Giga Metals (GIGA) - Nickel Booming. Time to Take Advantage?

Giga Metals is focused on Nickel and Cobalt. Their Turnagain Project is among the largest undeveloped Nickel-Cobalt sulphide deposits in the world in terms of total contained Nickel. 

We caught up with Mark Jarvis, CEO of Giga Metals who we last spoke to in October ‘19.

Company Overview

Giga Metals is focused on their core project, the Turnagain Project in North Central British Columbia, which is a large open-pittable low grade Sulphide Nickel and Cobalt resource. They are currently undertaking metallurgy and engineering studies and aim to develop the resource to production. They have recently updated their PEA which confirms that it is a very large deposit, but that has only marginal economics at current Nickel prices. They need an all time high $10 nickel price to be considered economic. But in the current market that happening in the near future should not be discounted. The PEA model does however show 33,000tpa of Nickel in an 18% concentrate, 1% Cobalt, for a mine life of 37 years. A multi-cycle scale project is attractive to potential suitors once the economics firm up. The deposit is 'open' and Giga Metals has drilled 20%-25% of the available targets.  

The CapEx in the current model is about $1.4Bn for the first phase with the plan to double production after 5 or 6 years so the total CapEx is just under USD$2Bn. These sorts of numbers are not unusual or unexpected.

Realistic PEA: Timing & Market Reaction

The PEA from Giga Metals was honest about a USD$9-USD$10 project and although the Nickel price did well in 2020, and on into 2021, it's not yet at the levels required to make this project economic. But what is clear is that at some point in the future nickel the supply gap will ensure that prices will get to where this project needs it to be. Giga Metals last put out a PEA in December 2011 which Jarvis felt needed updating for credibility, and to be able to talk to strategic partners now. That required recent metallurgy and engineering figures, which allows Giga Metals to continue to de-risk the project and advance the engineering and ultimately to produce a Feasibility Study. 

The Nickel end users are starting to get worried about their long-term supply of Nickel. With the Chinese dominating the battery and EV markets, they are starting to realise that the only way to get a long-term supply of Nickel at a given price is to own a mine and then the long-term cost is the cost of production.   

HPAL vs Low-Grade Bulk: ESG Component & Cost Mitigation

HPAL projects don’t have the best track record particularly in Indonesia, Philippines and China of being the greenest or cleanest way to access Nickel. It is typically much cleaner to go for Nickel as a sulphide rather than from HPAL. 

No Brainer. HPAL Projects on Notice.

As an aside, Tsingshan put another nail in the coffin for HPAL projects by putting out a notice on Wechat about delivering 100,000tpa of Matte starting in October 2021 to 2 battery producers. Tsingshan will blend limonite into saprolite feed to make Matte (better Co:Ni ratio). So if Tsingshan simply take an existing plant, add a converter, mix in a little sulphur and make Matte to take Nickel from NPI, they can sell to battery market making for flexible supply for very little incremental capital outlay. So why spend $Billions on a HPal laterite project just to build a plant when you can spend significantly less on your sulphide operation?

Back to Giga Metals...

Another aspect is carbon intensity and Giga Metals is looking for ways to reduce their CO₂ emissions per tonne of Nickel produced. Their silicate tailings will also absorb CO₂ from the atmosphere and they’ve been funding research at the University of British Columbia to help measure this. Their goal is to be carbon neutral and they will be managing their tailings responsibly says Jarvis. Canada has very strict environmental regulations, and with institutional funds demanding higher standards of mining practice, all the ESG components come into play.

The Pre-Feasibility Study (PFS) is about reducing risk for Giga Metals. They have already made a significant cost saving on the power line to the BC Hydro which will cost USD$170M less. Other possible cost savings could be made by sharing the costs to upgrade the road and other infrastructure with other local mines.

New Team Members & Analysis of Giga's Geology & Metallurgy

Giga Metals has a few new team members in the shape of President, Martin Vydra, and Lyle Trytten, a talented engineer from Sherritt. 

The Giga Metals project could be suitable for developing in stages, which would mean that compared to HPAL projects of a similar size they don’t have as much capital at risk up front. The Giga Metals deposit is 180 million years old which is young compared to the other large low-grade sulphide open-pit Nickel deposits which have other alteration materials to deal with.  The Turnagain deposit has much easier metallurgy due to its age, with potentially higher recoveries than many of their peers and a process flowsheet which is simple and predictable. The concentrate they have modelled is 18% Nickel and is a clean concentrate.   

Aug/Sep 2020: Chairman & President Selling into Tesla Story

The Giga Metals share price spent most of last year below USD$0.40 and is now up around USD$0.74, but they had a peak in August/September due to a Reuters article incorrectly announcing that Giga was in discussions with Tesla. Giga Metals eventually put out a press release saying that there were "no material announcements forthcoming" because they were "in discussions with everybody, and still are".  Speculators ran with the Tesla story and the stock was soon trading at USD$2.40, and, on some days, 18-20 million shares being traded, mainly from the retail market at that time. There were unfounded rumours that Tesla was going to announce a takeover for Giga Metals on Battery Day. 

The Chairman, Antony Milewski, and President, Vydra, took the opportunity to cash in on this story that they knew was completely made up. They profited in excess of $6M by selling to ill informed retail investors buying into rumour and hype. Although tempted, Jarvis elected not to sell anything, which is admirable and telling. As CEO of a public company, Jarvis intends to sell when the company sells. A clash of ethics in the Board, it would appear, and one that leaves a bitter taste.

Market Moving On: Type of Investors Listening to Giga's Story

Jarvis defends the Chairman, Milewski, as having been incredibly influential for the company and without him Giga Metals would not be where it is today. That said Milewski's actions in August/September was not helpful for Giga Metals, or his own brand. The share price is, however, twice what it was before the Reuters article was written. The share register has changed. Many long suffering shareholders have taken the opportunity to get out with a profit. Now many of the new shareholders have become long-term holders, assuming they want to recoup their losses, held captive until prices return to where they bought in at in August 2020. 

Some of the stock that was bought at those higher levels has been sold, but there is now an audience that is much more aware of what the company is all about and much more realistic about what they bought into than before. Jarvis hopes that Giga Metals can move beyond the Reuters controversy and can look to the long-term Nickel price and battery market thematic evolving. The behaviour of the Chairman and President was not the companies finest hour, but Jarvis is a good man and the project has merit in a higher nickel price environment. 

Exploring Brazil: New Project, Money Allocation, & Plan

Giga Metals has a regional grassroots exploration project in Brazil where they have Minerva Intelligence analysing data and looking for sedimentary Copper deposits. They are not devoting much money to it as Turnagain remains their main focus.  If they find these red bed Copper deposits, they could be very high grade and very large. So, Giga Metals has now accumulated a very large land position and is planning to do further grassroots exploration to try and narrow the search. They have the exploration permits and will gradually advance the project until the point where someone else might come in and spend the drilling money. 

It hasn’t been a good year to travel to Brazil with the floods and then Covid, but Giga Metals plans to be doing more mapping and sampling and might help the villagers build water wells in certain areas which is inexpensive drilling as they are there looking for shallow deposits. 

It was good to hear the Giga Metals version of the story that everyone has been talking about, and whether it satisfies you, or not, it seems the reality is that the market has for now moved on. We will stay in touch with Jarvis and see how they get on this year. It is an interesting time for Nickel investors, so let's see where this story goes.

To find out more, go to the Giga Metals' Website.