Selby expects there to be some colouration from the main green-focussed nickel players when it comes to technologies like carbon capture. FPX Nickel has been working with a researcher from Washington DC to carry out additional research, and Selby already has his own company working on carbon capture solution. The sustainable nickel miners are working together for the benefit of the overall health of the nickel space. Smart. Selby also touches on the importance of jurisdiction for nickel investing and some price predictions for the near future.
Selby feels that nickel could be experiencing some kind of value discrepancy right now. It might be overpriced, and investors need to conduct plenty of research before putting their capital on the line. The key triangle to investigate is Chinese nickel demand, ore supply from the Philippines and nickel pig iron production from Indonesia. If all are these are on an upwards trajectory, investors will want to put their foot down. If any are tailing off, it might be time for nickel investors to ease off the gas. But that doesn't look like it is happening anytime soon.
Matthew Gordon: Mark Selby. How are you, sir?
Mark Selby: Excellent. Another exciting week in the Nickel market
Matthew Gordon: Seems to be, so where are you today?
Mark Selby: I'm in Timmins. I'm up at our project site. It's the second time I've been up here since COVID, so it's good. We're drilling. Things have dried out enough in the area where the project is. There are some areas we weren't able to get to, so we've completed drilling underneath this really good PGM intersection that we hit, and then we're going off to drill some other Nickel targets as we're getting our resource finished here. So, yes, it's good to get up to site once a week.
Matthew Gordon: Tell us about Timmins, because that's a huge mining camp. There's a lot of companies, a lot of mines there. What do you have to contend with in terms of weather? You talked about it being wet, is it cold as well? What are the conditions you have to work in?
Mark Selby: This is pretty classic weather that you see in Timmins, the Abitibi region in Quebec. You have hot summers 20°C, 25°C summers, but then you also have cold winters -25°C, -30°C. As most of the mining happens in that kind of temperature range, there are no real issues mining underground or open, but in those conditions, as you go further North you can get up to -40 degree temperatures for extended periods of time, but we don't have to contend with that. The one issue in this area, it extends over into the Abitibi area, is this particular part is very flat and was part of the bottom of a glacial lake for several thousand years. There's a large thickness of swamp on top of it, swampy material that's been logged multiple times, but it just makes it difficult at certain times a year to pull drilling through it. Unfortunately, it was a wetter than average spring and early summer here.
Matthew Gordon: I’ve never been up there, but it is always interesting to understand the geology and the physical structures there, but maybe one for another time. We are here to talk about Nickel, weekly catch up on Nickel. The price has done it again, what's happened?
Mark Selby: Another milestone has come and gone in this rally. We're over USD$7 p/lb. We're actually getting close to almost USD$16,000 p/t. This time it was a tag-team effort. I've talked about momentum, fundamentals and technical, and generally, a lot of the moves have either been one or the other. But, today, over the past week or so, what has really propelled it forward is, there is a private industry PMI out of China called Caixin. It was very positive and again, just reinforces the fact that the reflation trade that's happening in China that's been pushing the momentum buyers into the metals is continuing to broaden out. It's not just the SOEs, you're seeing the broader business base feel more confident about the economy. That news coming out basically gave the chance for those kinds of buyers to basically bid the base metals again. You saw Copper move up, you saw a bunch of other metals move up, and Nickel moved up pretty dramatically. On top of that, there was continued strong, fundamental news out of the market; you had ore inventories. This is the time of year that ore inventories need to build-up ahead of the Philippine rainy season, ore inventory has actually dropped even though Philippine ore exports did have a pretty good year over year number. So that just reinforces how strong Nickel and stainless-steel demand is in China.
Again, we're seeing the entire supply chain for Nickel and stainless do well. Ore prices are up, NPI prices are up, they were trading at a discount to the metal. Those have now closed, and stainless-steel prices are continuing to move higher. Other news flow on that front, basically also helped push Nickel move further than some of the other base metals have. It's great. Then all the numbers are pointing in the right direction.
There is some news coming out that maybe some of the larger NPI stainless players are stockpiling some of their own NPI to tighten up the market. We'll see, again, the thing I would have investors do is focus on Nickel pig iron prices because, in terms of the three legs of the stool that are most likely to crumble, would be NPI supply out of Indonesia. And if that starts showing up more than the market can consume; it'll get reflected in those NPI prices relative to the Nickel prices. But so far everything's pointing in the right direction.
