Nickel Macro: Chinese New Year Drives 6% Price Increase. More to Come Next Week

• Nickel prices have rebounded recently, up 6% in the past two weeks to a 3-month high of $17,200 per tonne after hitting a bottom. This could indicate a turning point.
• Major nickel producers like BHP and Glencore are struggling with high-cost operations and write-downs in the current low nickel price environment of around $7/lb. This confirms the market is trading close to the cost curve.
• Governments are stepping in to provide financial support for critical nickel projects, recognizing nickel's importance for electric vehicle supply chains and localization efforts to reduce reliance on China.
• Canada Nickel announced positive exploration results from two nickel projects, including a new discovery at Mann Central which, though lower grade, has large-scale potential. They have over 20 highly promising nickel targets that could grow Timmins into the world's largest nickel district.
• Horizonte Minerals' capital costs for its Araguaia ferro-nickel project in Brazil have ballooned to over $1 billion, delayed by 18 months, confirming Mark Selby’s skepticism years ago around the originally low capex estimates compared to similar projects.

Nickel Market Showing Signs of Recovery

The nickel market appears to be recovering from its recent downturn, according to Canada Nickel CEO Mark Selby in a recent interview. After hitting a 3-month bottom, nickel prices have rebounded 6% over the past two weeks to $17,200 per tonne. Selby believes this could indicate a turning point following the recent Chinese New Year holiday period.

However, he cautions we will have to wait for further data and commentary next week to confirm if this renewed momentum will be sustained. Nonetheless, this move off the recent lows aligns with Selby’s expectation that prices would rebound after the Chinese New Year.

Latest Battery Show with Mark Selby

Industry Struggles Confirm Nickel Prices Near Cost Curve

At the same time, Selby argues recent struggles reported by major nickel producers validate the view that the market has been trading close to the industry cost curve.

For example, BHP announced a $5.7 billion write-down on its nickel assets, which lost $200 million last quarter. Meanwhile, Glencore said it would no longer fund the troubled Koniambo project in New Caledonia. Selby states: “Again when we talk about you know that there being that we're trading into the cost curve you know there are lots of very real world examples."

He believes this capitulation by major miners is indicative of a bottoming process playing out in the nickel market.

Governments Offering Critical Support

In Selby's view, recent government interventions also signal a potential inflection point for the metal. With nickel now classified as a critical mineral in Australia, he expects substantial stimulus funding to start flowing into domestic nickel projects. Governments increasingly recognize the importance of nickel for electric vehicle supply chains and ending reliance on China.

As Selby comments: "I think people will be pleasantly surprised...by the end of this year and they look back and see the kind of deals and the kind of financing support that have come from the various levels of government."

Canada Nickel Exploration Yields Promising Results

Shifting to company-specific news, Canada Nickel announced promising exploration results at two of its nickel projects.

Drilling at the Banack project delivered strong grades over attractive widths. And the company made a brand new greenfield discovery at the Mann Central target, which although lower grade has large-scale potential to complement Canada Nickel’s existing flagship Crawford deposit.

Selby believes the district could become “the world’s largest nickel sulfide district by the time we’re finished.” With over 20 highly prospective targets in its regional land package, the company offers huge optionality beyond Crawford through additional discoveries.

Araguaia Project Delay Confirms Past Concerns

Finally, Selby reflected on this week’s negative update from Horizonte Minerals regarding its Araguaia ferro-nickel project in Brazil. As he flagged years ago, the capital cost estimate has ballooned from an initial $500 million up to over $1 billion now.

Selby explained: “The gap between the $1.5 billion that Anglo had spent on similar projects and the $450 million target just seemed a little too big.” This delay and budget overrun validates his skepticism at the time of Horizonte’s low-ball cost assumptions.

While a warning sign for the nickel sector when projects stumble, Selby expects Araguaia will eventually get refinanced and resume development. But it remains an object lesson for investors on the importance of thoroughly evaluating project benchmarks and risks.

The Investment Thesis for Nickel

• Recent price bounce could indicate a bottom is forming, presenting a compelling entry point
• Major miner struggles to showcase vulnerable supply as older mines become uneconomic near the cost curve
• Huge government backing secured for critical nickel projects and downstream processing
• Canada Nickel offers best-in-class DSO nickel project with Crawford plus a huge regional exploration upside through additional discoveries
• Araguaia's issues highlight the need for diligence in assessing project assumptions and capex comparisons

Companies Discussed

Canada Nickel (TSXV:CNC)

• Flagship Crawford asset projected to be a low-cost, top-10 global nickel producer
• Additional major discoveries likely across an extensively endowed, district-scale land package
• Positioned to capitalize on zero-carbon nickel demand through a proprietary processing method

FPX Nickel (TSXV:FPX)

• World-class Baptiste deposit has the scale to be a tier-one nickel operation
• Strategic alliance with Teck provides a strong partner and potential acquirer
• Well-located to serve critical U.S. battery materials demand

Power Nickel (TSXV:PNPN)

• Drilling has delivered strong PGM grades complementing nickel and copper
• CEO brings extensive nickel experience and views it as the "best" nickel project
• Further results from resource step-out holes could substantially expand the potential

Magna Mining (TSXV: NICU)

• Targeting high-grade, polymetallic "footwall" zones adjacent to former Crean Hill nickel mine in Sudbury area
• Recent drilling returned strong grades of 0.5% nickel, 1% copper, & 9g/t platinum+palladium over 15 meters
• Underexplored nature of footwall mineralization provides major resource expansion potential through additional discoveries

Horizonte Minerals (TSX:HZM)

• Targeting high-grade, polymetallic "footwall" zones adjacent to former Crean Hill nickel mine in Sudbury area
• Recent drilling returned strong grades of 0.5% nickel, 1% copper, & 9g/t platinum+palladium over 15 meters
• Underexplored nature of footwall mineralization provides major resource expansion potential through additional discoveries

Recent developments in both nickel prices and market fundamentals appear encouraging for a potential cyclical recovery. Canada Nickel offers appealing leverage with a suite of discoveries that could establish a new nickel district. But the delays at Araguaia also act as a reminder to scrutinize projects thoroughly, even when major players are involved. The recent struggles of producers meanwhile validate trading levels near the global cost curve. Government support finally arriving bodes well for the nickel price outlook.