Nickel Miners Poised for Growth as EV Sales up 21% in Q1/24

• Nickel prices have risen around 20% post-Chinese New Year but remain about 10% below $20,000/ton target
• Stainless steel and EV demand expected to support nickel prices through balance of 2024
• China car sales up 21% in Q1 YoY, Europe slower at 7% due to subsidy cuts
• Horizonte Minerals unable to secure financing to complete nickel project, assets likely taken by lenders
• Canada Nickel and other companies advancing nickel projects to meet growing demand

Electric Car Sales up 21% in Q1, 2024

Nickel, a crucial metal for the stainless steel and electric vehicle (EV) industries, has seen its price rise substantially in early 2024 following the Chinese New Year holiday. Mark Selby, CEO of Canada Nickel, provides updates on the nickel market and various nickel companies. He discusses the recent performance of nickel prices, the impact of government policies on the market, and the growth of the electric vehicle (EV) sector. Selby also highlights company news, including the challenges faced by Horizonte Minerals and the progress made by Canada Nickel. Selby is confident in the market and the ability of companies to execute their plans.

The Battery Show, with Mark Selby, CEO of Canada Nickel

Nickel Price Movements

Post-Chinese New Year, nickel prices surged approximately 20% within a two-week period. Although the market initially overextended itself and retraced three-quarters of the move higher, prices have since recovered, reaching the low $18,000s per ton. While still about 10% below Selby's $20,000/ton target for the year, the recent price action is encouraging for nickel miners and investors.

Selby noted, "LME inventories were down a few thousand tons this week, so that helps underpin the view that things are not in bad shape in terms of the nickel market." He expects nickel to trade within its current range until clear signs of strong demand from the stainless steel and EV sectors emerge later in the year.

Demand Drivers

Stainless Steel

Stainless steel prices have ticked up over the past few weeks, a positive indicator of overall market health in the nickel industry. As Selby mentioned, "Those stainless price movements are the thing that we tend to look at in terms of overall market health." Although the recent gains are modest, they point to a potential recovery in demand.

Electric Vehicles

The EV industry continues to be a significant driver of nickel demand. Global EV sales grew by 21% year-over-year in the first quarter of 2023, according to an agency tracking the data. Europe saw slower growth at 7% due to the impact of reduced subsidies in Germany, which caused a pull-forward in demand followed by a temporary slowdown. However, Selby expects year-over-year growth numbers to re-accelerate as the global economy proves more resilient than anticipated.

Company News

Horizonte Minerals' Challenges

Horizonte Minerals, a nickel miner with investments from major players such as Glencore, Orion Resource Partners, and La Mancha Resource Capital, recently announced its inability to secure financing for its nickel project. The company revealed significantly higher project costs than previously estimated, leading to a substantial cost to complete the project. Despite the backing of well-capitalized investors, Horizonte could not arrange a funding package, and senior lenders are expected to enforce their security and take control of the company's assets.

Selby commented on the situation, stating, "It's unfortunate to see this happen in the nickel sector." While this development is a setback for Horizonte's shareholders, Selby noted that the assets could present a bargain opportunity for whoever acquires them, as the nickel market needs all the supply it can get.

Progress in the Timmins District

Canada Nickel and its neighbor, Aston Minerals, are making progress in the Timmins Nickel District in Ontario, Canada. Aston Minerals recently announced an updated resource estimate, successfully converting a significant portion of its inferred resources to the indicated category and increasing its overall resource by 177% in the inferred category. Selby praised Aston's experienced team, stating, "They've been able to duplicate our success ... good to see another project in the Timmins district continue to move forward."

Canada Nickel Advances Projects

Canada Nickel itself has made notable advancements in its project pipeline. The company awarded a front-end engineering design (FEED) contract to Ausenco, a long-term partner with a strong track record in large-scale mining projects. This engineering work is a crucial step following the completion of the feasibility study, as Canada Nickel aims to make a construction decision by mid-year.

Additionally, Canada Nickel's NetZero Metals subsidiary signed agreements with SMS Group and Metso, both leaders in the mining and metallurgical industries. Selby emphasized the significance of these partnerships, noting, "SMS works with companies that are 100 times the size of us, so I think people should read through that ... this is a vote of confidence in terms of what we're heading down the path."

