Nickel's Perfect Storm: How Supply Crunch and Demand Surge Create Opportunity

• Nickel prices recently rose to nearly $22,000 per ton before settling back around $20,000, signaling a tighter market than analysts expected
• Demand is up 9% year-over-year while supply is only up 7%, with the nickel market projected to have a modest 2% surplus this year
• Political unrest in major nickel producer New Caledonia is further tightening the market
• Several junior mining companies, including Talon Metals and Paladin Energy, reported promising high-grade nickel drill results
• Sentiment among investors and mining executives is increasingly bullish on nickel and other metals like copper, with expectations of sustained higher prices and more M&A activity

The recent surge in nickel prices to nearly $22,000 per ton has spotlighted the often-overlooked metal. Nickel is a key component in stainless steel and lithium-ion batteries, making it crucial for transitioning to electric vehicles and renewable energy. With demand growth outpacing supply increases, the nickel market is poised to remain tight in the coming years, presenting an attractive opportunity for investors.

Nickel Market Fundamentals

According to Mark Selby, CEO of Canada Nickel Company, nickel prices have risen over 30% in the last few months to reach $20,000 per ton.

Selby believes this is driven by market fundamentals, stating, "The nickel market is far tighter than a bunch of the analysts have been talking about."The latest data from the United Nations' nickel study group supports this view. In March, nickel demand was up 9% year-over-year, while supply only increased 7%. For Q1 overall, the market is on track for a modest 2% surplus of 80,000 tons.

However, Selby expects demand to continue rising as the year progresses and battery producers restock cathode materials.

On the supply side, political unrest has disrupted the output of major nickel producer New Caledonia, the third largest mined nickel producer globally. French President Emmanuel Macron has attempted to intervene and calm tensions, but the situation remains unstable. Any prolonged disruption would further tighten the market.

Tale of Three High-Grade Intervals

Exciting results from Talon Metals and what they’re calling as CGO East Waterfall – analogous to something they found on West side  Intercepts 4.81 meters at 4.89% Ni, 4.10% Cu, 0,06% Co, with notably high Platinum Group Elements ("PGEs"), averaging 17.45 g/t Pd+Pt+Au (9.26% NiEq);as well had second intercept of 79.22 meters at 0.80% NiEq;For massive sulphide, we need traps for higher-grade stuff to “settle out”, it looks like it has a structure which has done that – it will be interesting to see what the scale looks likeOn the

Other hand: NiCan released more results from Wine deposit drilling. Diamond drill hole Wine 24-4 intersected 20.3m, averaging 2.88% Cu and 2.14% Ni (2.85% NiEq), 0.09% Co, and 1.19g/t PGMs. I would be cautious about this one—all drilling looks in a less than 50x50 metre area—it's starting to look like a “Garibaldi.” We need to be able to start stepping out or finding analogues rather than drilling the same spot at different angles.

Power Nickel had another good CU-PGM with some nickel intersection PN-24-055 returned 15.40 m of 0.44 g/t Au, 22.04 g/t Ag, 5.06% Cu, 13.12 g/t Pd, 3.35 g/t Pt and .015% Ni including 5.05 m of 0.61 g/t Au, 50.29 g/t Ag, 13.27% Cu, 24.62 g/t Pd, 6.73 g/t Pt, and 0.33% Ni with 3.35 m of 0.70 g/t Au, 60.36 g/t Ag, 17.26% Cu, 25.02 g/t Pd, 3.61 g/t Pt and 0.37% Ni. Great results – now they need to define the extent of this lens to see how big it will be.

While more work is needed to prove if these are economically viable deposits, the high-grade intercepts are an encouraging sign for the potential of new nickel supplies outside Indonesia, which currently dominates global production.

Convergence of Long-Term Trends Signals Opportunity in Nickel Mining

Several long-term trends in the mining industry are converging, presenting a compelling investment case for nickel miners, particularly those outside of China:

1. Western world mine supply has lagged since the 1990s as the industry relied heavily on cheap Chinese mineral supply. As a result, the West has fallen behind in the mine-building business.
2. In the previous commodity price cycle, major mining companies failed to invest sufficiently in new supply due to shareholder pressure, leading to a muted supply response despite higher prices.
3. Current copper prices are at record highs when denominated in Australian or Canadian dollars, 30-40% above previous highs, signaling the need for new supply.
4. Governments are pressuring mining companies to invest more in their nickel businesses, as exemplified by the Australian Resources Minister's comments to BHP.
5. The world is looking to reduce its dependence on the Chinese mineral supply, necessitating the development of new nickel projects in other countries.

These factors suggest a favorable environment for nickel miners as demand growth is likely to outpace supply in the coming years. Investors should consider exposure to well-positioned nickel mining companies, particularly those with projects outside of China, as they may benefit from this positive market backdrop.

Bullish Investor Sentiment

The positive fundamentals translate into bullish sentiment among investors and mining industry insiders. Selby noted that recent mining investment conferences have seen the best turnout and one-on-one meetings with generalist investors in many years. The recent news of BHP's unsolicited takeover offer for copper producer OZ Minerals has also raised expectations of increased M&A activity in the mining sector. If this deal is completed, many expect it could kick off a wave of consolidation as larger miners look to boost reserves and production while prices are elevated.

The tight nickel market and prospects for sustainably higher prices bode well for nickel mining stocks. Current producers are well-positioned to benefit from improved margins and cash flows. Junior explorers have the potential to rerate on any major discoveries or attractive acquisitions by larger miners. However, investors should be mindful that the surge in nickel prices is still relatively recent, and a sharp correction is always possible if demand weakens or unexpected supply comes online. To mitigate downside risk, focus on companies with quality assets, experienced management teams, and strong balance sheets.

The Investment Thesis for Nickel

• Nickel demand is forecast to grow strongly this decade, driven by rising EV battery production and stainless steel consumption
• Supply growth is constrained, with limited investment in new mines and disruptions impacting existing producers
• This is likely to keep the market in deficit and support higher prices, boosting producer profits
• Exposure can be gained through producers, junior miners, royalty/streaming companies, and physically-backed ETFs
• Conduct thorough due diligence on individual companies, with attention to asset quality, costs, jurisdiction risk and ESG factors

Nickel's critical role in the clean energy transition and the rising tide lifting battery metals bode well for its long-term fundamentals. The market looks undersupplied to meet growing demand, with current prices still below incentive levels for most new projects. Companies leveraged to nickel production and exploration are well-positioned if this bullish scenario plays out, although investors should remain disciplined and selective in any positions. An allocation to nickel could complement battery metals like lithium and cobalt or traditional energy transition metals like copper.