Hi Subi,
I have been in and out of BSX and CZN with small trades and small losses.
A few yrs back CLQ and AUZ also, both with material gains.
But over the last 3yrs I have concentrated all my battery metal exposure into ARL - Ardea Resources. I am currently a top 40 holder with just over 600,000 shares across two accounts - avg buy roughly 65c
As far as I can tell, it is the largest, highest grade Ni project, waiting in the wings to be developed in Australia if not globally. Vale and BHP were once 2nd and 3rd biggest investors in Heron resources, who held this ground previously. Vale walked away from the project post-GFC, and it seems BHP have switched focus to be 100% sulphide. Heron spun out Ardea thanks to Ian Buchorn, and gave the ground a chance just as the battery metal theme was coming to life in 2016/17
The ARL bear case essentially hinges on the argument that being a WA laterite, there will be cost blow outs and poor project returns / investors will be turned off completely and not even go there. I think this bear case overlooks that Ardea ground/ore is not comparable to the likes of Murrin, and that there have been many successful laterite/HPAL projects globally. While I don't dismiss the bear case, I think it greatly overstates the near term risk around next project steps - that a strategic partner won't come on board.
Ardea ground is largely goethite, and not plagued by smectite/clays that have caused problems on other laterites. While there is laterite/HPAL risk, reality is laterite is what's driving new Ni supply, and is expected to keep doing so. I feel comfortable that global finance knows this, and the project will find a strategic partner.
With 600,000t Ni in the ground at 1%, ARL ground can't be ignored for much longer IMHO.
The Bull case on ARL is simply staggering from where we are today (57c, $70m market cap, $10m in the bank).
At current metal prices there is over $120b of metal in the ground in resource estimates, Ni and Co only. I'm completely discounting manganese, scandium, rare earth elements and HPA which they also have, and are beginning to quantify. I'm also discounting any value of a gold spin out likely to occur this year.
With a market cap roughly $70m, $10m cash in the bank, tight share registry, a management that respects and rewards the shareholder $, the vast majority of $ to be spent on drilling etc in the rear view mirror, and the potential for $210m+EBITDA on just a small fraction of realising the metal potential, you can get a sense of the upside. That $210m ebitda is scaled of PFS numbers using current metal prices and exchange rates, and assumes 1Mt throughput, and less than 45% of the high grade Ni ore (only 225kt out of 600kt at 1% grade used over 25yrs).
If we go to 2.25Mt throughout, and realise ~ 495,000Ni metal out of the 600,000 high grade over 25yrs, ebitda at current metal prices is $450mAUD. Put 10x on that ebitda and before factoring dilution, the upside here is 64x - that leaves a lot of wriggle room to dilute on the finance and do 10-20 bags+.
And remember, that's a subset of the metal... with over 1,800,000t Ni at .7%, its possible that 2.25Mt is just the start and we see a ramp using multiple 2.25mt trains over time. I believe this would only occur once an initial 2.25Mt starter plant is shown to be successful.
Now of course, its HPAL so needs capex and risk contingency, but look for clues in the Heron deal with Vale. Unless I am mistake, Vale was to find 95% of the capex in return for 60% of the project. Heron was to find 5% of capex for 40%.
Ardea may not get those exact terms, but given the quality of the ground, and massive demand pull for Ni coming from EVs, it strikes me Ardea is in a very strong position (remember, cash in the bank, a lot of the hard work done, and so no rush to be rolled by a partner).
The Vale deal also strikes me as a mutually beneficial way of dealing with long term uncertainty over metal pricing - simply exchange a share of the project for finance, and away you go.
All in all, my dare to dream upside from here goes past 30x over ten years.
My "best case, but still quite realistic" upside is we do more like 10x over 5.
I believe it is possible we are a $3-$5 stock on landing a strategic partner alone, before settling back to the $2-$3 range as the project matures...
I am not saying I have seen them all, but I haven't seen a Ni play yet that matches the above.
Open to the floor for a critical view.
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