Selby has been recognized as one of the leading authorities on the nickel market. He graduated from Queen’s University with a Bachelor of Commerce (Honors) and has also served on the boards of multiple junior mining companies. 

Company Overview 

Canada Nickel is advancing the new 100% owned Crawford nickel-cobalt sulphide discovery with large-scale potential located in the established Timmins mining camp adjacent to major infrastructure. The company was founded in 2019 and is headquartered in Toronto, Canada. The company is listed on the Toronto Stock Exchange (TSX-V: CNC). It was one of the best performers on TSX in 2020. 

Canada Nickel is advancing the Crawford Nickel-Sulphide discovery through to production by the middle of this decade. The company’s management recently visited South Africa in order to attend conferences and meet with investors and corporates. South Africa attracts a lot of institutions from Europe and Australia. At the conference, it focused on large Asian companies for potential project partnerships and offtake agreements. The conferences also offer opportunities for private equity mining funds. 

The company is on track for the resource update in the late-fourth quarter that will feed into the Feasibility Study that is planned for Q2 2022. 

According to Canada Nickel, the current nickel prices do not have a long-term influence. In the PEA (Preliminary Economic Assessment), the company said that it is looking to increase the resource base by 50%-100%. This would lead to a 30-40 year operation. The company is looking at the macro aspects of the project that would meet the market’s needs. It has a strong institutional shareholder base. 

Notably, the company raised capital in March 2022 at $3.10. The company is a third lower today. The company hit the market at an ideal time, preventing a much higher dilution. The shareholders are sitting on the sidelines as a result of the macro overhang. The company anticipates that the EV (Electric Vehicle) demand will continue to pull the market in the latter part of this year. At this point, there are expectations that investors will step back into the nickel space. 

The Crawford Nickel-Sulphide Deposit 

Canada Nickel recently published a press release highlighting one of the largest discoveries on the Crawford Nickel-Sulphide deposit since the 1970s. This discovery makes it one of the five nickel sulphide operations globally.

In 2021, the company put together 13 additional targets in the Timmins region. Since the deposits were disseminated, they could be easily identified with geophysics. This enables quick and simple testing by way of drilling. Due to the current weather conditions, the company hasn’t been able to drill at the best targets. 

At some of the properties, the company is looking to enter exploration agreements with the First Nations community. The company announced new targets that are multiple the size of the Crawford deposit. The second drilled hole hit mineralization at 400m. The mineralization appears to extend to 80m. The company anticipates that this could be another interesting discovery. The recent results have demonstrated a massive resource upside in terms of drilling dollars per resource identified. 

The company recently raised $20M by way of flow-through funds. It is looking to utilise these funds for additional resource development. A major portion of the capital will be allocated to stepping out from the existing targets over the course of next year. A part of the funds will also be used to better define the resources at Crawford. The company is looking to determine if these targets could end up being similar in scale to the Crawford deposit. The company has plans to deploy $20M for underground operations. 

Interestingly, Canada Nickel will be putting out a Feasibility Study 39 months after the discovery was made. This would make it the largest base metal project in Canada. By the time the market regains interest in nickel, the company would have made several new discoveries, making it an even better investment prospect. The company understands the importance of scale in its operations. Its strategy is to get the resource value for the existing MRE (Mineral Resource Estimate), before adding more ounces. It is looking to delineate the exploration potential for its properties. 

Over the last decade, a good project with a lot of exploration potential can trade up as high as 1.2-1.5 times the existing value. The company anticipates that a $50M capital can potentially provide an exit multiple that is around 1.2-1.5 times, which is a tremendous return on investment. 

ESG Considerations

Canada Nickel formally kicked off its permitted process recently. In this process, an initial project description is filed with the Federal Environmental Agency. This process also comprises the EIA (Environmental Impact Assessment). The company has already signed agreements with all three First Nations that it is currently working with. It is providing the funding and staffing to the communities in order to manage the report that will be filed with the government. 

Notably, the company has been focused on engaging the First Nations community from day one of operations. This is reflected in the comments released by the First Nations communities. As these communities work to promote the company’s project, the permitting risk is mitigated and the operations can move ahead as quickly as possible. 

