Canada Nickel Corp: Poised for Growth in the Electric Vehicle Market

Summary

Canada Nickel Corp (TSX-V: CNC) is a Toronto-based nickel mining and exploration company with significant holdings in the Timmins region of Ontario. With the surging demand for nickel driven by the electric vehicle revolution, Canada Nickel is well-positioned to capitalize on this rapidly growing market.

Canada Nickel's flagship asset is the Crawford Nickel-Cobalt Project located just north of Timmins. Discovered in 2018, Crawford is one of the largest nickel sulphide discoveries in the last decade with over 1.3 billion tonnes of resources identified so far. The project is expected to produce an average of 37,000 tonnes of nickel annually over a 27-year mine life, making it a globally significant source of nickel supply.

What makes Crawford particularly attractive is its low cobalt content. Cobalt has emerged as a major bottleneck for the EV industry as over 50% of mined cobalt comes from the Democratic Republic of Congo, where child labor allegations have caused major automakers to seek alternative sources. With a cobalt content of just 0.013%, Crawford provides a reliable and ethical source of Class 1 nickel needed for EV batteries.

Beyond Crawford, Canada Nickel has aggressively expanded its land package in the Timmins region over the past year, allowing for significant exploration upside. The company now controls one of the largest holdings of potential nickel acreage in Canada. Recent discoveries at the Reid and Deloro properties showcase the exploration potential of Canada Nickel's regional land package.

On the financial side, Canada Nickel remains well funded with over C$60 million in cash on hand as of Q1 2022.

With Crawford expected to begin production by 2027, Canada Nickel offers a long-term leverage to nickel prices without the risks associated with early-stage exploration companies. As major automakers continue to ramp up EV production, demand for Class 1 nickel is expected to outstrip supply, providing a strong tailwind for Canada Nickel.

There are some concerns that nickel supplies may tighten in the coming years, but experts don't believe we're in danger of running out of nickel anytime soon. Here are some key points on the nickel supply and demand outlook:

• Nickel supplies are still adequate to meet current demand. Global nickel production reached 2.7 million tonnes in 2021, with known nickel reserves estimated at over 90 million tonnes worldwide.
• However, demand is expected to surge in the electric vehicle market. Nickel is a key component in EV batteries. Some forecasts predict nickel demand from EVs increasing over 10-fold by 2030.
• New nickel mining projects will be needed to meet this demand growth. The lead times for new mines can be 7-10 years, meaning investments need to be made now to avoid future shortages.
• Existing mines are depleting reserves, as resources are gradually extracted. New discoveries and investments in exploration are essential to maintain supply long-term.
• Most industry analysts expect the nickel market to remain relatively balanced over the next 5 years. But a deficit could emerge in the late 2020s if not enough new supply comes online.
• Key factors to watch will be the pace of EV adoption, battery chemistries used, and timely development of new mining projects. More recycling of nickel from batteries could also help meet demand.

Risk & Opportunities for Investors

Risks

• Commodity price volatility - Nickel prices can be subject to significant swings based on global demand/supply dynamics. Lower prices could negatively impact Canada Nickel's profitability.
• Execution risk - Canada Nickel's success hinges on the successful construction and ramp-up of the large-scale Crawford project. Any delays or cost overruns pose risks.
• Financing risks - Canada Nickel will need to raise significant capital to fund the development of Crawford. Access to financing is not guaranteed.
• Reserve/resource uncertainty - The size and grade of the resource at Crawford and other deposits is based on estimates. The actual amounts can vary.
• Competition - Other nickel projects may come online faster and impact Canada Nickel's cost position. Maintaining low costs is key.
• Environmental regulations - New regulations around emissions, waste disposal etc. could negatively impact the economics of mining operations.

Opportunities

• Surging nickel demand from EV's - Rapid growth in EVs represents a major demand catalyst that could drive higher nickel prices.
• Exploration upside - Canada Nickel's regional land package has significant exploration potential for new discoveries to expand resources.
• Low-carbon nickel focus - Emphasizing sustainability could boost Canada Nickel's appeal to environmentally-conscious automakers and investors.
• Potential acquisitions - Canada Nickel can use its strong balance sheet for acquisitions to add new deposits and create synergies.
• Technology innovations - Applying new technologies could reduce Canada Nickel's operating costs and improve productivity.

5 Takeaways for Investors

1. World-class asset - Canada Nickel's flagship Crawford project is one of the largest and highest-grade nickel sulphide discoveries globally in the last decade. Has potential to be a tier-1 asset.
2. Leverage to EV demand - Nickel exposure provides leverage to surging demand from electric vehicle market. Canada Nickel well-positioned to capitalize.
3. Exploration upside - Massive land package around Timmins provides significant exploration potential to expand resources.
4. Strong financial position - With over C$60 million in cash, Canada Nickel is well funded to advance development plans without dilution risk.
5. ESG focus - Low cobalt and emphasis on ESG make Canada Nickel an attractive supplier for automakers seeking sustainable nickel.

Canada Nickel offers investors exposure to nickel, a metal poised for strong growth given the transition to electric vehicles. The large resource base, exploration potential, and robust financials provide a compelling opportunity. But risks around development timelines and costs, as well as nickel price volatility, need to be considered.

Conclusion

Overall, while nickel demand looks set to surge, experts think supplies can keep pace if the mining industry invests in expanding production. But nickel is likely to be a key metal to watch closely this decade as the clean energy transition accelerates.