Interview with Mark Selby, CEO of Canada Nickel (TSX-V: CNC). Canada Nickel is advancing the next generation of high quality, high potential nickel-cobalt projects to deliver the metals needed to power the electric vehicle revolution and feed the high growth stainless steel market.
Matthew Gordon: Why don’t you give us that 1-minute overview? What are we about to talk about?
Mark Selby: Sure. Yes, at Canada Nickel, we have one of the 10 largest Nickel Sulphide resources in the world today with a huge amount of exploration potential. We're sitting just outside Timmins, an established mining camp where you can actually build and permit a large operation with all the infrastructure you need in place. Because of the team's past experience with another project, we can accelerate the development of this project very, very quickly so from first drilling in September 2019, we are targeting having our Feasibility Study complete by the end of this year, which I think would be record pace for any mining project but one of this scale, and then most particularly we believe Nickel is going to enter one of its super-cycles that it goes through every 15 to 20-years, and we'll be well-timed to take advantage of that super-cycle, which creates massive upside for all our investors and shareholders who've done very well so far. We're up 8X over that time period and we're looking to continue to repeat that performance going forward.
Matthew Gordon: You understand the Nickel space quite well. We do a weekly Nickel show as well on the Crux Investor Club. Remind me about the moving parts then. Why did you think you could put them together and what was the sum of the parts that you were aiming to build?
Mark Selby: Sure, so I was approached right after I had left RNC Karora in December 2019, July 2019. This deposit had 4 holes in it. So the first 4 discovery holes had been made. I saw the potential for what could be a bigger, better Dumont fairly clearly through what those 4 holes had shown. Now, it was owned in a 3-way joint venture between a couple of smaller public companies and some private individuals. So it took a while to get that deal negotiated, which we did in a relatively short timeframe. We founded the company in September 2019 just 16-months ago. We started drilling then with 1 drill. We raised $6.5M privately, which again in the North American capital markets for exploration stage companies is not the easiest task by any stretch of the imagination, particularly then. Then we basically ramped up the drilling, built up the team. We started with hole 5 and today we're at hole 90. In that timeframe, we've put out 2 resource updates. We have completed the first phase of the metallurgy work. With these types of deposits, that's key to show that we can demonstrate recoveries the same or comparable to Dumont, which is the example for this type of deposit. And then built a broad base of support in the community already with MOUs, with both First Nations groups in the area and again in the local community, the mayor came out, very supportive of us in several news stories over the Christmas break. So I’m really proud of our team's accomplishments to be able to get that done in 16-months. Again, hopefully, 12-months from you we'll be talking to you about the Feasibility Study that we've just put out.
Matthew Gordon: Come back to that. The beginning. There were 4 holes.
Mark Selby: Yeah.
Matthew Gordon: So what gave you the confidence that this could be better than Dumont, which is not an insignificant project?
Mark Selby: Yeah, over the decade we spent with Dumont, we came to realise that a lot of the early-stage geophysics that you do really helps you understand not just the geology of the deposit but also the mineralogy of the deposit. That was number 1. So it was very clear that the geophysics shows a very large good example of what this deposit could be. The second thing is, the 4 holes had 3 key characteristics that really stood out and again differentiate us from a bunch of the other projects that are out there, most of which have been around for 40 or 50-years and drilled off a few Nickel super-cycles ago. 1 is you had very large widths of several hundred metres, 400m or 500m, of drill intersection, some of which had ended in Nickel mineralisation. So 1, it was very clear that the Nickel mineralisation that shows up in the geophysics was actually there. The second piece was what really makes these deposits work, and this is something a lot of people don't understand, there's a right amount of Sulphur. Sorry if I get a little technical for a minute here but what it comes down to is you want enough Sulphur to soak up all the Nickel as it becomes available, but not too much Sulphur that it ends up creating a bunch of Iron Sulphides.
The issue with that is if you end up with a lot of Iron Sulphides around when you try and make a concentrate, there are projects in Minnesota and elsewhere that have ended up with an 8% Nickel concentrate as opposed to a 28% Nickel concentrate like we just did in our lock cycle test. There's an optimum amount of Sulphur and that was very clear in these drill holes, that it did have Sulphur in the right range. Then the third piece, and the most important part, again us versus all of the other larger, low-grade deposits that are out there, in those 4 holes it looked like there was the potential for a very consistent higher-grade core running through the centre of the ore body. The big plus with that is when you build a large-scale open-pit mine mill project, which these will all be eventually, if you can feed a higher-grade material through the mill for as long as possible, all of that incremental grade comes through as incremental free cash flow and has a huge impact on the project economics. That's why we've been so keen to advance this so quickly because we know what that answer is going to look like. So it's those 3 things that really made that deposit, from just 4 holes, really stand out and so far we've been proven correct on all 3 fronts.