The Investment Thesis for Nickel:

• Nickel demand is expected to remain strong, driven by the stainless steel and EV sectors
• Nickel prices have room for further appreciation, with a $20,000/ton target being reasonable
• Companies like Canada Nickel and Aston Minerals are well-positioned to capitalize on the growing demand for nickel
• Investors should monitor the progress of nickel projects, paying attention to resource estimates, partnerships, and engineering milestones
• While setbacks like Horizonte Minerals' financing challenges can occur, they may present opportunities for other players in the industry
• Government support and funding for nickel projects aiming to establish domestic supply chains could provide additional tailwinds for the sector

Companies Mentioned

Canada Nickel

Canada Nickel is advancing its nickel projects in the Timmins Nickel District of Ontario, Canada. The company recently awarded a front-end engineering design contract to Ausenco, a key step towards making a construction decision by mid-year. Canada Nickel's Net Zero Metals subsidiary has also signed agreements with industry leaders SMS Group and Metso, demonstrating the company's commitment to developing its projects sustainably. CEO Mark Selby expressed confidence in Canada Nickel's ability to execute on multiple fronts, including permitting, engineering, and financing. The company is well-positioned to capitalize on the growing demand for nickel, driven by the stainless steel and EV sectors. With a strong team and government support for domestic nickel projects, Canada Nickel presents an attractive investment opportunity for those seeking exposure to the nickel market.

Aston Minerals

Aston Minerals, a neighbor of Canada Nickel in the Timmins Nickel District, has made significant progress in advancing its nickel project. The company recently announced an updated resource estimate, successfully converting a substantial portion of its inferred resources to the indicated category and increasing its overall inferred resource by 177%. This achievement demonstrates the expertise of Aston's team, comprised of experienced mine builders. As Aston works towards completing a scoping study, the company's ability to expand its resource base bodes well for its future prospects. With the nickel market poised for growth, driven by demand from the stainless steel and EV sectors, Aston Minerals is well-positioned to benefit from its location in the prolific Timmins Nickel District. Investors seeking exposure to an emerging nickel miner should keep a close eye on Ason Minerals' progress.

Premium Nickel Resources

Premium Nickel Resources is advancing its Selebi nickel project in Botswana, Africa. The company has been releasing a steady stream of drilling results, aiming to extend the resource at Selebi. Recent results have shown promising nickel grades over decent widths outside the current resource envelope. While Premium Nickel Resources often reports its findings on a nickel equivalent basis due to varying copper and nickel grades throughout the ore body, the consistent results suggest the potential for resource expansion. As the company continues its drilling campaign, investors should monitor the size and grade of the resource, as these factors will play a crucial role in determining the project's economic viability. With the nickel market set to benefit from growing demand in the coming years, Premium Nickel Resources' Selebi project could present an attractive opportunity for investors seeking exposure to nickel assets in Africa.

Denarius Metals

The multi-asset developer announced a PFS on the restart of the Aguablanca mine previously run by Lundin. Over its 6-year life in the PFS, a total of 4.8 million tonnes will be processed from the Aguablanca underground mine, resulting in a projected life-of-mine (LOM) net revenue of $480.3 million and LOM after-tax Project cash flow of $105.7 million. The PFS delivers a robust NPV5 of $83.1 million with an after-tax IRR of 213% and a payback period of 1.2 years. Potential to leverage the 5,000 tpd processing plant to recover a variety of metals, and the exploration potential, not only from the Aguablanca Project but also the nearby Lomero Project.

Key Takeaways & Implications

The nickel market appears poised for growth, driven by increasing demand from the stainless steel and EV sectors. Nickel prices have already seen significant gains in early 2023, with room for further appreciation towards the $20,000/ton target. As companies like Canada Nickel and Ason Minerals advance their projects in the Timmins Nickel District, and Premium Nickel Resources expands its resource base in Botswana, investors have several opportunities to gain exposure to the nickel market.However, the challenges faced by Horizonte Minerals serve as a reminder of the risks involved in developing nickel projects, particularly when it comes to securing financing. Investors must remain vigilant and assess each company's progress, partnerships, and ability to execute on its plans. Overall, the long-term outlook for nickel remains positive, with government support and funding for domestic nickel projects potentially providing additional tailwinds for the sector.