Targets 2022 and Beyond 

Canada Nickel was able to cross major milestones this year. It was able to raise capital, and file the initial permitting document. It is looking to publish a resource update by the end of Q2 and a Feasibility Study by Q4, 2022. By this time, the company will have district-scale exploration results. It is also looking to sign Definitive Impact Benefits agreements with the First Nation groups by the end of the year. The company anticipates that the agreements will be signed before the Feasibility Study. 

The Canadian Mining Landscape

Canada relative to a lot of other safe jurisdictions such as Chile and Peru has made it increasingly difficult to build and earn financial returns from mining projects. However, Ontario is one of the few places that makes cars and mines nickel. As a result, both the provincial and the federal governments have critical mineral strategies along with mine-to-EV strategies. Notably, the Ontario government has provided funding to the carmakers for retooling the plants to make electric vehicles. Furthermore, the government has also provided funding to battery makers to set up battery plants in the province. 

Once Canada Nickel’s Feasibility Study is over and the provincial election is concluded, the company is looking forward to acquiring some of the funding. The government is focused on catalysing the opportunity. In order to take part in the EV market and how it unfolds, the government would need to enter in the next 5-6 years. 

The Nickel Market

The key part of Nickel Supply in 2021 was 2.6Mt, out of which, 1.6Mt came from China and Chinese-controlled parts of Indonesia. As a result, only 1Mt nickel is left for the remainder of the world. Interestingly, this amount has been shrinking YoY (Year on Year) for the last 6 years. Russia accounts for 20% of this number. As a result, the geopolitical risk in the nickel supply chain has been substantial. Given the ongoing Russia-Ukraine conflict, the risk has grown significantly. As a result, car companies are looking to desperately secure sources of nickel that do not originate from a hostile or a potentially-hostile country in the next 5-10 years. This makes Canada Nickel’s project a great prospect for car makers. 

2.5 years back, Canada Nickel had plans to target the lower-end lithium market and lower-range EVs with 3 LFP (Lithium Iron Phosphate) batteries. As per the company, the range doesn’t matter. This is because, in North America, carmakers are focused on developing EV versions of their biggest trucks and SUVs. This requires a consistent nickel supply. The company anticipates that nickel will always be in the middle of the high-end supply. In essence, there isn’t enough nickel to go around for all EV applications. 

Companies such as Tesla are now targeting the mid-market. Canada Nickel anticipates that this will lead to an emergence of a range of models that would either use an LFP battery or an Iron-Nickel battery. The companies will change the pricing to reflect the amount of nickel available, which will serve as a rationing mechanism to keep the nickel supply and demand in balance. 

The projected growth in nickel demand has caused OEMs (Original Equipment Manufacturers) and battery makers to worry about supply constraints. Notably, the mining industry hasn’t accelerated production. As per Canada Nickel, the market needs the doubling of nickel supply from 2020 to meet the demand forecasts for 2030. There are some projects in China and Indonesia that will produce between 50t-100,000t of nickel. However, this would be half of the projected market growth in 2023. A large amount of nickel is needed down the pipeline, however, there isn’t a lot of visibility on the issue. 

Financing Considerations

In the previous decade, people were not particularly keen on investing in nickel projects. In the current environment, the interest in the commodity has grown substantially and as a result, there are different pools of capital available between debt-equity and structured finance. 

Nickel projects can carry up to 60% debt, which makes a billion-dollar project into $400M-$500M equity that a company needs to raise. Car companies are extremely keen to lock in, which provides funding opportunities. The company has set forward the quantity of capital required in order to supply a certain amount of nickel. It is looking to enter a couple of contracts that would help fill a major chunk of the $500M highlighted in the Feasibility Study. 

The company had PGM (Platinum Group Metals) in the concentrate because it was assumed in the PEA that all that material would go into the stainless steel industry. Some of the PGM will be paid for by streaming it as a base metal project. This would only account for a small percentage of the company’s revenue, but it benefits from a large mine life. The PGM is expected to generate around $100M in capital in terms of upfront streaming. 

The company is prepared for the worst-case scenario. In case it is unable to raise the required capital for project development, it will consider running an auction process.

To find out more, go to the Canada Nickel website