Matthew Gordon: Is it that the metallurgy is to determine whether you can extract it, and secondly can you do it economically? Is that what you're saying?
Mark Selby: Yes, that's correct. I realise our release at 46% and 51%, it's kind of tough to get excited about those kinds of numbers on the face value but the key is again, Dumont's the benchmark. It's a 43% recovery life of mine. At Dumont, in the Feasibility Study, we had to do a huge pile of work to get just a few years of high-grade because we don't have that high-grade core. So Dumont starts mining at 5 times the milling rate to be able to pull out the higher-grade bits so they can get a few years of recovery north of 50%. We'll be able to start at a much lower capital cost because we don't have to mine at anywhere close to that rate. We can start with a slightly smaller mill to be able to make it happen. So the key is not the absolute number itself but what it implies for the economics. Again, with deposits of this scale, you effectively need to recover around 1lb of Nickel to cover the operating cost per tonne. That second pound of Nickel you recover is a 50% operating margin and if you get 3lb or 4lb, you're looking at 65% to 75% operating margins. That's the kind of thing that we hope to be able to show when we get our PEA completed here by the end of the first quarter.
Matthew Gordon: Something that you say to me weekly, I know you've done some comparisons to Dumont here, but you say, 'The world needs all the Nickel we can get a hold of. Some will be more economical than others but we need it all.'
Mark Selby: Yes. At the end of the day, the key take-away from Tesla's battery day presentation, they have a 3-terawatt-battery production target by 2030. With very conservative assumptions, Tesla alone will need 1Mt - 1.5Mt of Nickel per annum. The entire market today is 2.5Mt. They're not going to be 100% of the EV market at that point in time so I think most of the market just doesn't realise just how much Nickel we're going to need to meet demand. Glencore's come out with a forecast by 2050 of 9Mt. That's almost 4X the amount of Nickel that we're mining today, and there’s no visibility on any of that project. To give you an idea of the importance of the scale, so the 2 best high-grade Sulphide discoveries of the 2010s were 1 called Nova-Bollinger, which was 300,000t of higher-grade Nickel that was purchased for $1.8Bn in 2015, and then another deposit called Sakatti, which is owned by Anglo American, which was around 400,000t of contained Nickel. That entire resource, not the rate at which they can mine it, their entire resource is 1/4 of Tesla's Nickel consumption by 2030. So if you're an EV maker, you want to lock in large-scale production that can be expanded as you grow your EV business, so deposits like ours, these large, low-grade deposits with close to 3Mt of contained Nickel are exactly the kind of scale asset that these companies will be looking for. Again, we're just getting into it. You saw Tesla do a deal on the Lithium side. I think this year and next, you're going to see a bunch of the automakers coming into the Nickel space in a meaningful way.
Matthew Gordon: I guess they're also looking for a scale. It's something you've mentioned in the past because it goes through different cycles. If there are going to be cycles going forward, who knows?
Mark Selby: Oh no, there will always, always be cycles. You know that. As soon as everyone starts talking about lasting forever, you know it's about to end.
Matthew Gordon: We've had some emails in for my guest people who are coming from outside of investing in mining, saying, 'What is this First Nations? What is this Aboriginal topic you keep talking about? It's our land; it's our industries that are giving those guys jobs, so why do you keep mentioning it?'
Mark Selby: Yeah, I mean it's fundamental. The permission to operate in a region, all of the territory that we are operating on belonged to the First Nations and we have to acknowledge and work with those communities. So with Dumont, into my past life, I was very proud of the fact that we were able to permit what would be one of the largest Base Metal mines in Canada with very broad community support and very little dissent during that process. We expect to be able to duplicate this here. So having both agreements in place and particularly our agreement with Taykwa Tagamou nation, they want to go beyond a traditional Impact Benefits agreement, where they want to deploy their capital into our project, which is something that you don't see happen very often in the resource space. Why it's so important, Canada is a "mining-friendly jurisdiction" but there are several projects that have not only been tied up for years and in some cases decades, that have been shut down entirely because those companies haven't dealt with that fundamental principle that you are working on territory and resources that are owned by that First Nation's group, and you need to approach it with that and make sure it works for everybody, all the different communities that you're working with locally. With that initial mind-set, we want to get this project permit and go as quickly as possible. To get through that permitting project when all of the various political levels need to get engaged to make that happen as quickly as possible, it's just far easier when they know there's a broad base of local support and vocal support for your project. So again, I would encourage people, you can look at the local Timmins press in terms of what the mayor is saying, in terms of what the First Nations are saying locally. It's great and I’m very thankful and grateful for our relationship at this point.