I think if that continues, we'll stay up at these levels. Again, I did not think we would be here three months ago.
Matthew Gordon: What's happening as a result of these fundamentals, this momentum? A lot of Nickel companies are seeing heights that they've not seen in a long time before, attention been given to them which they've not had for a long time. And as a consequence, they are keen to put a lot of news out, then we've seen a lot of news flow. I couldn't help but notice Legend mining and Blackstone Minerals but in particular. What do you think of what they're telling the market?
Mark Selby: The thing that's nice is, with a spike in prices and Elon Musk's larger theme, it is getting a lot more investors to look at, it and before people talk about the medium to long term, but the reality is a lot of investors need to see what's happening short term, to feel confident, to step into a story. And now with this big spike in Nickel prices back up to USD$7 is putting Nickel back on a lot of investors’ radar. Blackstone, Legend continues to get higher grade intersections at their property in Australia. Fundamentally, we need lots and lots of new projects to be able to meet the Nickel demand that's coming down the pipe here. Blackstone minerals are great. I don't think we've really talked about them before. It's a past producer in Vietnam. They picked it up a few years ago. They've been drilling and continue to get decent intersections. This was not a large mine, but a very profitable mine at the right Nickel price. They're continuing to get exploration success on these new structures. The other part, that's a fundamental shift from where this mine was before, and hats off to these guys for getting the deal done, as they did a deal with Eco Pro, who is one of the Korean EV supply chain participants who are an up and coming player in that space. And that mine was always hobbled with a 25% export duty that the government had placed on any shipments out of the mine there. And that really took a lot out of the economics. Eco Pro is looking at putting a sulphate plant in, in-country which would then allow them to avoid having to pay that 25% export duty. That's definitely an interesting story with the exploration results coming through fairly consistently, and then the potential from this new downstream plan. That’s definitely one to keep an eye on, I'm glad there are some more new Nickel sulphide targets out there.
Matthew Gordon: Question sent in by your followers which is: which companies are compelling you, or compelling to you in the Nickel space at the moment? Obviously, you've mentioned Blackstone Minerals there with their Vietnamese asset, but what are the other names?
Mark Selby: From a risk-reward perspective, at this point in time, in terms of the higher-grade Nickel sulphide projects, you see Centaurus Metals out of Brazil, they picked up a property from Vale who just couldn't get it to the scale that would meet Vale scale requirements. There's a long room from zero and tens of billions of dollars so you can have a very sizable Nickel project. These guys have been focusing on the higher grade, they've got some very good drill results. It's kind of a unique type of Nickel mineralisation. But from everything I've seen and given the location, that's there; if you can open pit mine 1% Nickel at a reasonable strip ratio and you are in a good jurisdiction, Brazil is not top of the list, but they are in a mining area in Brazil. There's no reason why you couldn't see that one advance towards production. That's in the higher-grade camp. That's definitely a great play.
The other ones, in terms of people who want to pick up on the net-zero Nickel theme, there's a handful of projects out in British Columbia that has been advanced at various stages, like Giga Metals and FBX who have large, lower-grade mineral resources that are hosted in the same kind of rock that we have at Crawford. Those stocks have had a tremendous move in the last week or two, but there's still a decent valuation gap versus where we are at Crawford. If you believe in the EV theme and they are one of a handful of advanced stage Nickel projects of any scale. It's always good to sprinkle a few seeds if you're an investor across a bunch of targets to play a particular theme. Don’t bet it all on one company.
Matthew Gordon: Absolutely. Because if you're into Nickel, absolutely, spread the risk.
Mark Selby: Another group of Nickel companies have been talking about that earlier-stage exploration companies is you've got basically a bunch of producers and production restart. Western Areas has been the go-to Nickel stock for a long time. It's been the consistent producer for the last 10, 15 years so for a lot of investors that are a go-to Nickel stock. As a producer, you have beside Nickel and Mincor. Mincor is in the process of restarting a bunch of smaller high-grade mines. They've made a new discovery down in the southern part of their holdings and they're looking to restart those operations over the coming year.
The other big story, a production restart, but they're making some pretty interesting and some very high-grade Nickel results is Beside Nickel. This mine was one of the highest-grade Nickel mines that operated ever. They've come up with some new targets and are generating some pretty sexy intersections in terms of grade and width that they've come through. If you want a mix of earlier-stage exploration and development, mid-stage development, production restart and then the producers, these Aussie names are all good. And then you've got the very large-cap Nickel mines, which is effectively a proxy stock on a Tsingshan's Indonesian operation at USD$1.5Bn dollar market cap. Those are a whole series of different ways that you can look to play the Nickel market as things evolve here.
