Hi all,
I wanted to post something on the recent noise in the market around nickel and realised we don't really have a thread for it (other one being 'JRV Cobalt') so thought I'd start this. Obviously a lot of the focus at present around Jervois is the ICO and the cobalt market, however with the SMP Refinery stage-one BFS due sometime this quarter there's lot to like about the nickel space too.
I've noted a lot of nickel-related noise in the financial media lately, notably around the potential bidding war between Twiggy and IGO for the Western Areas. You may remember WSA appear in a number of Jervois' presentations as the largest battery-nickel play. In case some don't have access to the AFR here's a few recent headlines about it, and a few excerpts:
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Nickel miner Western Areas powers up defence as suitor circles
18 August 2021
The hot money chasing battery metals has found its way to Western Australian nickel miner Western Areas.Western Areas, which has been carrying on like a company in takeover defence mode for the past month, is understood to be in the crosshairs of a deep-pocketed suitor, with fingers pointing to the acquisitive IGO Ltd as the most logical candidate. Fund managers reckon IGO need north of a $1 billion bid just to get in the front door, given the Western Areas board’s belief in the company’s Odysseus growth project and the investor appetite for nickel and other battery metals. IGO told shareholders last month that demand for nickel would be up 5.2-times by 2030, thanks to increasing use of electric vehicles and lithium-ion batteries, and is trying to align its portfolio to all those metals.Acquiring Western Areas could re-stock IGO’s nickel pipeline at a time when its Nova nickel mine has only an estimated five years left of production.
BHP growth plans to shape nickel sector consolidation
19 August 2021
BHP is expected to keep a close eye on consolidation in the nickel sector sparked by what is emerging as a $1 billion-plus IGO Limited takeover tilt for fellow nickel miner Western Areas.Mike Henry-led BHP underlined its lofty ambitions in battery metals in recent days and both Western Areas and IGO are significant suppliers to the mining giant’s reborn Nickel West operations. BHP has flagged building new mines and big investments in upgrading processing capacity within the Nickel West business in Western Australia on the back of signing a deal to supply Elon Musk’s Tesla.The sector is considered ripe for consolidation amid bullish predictions about demand from electric vehicle makers. Mr Henry told analysts this week that nickel did not have to be big in terms of the overall BHP business, but BHP wanted to be a big player in nickel.
Andrew Forrest goes substantial in Western Areas
20 August 2021
It’s starting to get a bit crowded at Western Areas.Friendless a few days ago, Street Talk revealed the company had neighbouring nickel miner IGO on its tail. Well, now there’s another entering the race. It was revealed on Friday that Andrew Forrest’s Wyloo and Tattarang are sitting on a 5.28 per cent stake of Western Areas.Forrest and his vehicles started buying shares in March 2021 when the company was trading at $2.06 and continued accumulating shares, topping up his position on Thursday to get himself above the 5 per cent disclosure mark.The company and its advisors have been aware of Forrest joining their register since late March, when he snatched up a position under the 5 per cent threshold while the business was out of favour following a $100 million capital raise for its Odysseus project. While two suitors have now emerged for Western Areas, there’s scope for BHP to enter the fray and turn it into a three-way battle.Western Areas mine nickel in BHP’s backyard between two of its operations and sell their nickel into BHP’s Kalgoorlie nickel smelter.
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And just last night, this one came out too - I think this holds the most relevance to the Jervois conversation (so if you skim-read the others, focus on this one!)
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Nickel target Western Areas plays hard to get
24 August 2021
Takeover target Western Areas will retain maximum leverage to surging demand for nickel in batteries by ensuring supply from its next Australian mine is not tied up in long-term supply contracts with traditional industrial customers.Western Areas managing director Dan Lougher signalled he was talking with potential customers that had not previously been involved in nickel supply contracts such as battery and auto-makers, highlighting how the electrification of transport is rapidly changing the landscape in Australia’s mining industry.Nickel’s role in the lithium-ion batteries that power electric vehicles has revived interest in local nickel miners and put Western Areas in the crosshairs of a bidding war between rival nickel producer IGO Group and private companies linked to billionaire Andrew Forrest.
The prospect of a bidding war for Western Areas soared on Friday when Mr Forrest’s private company Wyloo Metals emerged with 5.28 per cent of Western Areas, having built that stake between March 22 and August 19.The investment builds on Mr Forrest’s interests in nickel, which includes 15 per cent of WA nickel upstart Mincor, 12 per cent of stalled nickel aspirant Poseidon and 25 per cent of the Canadian nickel explorer at the centre of a BHP takeover bid, Noront Resources.
Suitors for Western Areas are attracted to the fact it will begin producing nickel ore at its new Odysseus mine before September 30, with the mine expected to run for ten years in close proximity to BHP’s Western Australian nickel mines.Revenue generation from Odysseus will begin in earnest after the first nickel concentrate is produced around December 2022.But Mr Lougher said it was only willing to commit the first two years of production from Odysseus to sales contracts in a bid to retain optionality should nickel prices surge in line with electric vehicle adoption.“The first contract is short term and that is just to bridge us through to where we are starting to be able to get into quite serious conversations about the longer-term offtake,” he said.
The potential for nickel miners to get exposure to processing further down the value chain continues a trend in the battery minerals space, where ASX listed lithium miners like Orocobre and Pilbara Minerals have struck deals with Toyota and POSCO respectively that would give the miners future exposure to processing facilities in Japan and Korea. Mr Lougher said Korean manufacturers were particularly active in trying to secure nickel.
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There's more to it but I'll leave it there... however the highlighted parts above are what really jumped out at me. It aligns exactly with Jervois' oft-spoken strategy to avoid locking in offtakes ("like every other junior miner in Perth and Toronto are trying to do" - you know who) and instead leave them with optionality around cobalt prices into the future, as well as leveraging the management team's strong trading background.
I'm happy to admit I had some early reservations about the bond issue Jervois put together, but on reflection I suppose with the way the cobalt market is looking, it makes sense to sacrifice interest rate for no offtakes. I ended up having a fairly long conversation to someone I know at one of the major ratings agencies and he confirmed the pricing/terms were fairly typical of a higher-risk mining project. The subsequent capital raise, backed by some very big local and international names, certainly helped quell any worries I had.
Anyway, it's pleasing to see the Nickel space starting to heat up, as we head towards the final month of a quarter where we are hoping to see Stage 1 of the BFS for SMP to be released, followed by Stage 2 by end of the year. Bryce has previously said the SMP asset wasn't well understood given it had been held privately, as well as noting the likes of Greg Young had joined because of that asset/operational space - so I'm hopefully the SMP refinery BFS surprises the market in a positive way.
Perhaps we can keep track of things in the Nickel space on this thread, especially as we wait for SMP to come online.
(Nickle price at posting: US$8.57/lb)
Cheers,
mondy
(20min delay)