Matthew Gordon: If you don't have the buy-in of the First Nations, they can kill your project because it's not going anywhere. That's the really simple way of looking at it for some people.
Mark Selby: Oh, yes, and Joe Biden, on day 1, is going to kill the Keystone XL Project, which is a USD$10BNs project that is already half-spent, previously permitted, and they're basically ripping the permits back. So that's what happens if you don't do that.
Matthew Gordon: You finished off with an agreement last year, an MOU, with Glencore for the Kidd Creek plant, which is obviously great. It's had a knock-on because you've decided to not bring out the PEA at the beginning of this year as you'd hoped because you want to incorporate those numbers. What's the timing on that again? When can we expect more certainty around those numbers?
Mark Selby: Yeah, we've pushed the PEA out until the end of the first quarter. The reason why, and again some people say, 'Oh, a non-binding MOU, that sounds just like a piece of paper with nothing to it.' The key thing with this scale of deposits, and again there are several of these around the world, is that Dumont is the lowest capital cost option on the table right now until we complete our PEA and hopefully show that we'll have an even lower capital cost. It comes with a $1Bn price tag, and for a lot of investors to finance that scale of the project, even if you do great work, you work with a great engineering firm like Ausenco who has a great track record, that's still a big cheque to write.
Matthew Gordon: So Dumont's is $1Bn, or yours is?
Mark Selby: Dumont is $1Bn, yes. Again, as I said we should be able to start smaller scale, so hoping to come in under that number. The Kidd Creek, this announcement, being able to use an existing mill site with an existing tailings facility, they're only utilising 50% of the capacity of that mill today, provides us with a tremendous opportunity to get started and prove that everything works with a small fraction of that upfront capital cost that we were talking about. In terms of the pool of potential investors, it is just a far easier, far more attractive investment proposition from a whole range of strategic investors where they can get going at a fraction of the capital cost. The other key component again to the accelerator part, yes we've delayed the PEA by 3-months but to retrofit an existing mill to get started versus building a great big new mill, that's less than a year versus 2-years. In terms of permitting, we've still got to permit the great big project, we're not going to pretend to start small and oops, we're going to build a 50,000t a day plant at some point. No, this should allow us to also get through the permitting process much faster. So what I’m hoping for is being able to be in production sometime in 2023, early 2024 timeframe as opposed to a late 2024, 2025 timeframe at best. They've got idle capacity. Our tailings potentially help remediate their tailings because of the difference in pH between our 2 sets of tailings. So when it's a win-win for both sides, that's when you can negotiate a good deal. I mean, negotiating with Glencore is never easy but I think there's real business value for both sides and we are confident that we'll be able to get there by the end of this quarter.
Matthew Gordon: So, Glencore's using 50% of the capacity of the mill currently. Are they looking to faze that out or are you trying to have a discussion with them about being able to just use 50% going forward for a period of time?
Mark Selby: Yeah, there are a bunch of options on the table. That mine is supposed to run out based on a current mine plan in 2022 but as of right now there are 2 mill circuits that are currently not utilised. Again, from our side in terms of the overall mining operation, to the extent that whatever we do as part of this, we're calling out phase 0 to get started, if all of the capital that we're spending has life beyond just this initial phase then it's going to make it an even better investment. So we'll be looking to start relatively small to get this thing going and be able to continue to use those smaller milling circuits over the life of mine. Again, there is a whole range of options we're going to look at with the Glencore team. Having all that infrastructure, it would be nice if it was another 20km closer to our deposit but where it still provides a huge range of options and I’m very excited to be able to work with the Glencore team to unlock them for both of us.
Matthew Gordon: This might be a bit early to answer but when you say you would like to be able to start up at a fraction of this $1Bn+ capex requirement, what are we below 50%, below 25%? What's a fraction?
Mark Selby: Oh, I would say well below 50% and we'll see what that number is at that point in time. It's going to be-,
Matthew Gordon: It's going to be meaningful. Okay.
Mark Selby: A very, very meaningful number, yes.
Matthew Gordon: I saw the press release came out; I think let me finish off last years. Did you achieve everything you wanted to achieve last year in terms of this accelerated delivery?
Mark Selby: Yeah. I think in terms of the resource and the met work, there were a few delays as we went through, didn't quite get it done as quickly as possible but again I think going from a fifth drill hole to a PEA on what will be one of the largest Nickel Sulphide operations globally in the world in 19-months is an excellent achievement.