Matthew Gordon: Another question sent in was about carbon sequestrations or carbon capture, which you talked about with your net-zero idea that you've come up with, there are a few companies that can offer the same solution. Are you guys going to work together on this? Can you share the cost of it, or is that going to be proprietary to each of you about how you go about doing it?
Mark Selby: I'm in pretty close contact with the CEOs of those other companies. The key here is, we want to provide the best set of investing assets for the investor base out there because we feel that there aren't that many great ways to play Nickel right now. As some of the stories that are here, it's good to work together wherever possible.
They've been working on certain studies on carbon capture, I know FPX just announced, they're working with a researcher out of BC to do some more at-site field studies in terms of quantifying that carbon capture rate. But again, stay tuned on that front. I would say we are definitely in conversations still, we're only a few weeks in from that announcement. I think it would make sense to pool our research. We do share our progress on those fronts with each other when we can.
Matthew Gordon: The reason I ask is that if a company is to be seen as genuine about something such as this ESG type solution, net-zero is a great initiative, fantastic initiative. I know you've been approached by lots of companies, not necessarily pure mining companies, about it. I'd certainly like to hear how you miners are working together to come up with a better greener solution, for sure. I think it's a really big deal, not least of all, because you saw the articles, we saw this week in the Financial Times, which is a financial newspaper here in the UK of reasonably good reputation. Did you see the article I'm about to refer to?
Mark Selby: Yes. I did.
Matthew Gordon: What was your reaction to that?
Mark Selby: I think it's great. We talked about net carbon, net-zero, and in our announcement, we talked about some of the other environmental issues that are tied to some of the other forms of production. It's been great to see the mainstream business press really pick up on some of the key themes. Again, something like deep-sea tailings, which just, I can't believe that things weren't being picked up on sooner and getting the attention that I think it deserves. It's great to see these kinds of publications actually writing in-depth, detailed stories and calling out some of the individual companies, something that I can't, I certainly don't want to do. But they're in a position to be able to do that. If that helps us as an industry end up making cleaner, greener Nickel, then all of us will benefit from it.
Matthew Gordon: I find it extraordinary that no one has picked up on it until now, but it has a much bigger effect than the industry regulating itself. It needs to be publicised because if something affects the share price, it seems to be the only time that people pay attention in this industry. We talked before about mining needing to clean its act up somewhat. Do you welcome these sorts of articles? Are these good for business?
Mark Selby: I think so. In the end, I think it's interesting if you look at what's happened to Cobalt. Cobalt had its artisanal issues with the Congo. That was seen as the major factor. When it had its day in the sun, where the price went up quite a bit, probably too far too fast, but in the end, people focused more on those social environmental issues, and as a result, you just saw the industry is fundamentally retooling and very much accelerating their shift to lower Cobalt batteries. If you are not getting your industry into a position that it can really participate in a healthy way with your downstream customers, then they'll eventually find a way to use something else that is more in line with their values and how they want to proceed.
As an industry, it's critical that we continue to listen to the ultimate consumers of what it is we want to produce and make sure we're producing it in a way, even that it makes them feel good about using it. Because ultimately, if people want to use more Nickel then we'll get a chance to mine more Nickel.
Matthew Gordon: Someone sent in a question; they are asking a question around Voisey’s Bay - is it true that the grades were 2%-4%? And if so, why aren't there more mines like this now, because the grades there, a lot of the companies, including your company, Canada Nickel, is about a 10th of that. You're selling at 0.3, 0.4, those sorts of levels - it's extraordinary. So where are the next big Nickel mines coming from with better grades?
Mark Selby: That is the fundamental challenge facing the industry, is that Voisey's Bay was discovered in 1992. The last million-ton plus, high-grade Nickel reserve that was discovered was 1992. The next best one that's been found was Nova Bollinger in 2012, which was 300,000 tons. It was one 10th of what Voisey's Bay was and they have to mine it underground. So here your operating costs are probably close to 5 to 10 times per ton what would be mining at Voisey’s Bay? There are companies that are getting good multi-per cent intersection. Those are one of the rarest commodities in the base metal space. If any company, you see finds a new discovery with multi-per cent Nickel in it, definitely pay attention to it.
