Nickel M&A Picking Up. Pick Your Winners

Our weekly Nickel Market Insight with Mark Selby, Nickel Market Commentator and CEO of Canada Nickel Company (TSX-V: CNC).

Nickel is up another USD$0.05-$0.10/lbs this morning to around USD$6.00/lbs. We discuss what’s driving the nickel market. Copper has also moved from USD$2.80/lbs to $2.95/lbs and is approaching the critical USD$3/lbs level which means that copper 5% higher than pre-COVID. Find out what is driving the base metals.

Last week we discussed the Nickel market for EV and stainless steel. So, this week we discuss the other uses and applications.

Centaurus Metals have just announced a Brazilian sulphide project with 48.0Mt @ 1.08% Ni for 517,500t of Nickel which is exciting news.

What we discuss and when:

3:35 – Nickel Price Keeps Growing: How Long Will the Trend Continue?

5:41 – COVID-19 and Battery Metals: Not Too Bad an Outcome?

7:36 – Nickel Market Reset: When and And What it Will Look Like?

9:07 – Lesser Known Uses For Nickel

17:28 – News from Centaurus Metals: M&A Implications

21:03 – ASX vs TSX Opportunities for Investments in Nickel

26:52 – Growing Excitement in the Market: Generalists Incoming?

32:08 – Investors, Listen Out for These Trends!

Nickel price keeps growing!

The Nickel market which is hotting up somewhat. There was nothing to suggest the market was going to move higher and looked like it would trade sideways for most of the balance of this year. Momentum trading has pushed Nickel up another USD$0.05 to $0.10/lbs this morning he explains. Canada Nickel is at USD$6.05-$6.10/lb which is well above that key USD$6/lbs threshold and he claims that it’s the macro money pouring into the space.

The price of Copper has gone up USD$0.15/lbs since week and is closing in on the USD$3/lbs level and it has been trading around USD$6,500/t. This is up above where it was pre-COVID and it has been nearly 2-years since Copper has been back to a USD$3/lbs level. Copper has the added overlay that COVID is really having an impact on production in Chile and Peru. There are also some additional supply concerns mixed in with it, which is why it’s trading up above where it was pre-COVID. And, as Copper is one of the big LME metals it helps put some upward pressure on all the LME metals, which Selby thinks has benefited Nickel during the past week.

Selby doesn’t think that we are going to see it sustain until we get closer to year end. China is seeing money pouring into the sector, which is in turn flowing into commodities, as China is doing infrastructure investment to help boost their economy. He explains that the post COVID recovery is seeing governments throwing stimulus at their economy to err on the side of overshooting rather than undershooting the markets because, once they lose momentum, they will stall all over again. That is why Gold is close to all-time highs because to do that, the governments are going to be printing lots of money, which should be good for Gold.

Other uses for Nickel

Stainless steel is a big component for Nickel, but there are a few more uses for Nickel which Selby discusses. The first one which has been a very strong source of growth long-term, is a category called high-nickel alloys. In stainless steel the main Nickel stainless steel use is about 8% Nickel, and high-nickel alloys, materials which contain 15% – 70% Nickel. The alloys varying levels of Cobalt and Molybdenum and Chromium and Iron trying to achieve a set of strength properties. It is critical to have strength at very high temperatures, and be able to stand a lot of pressure, be super corrosion resistant, and in some cases, have some certain magnetic properties too. These are used in jet engines which has always been a very non-price-sensitive source of demand for Nickel and another area where those go into is in oil & gas.

Another use is alloy steel which increases the level of Nickel to 10% or 20% to make it a little stronger and that group of applications is roughly 10% of the market.

And the last use which has been shrinking over time, is the plating market. Chrome-plating is actually a series of layers of Chrome and Nickel which make it resistant to rust. Things like shopping carts or wherever you see Chrome-plating, there is a little bit of Nickel in that application and this is about 5% or 10% of the market.

Centaurus Metals

Selby remarks that are really very few new large sulphide discoveries in the market and Centaurus Metals has just published their first resource which was just under 50Mt of Nickel at just over 1% and it’s a Nickel sulphide project. Centaurus picked it up from Vale as it wasn’t quite big enough for Vale. Centaurus is drilling and have some nice intersections and stringing it together to resource but the challenge with the way a lot of Nickel sulphide deposits are structured is that you may get a small slice of it where the material is pooled and that might be a very small portion of it and it’s attached to some much lower-grade Nickel so that when it comes time to do your resource, this 3% or 4% Nickel intersection turns into a 1% Nickel grade. He says that this is not the case with Centaurus and that they have some very good drill holes and it is open pittable, so we will see how that one evolves. We still need new Nickel discoveries, and we need a lot more Nickel. The auto industry is not going to rely solely on Indonesia to deliver all the Nickel it needs.

ASX vs. TSX

What is the difference between ASX investment and TSX investment in Nickel we ask? The key difference is the bulk of the TSX Nickel stocks and back in 2005, 2007 during the last Nickel cycle, Inco Falconbridge, Lion Ore, Cameco and several other companies all got acquired, so all of a sudden, the investable universe for Nickel collapsed down to literally a handful of companies by 2008, 2009. This happened at a time when Nickel fell out of favour with most investors and the entire market cap for Nickel was pretty small.

There were some acquisitions on the ASX, but you still had a very well-developed set of companies. Western Australia has been the long-term producer in that market and there were Panoramic and Poseidon which were exploration-stage companies that had different deposits. There has always been a very investible set of companies on the ASX, which has now been joined by Nickel Mines which owns a chunk of one of Tsingshan’s plants in Indonesia.

Australian investors continued to stay invested in Nickel through that timeframe because it has been a large enough investable universe which is why he is excited to see companies like Centaurus start to emerge with what looks like an interesting deposit.

Growing excitement in the market

Selby says that excitement is coming, and this momentum trading means the generalists are starting to deploy capital. Post COVID, they are looking towards hard assets and things like metals and mining. The larger investors have been very disciplined in terms of starting to return money back to shareholders, which is why mining companies are actually in business. Selby is hopeful that as this reflation trade happens, and the rest of the markets stays relatively highly valued relative to the mining-metal sector, they will start to see some more money coming their way. There are massive amounts of money deployed in other sectors, and if even a small amount of this generalist money is reallocated to metals and mining, it will just seem like a deluge of capital coming into the sector. Investors need to listen out for trends and to listen for the commodities which people are talking about. Trends are a big part of investment.