Nickel Market Update - Prices Stable But Optimism for Second Half Recovery

• The nickel market has been performing at a stable rate, with prices hovering around $9 a pound, despite other base metals like copper declining.
• A potential start of the stainless steel restocking cycle has been observed. Stainless steel's increasing prices across various markets signal the start of this cycle. Stainless steel continues to be two-thirds of nickel demand.
• Despite various economic challenges in China, stainless steel production has grown by 11%. This growth is due to stainless steel's increasing demand as it is replacing carbon steel.
• Tsingshan announced the commissioning of one of their 50,000-ton refineries in Indonesia, bringing 150 to 200 tons of nickel refining capacity into the market.
• There has been scrutiny on the viability of the Crawford project by a market commentator, Dr. Jim Jones. However, there are disagreements on the facts and figures he presented, especially concerning iron prices and cash balances.

Prices Rangebound But Stainless Restocking Points to Stronger Demand

Nickel prices on the London Metal Exchange (LME) have traded in a relatively narrow $20,000-$22,000 per tonne ($9-$10 per lb) range since early June. This stability comes after a highly volatile period for nickel in 2022 and early 2023. While the price action has been subdued in recent months, there are encouraging signs emerging of improved demand in the second half of 2023.

The key driver of demand recovery is restocking in the stainless steel industry following an extended period of destocking. Nickel is a critical alloying element in stainless steel production. After drawing down inventories for most of 2022, stainless producers in both China and Europe appear to be rebuilding stocks in recent weeks.

Higher stainless steel prices in both regions demonstrate this renewed appetite for inputs. Despite overall weakness in China’s economy, its stainless output was still up over 11% year-over-year in the first half of 2023. With stainless accounting for an estimated 70% of global nickel demand, restocking provides a much-needed boost to consumption.

In addition to restocking, stainless demand prospects for 2023 remain strong with global production outside China projected to rise 8% this year. As long as destocking does not resume, these demand trends point to a markedly stronger second half for nickel.

Mine Supply Growth Limited in Near Term

While demand prospects improve, growth in mined nickel supply may be limited over the next 12-18 months. Inventories of nickel ore and refined metal remain low after being drawn down during the destocking phase.

LME warehouse stockpiles of nickel remain near multi-year lows which will constrain availability. There are several large nickel projects in the pipeline, but many are still a few years away from first production. The demand recovery appears likely to precede a major supply response.

The combination of restocking, low inventories, and limited new mine supply sets up a potentially constructive outlook for nickel prices in the coming months. However, prices are unlikely to return to the levels seen during the squeeze in March 2022 when LME nickel briefly topped $100,000/tonne. The market has capacity from both exchange stocks and Chinese nickel pig iron production to respond to any significant shortages.

New Discoveries Highlight Supply Potential

While large greenfield projects will take time to develop, mining companies are making encouraging discoveries that could feed future supply. Canada Nickel and Talon Metals recently announced promising drill results from their nickel exploration projects.

At its Mann property in Ontario, Canada Nickel intersected wide intervals of nickel-bearing minerals across 2.7km of strike length. The company called it a “major new discovery” with significant potential to add to its existing resource at Crawford. The Mann geophysical footprint indicates another large target.

Talon Metals drilled high grade nickel and copper mineralization at its Tamarack project in Minnesota. The results showcase the project’s potential to deliver not just nickel units but also copper and platinum group metals.

These early drilling successes demonstrate that major new sources of supply could emerge in politically stable mining jurisdictions like Canada and the United States. However, it will take several years to advance these projects to production to fill looming supply gaps.

Market Trying to Position Itself For Coming Deficits

With demand improving but supply less responsive in the short term, many analysts predict the nickel market will shift into deficit as soon as 2024 or 2025. The market appears to be trying to position itself for this transition. The stabilization of LME prices followed by the move to restock raw materials points to participants preparing for tighter conditions.

However, the market likely remembers clearly the upheaval of early 2022. This will temper any euphoria over a potential deficit, instead promoting a more cautious rebuilding of pipeline inventories. Market tightness backed by improving demand fundamentals, rather than primarily speculative forces, offers a more sustainable price recovery scenario.

After a tumultuous period and challenging first half, the nickel market heads towards the end of 2023 with renewed optimism. While prices remain in their recent trading range for now, the stage appears set for a demand-driven recovery rally in the coming quarters. Exploration successes also showcase future supply potential from mining-friendly jurisdictions. Overall, the nickel market is regaining its footing and starting to point towards better days ahead.

Examining the Assumptions Behind Canada Nickel's Crawford Project

A recent critical report on Canada Nickel's Crawford by project drew some conclusions based on outdated assumptions from the company's 2021 preliminary economic assessment (PEA). This led to inaccuracies around the project's economics.

Dr Kim Jones' report referenced capital requirements from the 2021 PEA without accounting for the nearly $100 million Canada Nickel has raised since then to advance Crawford. This leaves the company in a healthy position to finish its feasibility study.

The report also overlooked some key aspects of Crawford's projected products and markets. The project is expected to produce a ferrochrome concentrate containing both chrome and nickel. This would make Canada Nickel North America's only chrome producer while providing low carbon stainless feed. The stainless market in the United States has significant premiums - more than $800-$1,000 price premiums versus Asia, and conversion margins of $1,000 per tonne (or ~$6/lb premium per pound of contained nickel) so good to get units into this market.

Stainless steel depends on nickel, iron and chrome. The US stainless market has significant premiums, over $800-$1000 higher than Asia. Having a North American source could capture these premiums.

Assumptions behind mining studies require close inspection. Canada Nickel had its PEA reviewed by Ausenco, a leading engineering firm involved in both studies and construction. Crawford's pricing assumptions were developed by CRU and SMR, renowned metal price and stainless consultants.

The report used declining iron ore prices when nickel feed is based on higher US scrap prices. It also assumed a much lower 2022 ferrochrome price than actual. Iron price in North America (which is how stainless feed material is priced) averaged US$407 per ton in February according to the United States Geological Survey (USGS), versus the $290 per ton used in the 2021 PEA. With detailed review, Crawford's assumptions stand up based on current market inputs.

And in addition, the current US ferrochrome price, which was the basis for chromium pricing, was assumed to be $1.04 per pound in the CNC 2021 PEA, whereas it averaged $3.08 in 2022, and was $2.55 per pound in June 2023.

Crawford's merits are further demonstrated by a 9.9% investment from global mining leader Anglo American. This shows confidence from one of the industry's major players.

While assumptions require updating, Canada Nickel's diligent methodology provides a robust foundation for Crawford's development. The project's economics remain intact under current market realities.

About Canada Nickel‍

Canada Nickel is emerging as a major player in the nickel mining sector through its 100% owned Crawford Nickel Sulphide project in Timmins, Ontario. Crawford is the largest nickel discovery since the 1970s and is located in an established mining jurisdiction with good infrastructure. Through over 20 transactions, Canada Nickel has also consolidated a vast regional land package 50 times larger than Crawford with 20 additional targets, demonstrating the potential for further substantial discoveries and resource growth. With its significant existing resource, low carbon production potential and exploration upside across its district-scale land holdings, Canada Nickel is well positioned to become a leading nickel producer.