The next challenge with those types of deposits though is to string a resource together that is a high grade enough and large enough to really make it a worthwhile to develop a mine in whatever particular region you're finding those types of deposits. The reality is, why can't the existing producers just ramp up? The reality is Norilsk, Inco, Falconbridge, Vale, Glencore and Tsingshan, most of their Nickel sulphide resources are several thousand feet down. Using the Boise's Bay analogy, the open pits now will be mined out here in the very near future and they're going underground and they're going to have to spend USD$1.5Bn to mine stuff at 1.5% Nickel, with a mining-milling cost per ton that's probably close to 10 times what they might end up at the open-pit rates.
When I talk about the challenges facing the Nickel industry, in terms of finding Nickel, particularly outside of Indonesia, they are very real, they're very concrete and there's not a, oh, we just need to do X and magically 5% additional supply will come out of Canada or Australia or Russia in the short term.
Matthew Garden: I know you said earlier, there's room for everyone here because there just isn't enough Nickel around. And you're competitive, you've got to be competitive as a CEO, but you genuinely believe that that it is best for the industry as a whole if you can mine economically because we're not going to be able to meet the shortfall that's coming.
Mark Selby: Yes, on multiple levels, fundamentally, from a supply-demand perspective, in particular in a cleaner, greener Nickel, there's just very little of that coming down the pipe and there's very little in general coming. From an investor perspective, you need to have as an industry, have a market cap that's large enough to make it interesting to the largest type of investors who would deploy large sums of capital if you ultimately want to start building mines. The best thing for this industry is to have more stories come to the forefront so that investible base in the Nickel market is large enough to attract the kind of investors that we want it to help us go right through into preproduction going forward. All the stories you're seeing in terms of Chalice and Legend and Centaurus, we all need to be trying to fire on all cylinders here to get more money into the industry as a whole.
Matthew Gordon: Jurisdictional risk: I've got another question sent in by someone which is: have any of the automotive groups come into Canada and backed any Nickel plays? I guess that comes from saying, Canada is surely one of the safest jurisdictions to do mining. But as we've talked about today, you've talked about Brazil, you’ve got Vietnam; jurisdictions which these mines are at, but no-one seems to be stepping in and saying, I need to buy Nickel at source as they're going to buy in the open market at some point. Are you aware of any groups coming into Canada and perhaps trying to sew up or capture this flow of Nickel?
Mark Selby: I know first-hand that there have been groups coming to Canada, but the challenges are twofold. 1 - a big chunk of the existing production is basically tied up with Vale and Glencore, and they don't really need any extra money from the downstream supply chain. They will bring Nickel to the market when they want to. The issue with the other development-stage projects, including ours, is, typically they like to come in when the project's been largely de-risked when you've got your final Feasibility Study done, or if you're well down the path to having a final Feasibility Study done. There aren't any other projects that are sitting at that stage right now. As people get their projects closer to that goal, you will see cheque books opening up.
Coming back to Elon Musk and Tesla, as I said earlier, the industry needs to provide some visibility to the market as to what their requirements are, and/or start writing cheques themselves if they want the Nickel to show up in time. It's either A or B if you want the Nickel.
Matthew Gordon: Mark, just to round things off, to come almost full circle here with regards to the Nickel price, it's harder than you thought it would be than anyone thought it would be at this time. I appreciate what you said about the fundamentals and momentum at the beginning, but do you feel that the price is a rather synthetic one, and what's going to happen for the rest of this year?
Mark Selby: It's tricky. The way to think about it is, we've just gone over USD$7 p/lb, two months ago we were talking about it going over USD$6 p/lb, and I thought it was overdone at that point in time. As an investor there today, should you start to put money to work in the Nickel space, or not? Is it going to go to USD$8 or go to USD$6 p/lb next? The tough part here is it comes down to that triangle that I keep talking about. I would encourage people to do as much research on that as possible. It's Chinese demand, ore supply from the Philippines, and it’s Nickel pig iron production out of Indonesia, they are the corners of that triangle.
Right now, all three for the last few weeks have been pointing up. We've seen the Nickel price continue to move higher. What to look for if in terms of how do we get to USD$8 p/lb? You would look to see 1, are we continuing to see ore stockpiles in China flatten or drop in advance of the October rainy season? If that trend continues, that's one push moving things higher. The second thing I would watch for is if there's a surge of Nickel pig iron production out of Indonesia, which again, there's a bunch of capacity coming on, through the end of the year people thought was coming already was going to flood the market and it has not done that. If that NPI production comes to market, the way you'll see it is if you see Nickel pig iron discounts start to widen out or stay flat with the current Nickel price. We're around flat with the Nickel price now and if that continues through the end of the year to be flat with the Nickel price, that'll push up towards USD$8.
