No love from the market today despite a pretty good intercept.
By my thinking CNR is undervalued. A nickel inventory of 120kt is worth $5 billion in the ground. That is a lot of money. Typically exploration companies will trade at 1-3% of the in-ground value. For CNR, 1% would be $52 million versus a market cap of $28 million, so almost 50% share price upside to the low case.
I think it should trade closer to 2% of in-ground value because I think that the resource is likely to be economic and Nickel prices are not coming down any time soon. 2% of in ground value is $104 million market cap or $1.3 per share.
Then you have to consider the exploration upside. The discovery at Sabre today shows that there is still more shallow ore to be discovered and that the management team know how to find it. But on top of the shallow ore, all of the current resources will probably extend at depth so the inventory could easily double or triple from here.
Sure, the grades are not as high as Flying Fox, but high grade nickel resources like Flying fox are becoming exhausted and companies are starting to mine 1% and 2% Ni grades at hundreds of metres below the surface and making good money.
I think we are due a re-rate.
DYOR
CNR Price at posting:
36.0¢ Sentiment: Buy Disclosure: Held
