Canada Nickel (TSX-V: CNC) - Monster Discovery + $10M Loan

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, and Purolator Courier. He was also 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. It is listed on the Toronto Stock Exchange (TSX-V: CNC). In 2020, the company was one of the best performers on the TSX.

Canada Nickel is advancing the Crawford nickel sulphide project, one of the largest nickel sulphide resources globally. The company is currently working on a Feasibility Study for the Crawford project. The asset is located in Timmins, Ontario, a well-established mining camp. Within this decade, the company has plans to advance the project toward construction.

The company recently published results from 16 holes that have delineated a mineralized footprint comprising 90% of Crawford’s ounces. Notably, Crawford is the fifth largest sulphide resource across all resource categories. It features over 5Mt contained. Notably, Reid’s resource is almost double Crawford's. It is important to note that the Crawford asset is one of the 20+ properties that the company holds in its portfolio.

Canada Nickel has made another massive discovery for the North American and European markets that are currently short on nickel resources. The company acquired the 20+ target package based on the geophysical footprint that enables the company to target specific mineralization.

The company had some results from a few properties, including Reid where it hit 33-34 drill holes, identifying the desired mineralization. This development has further increased the company’s confidence that it can deliver the other 42 square kilometres. Each drilled hole increases the success rate of hitting targets along the 42 square kilometre area. The company is focused on the massive Timmins nickel district and its scope isn’t limited to the Crawford asset.

Material Grades

In terms of the nickel space, the Mount Keith deposit in Western Australia is considered the grandparent of all these deposits. It features a 0.5% head grade, along with a higher set of cost structures. This is one of the reasons why the project works at this grade. As Canada Nickel’s assets are based in Ontario, the project can work at even lower grades.

BHP is pursuing OZ Minerals for a several-billion-dollar bid. One of the assets is the Prominent Hill mine which has been operating for about 15 years. The second asset targeted by BHP is a nickel-copper deposit located in central Australia featuring 0.3% nickel and 0.3% copper.  Interestingly, BHP previously owned the deposit 10 years ago, sold it for a fraction of the price, and now it's once again pursuing the deposit and is willing to pay a huge markup on it.

The bulk of the world’s copper deposits being built today are between 0.3% to 0.5%. This includes the Cobre mine in Panama with First Quantum Minerals, and the Aitik mine in Scandinavia, which is one of the best operating base metal mines in the world. The mine is a 0.2% copper deposit that’s valued even lower than Canada Nickel’s asset. The Aitik mine is operating at the edge of the first quartile, thanks to a well-built infrastructure. This is a large deposit with a low strip ratio operating at the right scale with a location known for a highly productive workforce. At Timmins, Canada Nickel ticks all these boxes.

Canada Nickel conducted a PEA (Preliminary Economic Assessment) on Timmins with Ausenco, an engineering firm. The Feasibility Study is 85% complete and the company looking forward to a highly-positive outcome. Having 5-15 deposits feed into the same model will be highly compelling for a global market that seeks to source large quantities of nickel outside Indonesia.

The company raised $10M with Auramet as a loan facility. It is fully financed to the end of the Feasibility Study and beyond. It is important to note that in addition to the Feasibility Study, the company is also focusing on the engineering and permitting work. According to the company, some of the best work is done in the wintertime. Last year, the company opted for a similar loan facility from Auramet that enabled it to take advantage of the market after the LME (London Metal Exchange) froze nickel trading in early March.

Being well-financed enables the company to re-visit the market during better conditions. The company is in ongoing discussions with a group of strategic investors. As it gets closer to the Feasibility Study, the company is anticipating a positive outcome. The market conditions are currently in a less-than-ideal state, giving the company a cost-effective way to maintain a lot of optionality as it continues to aggressively advance the project. Interestingly, the company was able to go from hole 5 to a Feasibility Study within 3 years, which is much faster than the majority of the other companies currently in the market.

Financial Considerations

Generally, mining companies raise equity at 6% under healthy conditions. But most of the time, that 6% comes with warrants. In this case, companies are raising equity at a 5%-15% discount on the share price. Notably, the investment round that Canada Nickel is considering won’t have a 6% advisor fee. It won’t be carried out at a 10%-15% discount. The company does not find the 3-month interest being paid as a trade-off, especially because it has the cash flow to continue operating in the winter while keeping all its options open.

The ongoing Feasibility Study is 100% focused on the Crawford asset, while the Reid asset is focused on establishing a larger resource base. Notably, the company is in discussion with Korean companies that are looking to source between 300,000t-500,000t nickel just to meet the growth forecast in North America. Currently, there’s a 150,000t nickel supply in the market. Once the asset is fully ramped up, the Crawford project will be the 5th largest sulphide operation. The Korean companies need around 10 Crawford-sized deposits to meet the decade’s nickel demand.

Canada Nickel anticipates that its land package could have 4-12 assets that are similar in size to the Crawford deposit. Companies like BHP and Rio Tinto are looking for exactly this kind of scale. According to the company, when comparing options available for base metal assets, the funds are being put to good use. Interestingly, world-class base metal assets generally go out for 0.8-1 times the NAV (Net Asset Value) in a multi-bidder scenario. One such example is Noront Resources, which went out at $600M earlier this year. Since the project had a lot of exploration potential, the amount had a substantial premium to the NPV.

The company is carrying out very wide-spaced drilling on the targets at Reid. The step-outs are in the range of 400m. The company is essentially drawing the boundary around the shape of the mineral. The company intends to drill once the asset is fully valued and money is available at a reasonable price. However, if the bidder comes out over the top, it will consider optionality. In this case, the company will give up Crawford and create significantly more shareholder value from the remaining assets.

In terms of the orebody, the grade, and all the other variables, the company anticipates that there is potential for between 4-12 deposits similar in size to the Crawford asset. The rock coming out of the ground is very similar to Crawford. Even the process plants being used are the same. The only real variable would be the strip ratio given the geometry of the specific deposit. Overall, the Crawford asset is an average setup for the different targets. Interestingly, the Reid asset is even bigger in size and has a square shape. The company is looking to optimize the stripping ratio as much as possible. The Reid asset features a slightly higher strip ratio than Crawford’s 2:1. The economics from Crawford can be applied to other resources and can be used to model the overall value of the entire land package.

Targets 2022 and Beyond

Canada Nickel is looking to conclude the Feasibility Study on the Crawford asset by the end of 2022. Despite the covid-related challenges, Ausenco and the rest of the engineering firms have done a commendable job on the asset.

Last year, the Auramet bridge loan gave the company a lot of flexibility to approach the market at the right time. It worked with several institutional investors to raise $50M at the beginning of March at a much higher valuation. Once the market conditions improve, the company intends to get back to that evaluation or higher.

Canada Nickel is actively involved in a range of discussions with strategic investors. The company’s representatives will be travelling to Korea for discussions with several companies. These include large mining companies, car companies, and private equity firms that offer good capital finance costs.

To find out more, go to the Canada Nickel website