The other piece is, just in looking at terms of Chinese demand, we'll continue to get monthly, year over year, Chinese 300 series stainless production. We'll get other PMI information like we're getting there, not just from China, but now the rest of the world is starting on its recovery curve. If those continue to be very strong numbers on a year over year basis then, yes, I think it will be tough to get to USD$8 right now, but those are the kinds of things that'll keep us above USD$7 and heading towards USD$8 between now and year-end.
Conversely, what would we see to see prices drop to USD$6 p/lb? We see Philippine ore inventories finally starting to build because it means that those Chinese stainless industries are not starting to shrink a little bit, the growth is starting to slow down a little bit. You will see ore supply if the Philippines can do more than people expect that will all still end up in the inventory pile. If you start to see inventories build, a small build should be there because we need it. But if it starts to really rocket up, then that's a warning sign that maybe we're going back to USD$6 p/lb.
The other thing, and I think this is the most likely risk, is additional Nickel pig iron production out of Indonesia, if that starts flooding into the country and you start to see that discount really drop-down, really widen out. Last fall, when I came on, the first time we talked with Canada Nickel, I said, look, Nickel at USD$18,000, p/t was not sustainable. There's no way we're going down to USD$13,000 ton by December. The reason I could be so emphatic about that was the gap between Indonesian NPI prices and Nickel prices were USD$4,000 a ton. So that has given you a better view of where the real, physical market was trading at. Right now, it's at zero, we're very close to zero. If that starts to widen out dramatically, there is good chance Nickel prices are heading back to USD$6.
On the Chinese demand front, that July number was a massive 17% year over year 300 series stainless production growth. If that starts trending down to 6, 5, 4,3%, and the demand look like it is losing its steam, that's another one that's going to take us back down to USD$6.
Right now, my call would be, I think ore inventories and Chinese demand will be stronger than people expect. NPI will be stronger than people expect as well. They will end up with kind of a two to one, and we will end up consolidating at a level here somewhere around USD$7 before, as we cruise into year-end. That's my best guess at where the market's going to be between now and year-end.
Matthew Gordon: It's exciting times for mining; that paints a great picture for Nickel. If you're an equity investor, that’s great advice, great insight there from you, but the market as a whole, not just precious metals, base metals, but people are paying attention. If you look at the FT article, although it was a slightly negative aspect of it, people are looking back into mining in a way they haven't done for the last two or three years, It's only good for the industry as a whole, which has struggled with funding. I also have this nervousness about people coming in, actually not quite knowing what they're looking for and investing in projects which perhaps aren't as strong as others. It's a bit greyer.
Mark Selby: Last May when we started this weekly series and we made that China macro call, a lot of base metal stocks have gone a long way since then, but I would encourage people; you haven't missed out, you have multiple legs in these types of cycles. You've just missed the first leg. The next move up higher here should be coming based on where we're seeing the various commodity prices are at. Those early stages, you want the highest torque names possible, the highest cost producers. Earlier stage because that gives you that first torque. And then what happens is it starts to trickle down to explorers. People need to find some interesting exploration development stories. Then you want to look at cash flow because as the prices are high, you as an investor want to see some of that money come back at you. You move up into some better-quality producers and you move into some earlier stage exploration development stories, and that's kind of where we're heading.
If you see what's happening in the Gold market, there's been a bunch of financings for exploration development stage companies. I think you'll see something like that evolve here between now and the end of the year in the base metal side as well.
Matthew Gordon: Great weekly run-through of the world of Nickel with you as ever. Thank you very much. How are things going with you guys? You're obviously up in Timmins, you're looking forward to a little bit more drilling? When's the next set of information that we're going to hear from you?
Mark Selby: We'll have weekly news here right through till the resource comes out mid-September. We're heads down on the PEA, which will be there by year-end. There'll be a bunch of engineering, trade-off studies and so forth that will come through over the next couple of months. It's a very exciting time as we're able to get access to parts of the property now that we weren't able to through the spring. I'm very keen to see those particular drill results come up in the next couple of weeks.
Matthew Gordon: Fantastic. We'll catch you next week. Have a great time up there in Timmins. And thank you again for today.
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