Matthew Gordon: So as far as you're concerned, the goals that you set the company and the goals that you set yourself, you think you delivered?
Mark Selby: Yes, for sure. We're heading on track, Covid permitting, to deliver that Feasibility Study by year-end.
Matthew Gordon: Let's talk about 2021 because you've got to keep it going, keep that momentum going. I saw the press release; resource numbers haven't really changed much. What's going on there?
Mark Selby: Oh, yeah so we put out a resource update today. We had previously disclosed that our resources weren't pit-constrained so we said we were going to put that out with the PEA at year-end. Obviously, we've delayed that and we were asked by the regulator to just restate the resource adding at the pit-constraint, which obviously will reduce that number. The good thing for us is, again, we've done everything with a very, very sharp value focus. So we had a model on this deposit about 6-weeks in and we used that to really guide our drilling. So as expected, we ended up with a 0% impact on the measured and indicated resource in the higher-grade core, which is the bulk of the value of the deposit. We're less than 0.1% on the overall measured and indicated resource for the entire deposit, and then again, we've designed it so that any impact would be just added in the third level, that we didn't spend money drilling stuff that we knew wouldn't end up in a pit. So 90% of what came out was below 300m on the north and south side of the deposit. The other key part is, the cut off for that resource was sometime late-September, early-October. We've discovered the north zone. We've discovered the west zone. We've extended the main zone. So we've likely added a multiple of that resource already in terms of what came off the last one. So we'll be pit-constraining them going forward.
Matthew Gordon: Does that restriction by the exchange, to put the pit-constraint in now, does that change your thinking in terms of how you spend your money on drilling out and working out what the size and scale of this opportunity is?
Mark Selby: No. We've gone from 3.2Mt of contained Nickel to 2.9Mt of contained Nickel. We probably added back a multiple of that. Again the reason why we're going with the PEA now is that the first resource that we published almost a year ago, that on its own was one of the world's largest Nickel Sulphide discoveries. Some junior mining companies are fine just to drill and never actually advance the project. What we had back in February was good enough to build a sizeable Nickel operation on it. What we're looking at now is how long this plant we're going to build is going to last and how quickly and how many times we can expand it.
Matthew Gordon: What's your view on this year and will that impact your ability to go and raise capital, how you spend your money, and exactly how you deliver your Feasibility Study?
Mark Selby: No, I think in terms of upside from here, some people would say, oh Lesan curve says you're coming to a PEA point, this isn't so good. I would point to several things. One is, yeah we're doing a PEA on part of the deposit but we've got step-outs within Crawford that are going to continue to make it much, much larger. We've got our 5 option properties, which we have to do the geophysics on this fall and we have some pretty exciting targets there that we're going to be talking about. Again, these are potentials for multiple Crawfords. You see these things occur in clusters in Western Australia, in Northern Manitoba at a much smaller scale but they do appear in clusters. So we're thinking that it's not just Crawford but we are unlocking an entire Nickel district here. In a market that's short of Nickel outside of Indonesia, I think when we are able to demonstrate that, you're going to see some pretty significant re-rating on that front.
The other key piece, again this is not a Copper deposit, that's relatively straightforward, so we're just six-months into the met work. We've delivered great numbers but it took Dumont several years to get to the same point that we are at now. We're going to see upsides in terms of the met work here as we move forward. And then on the net-0 front, we talked last July about being able to deliver a 0-Carbon Nickel and a 0-Carbon Iron product. Now that we've got the concentrate from the lock cycle tests that we did at the end of the year, we can actually do some meaningful lab work, which again you're going to see results on that through the first half of this year. There's going to be a bunch of very significant milestones as we get to the latter half of the year, in terms of broader financing solutions to be able to bring the project forward. Then you'll have the Feasibility Study by year-end that will likely include a very low-capex starting point, utilising the infrastructure at Kidd Creek. So it's going to be a very, very exciting 2021 and I hope we can repeat our performance in 2020.
Matthew Gordon: So you've got to work out where you get the money from and your timing of that. Understanding that you may have multiple Crawfords is great but you've got to get that timing right. So what's your thinking at the moment? How's the board coming at this?
Mark Selby: Yes, so one of the key pieces of getting that network done was for a bunch of strategic investors seeing those met results was a key step. So I think through the first half of the year you'll see some significant movement on that front. In terms of the amount of capital-,
Matthew Gordon: On what front? Potential partners?
Mark Selby: Yeah, in terms of, again with the Kidd Creek option having a much, much lower capital cost to be able to get started opens up a huge range of potential financing options. The more options you have, the lower the cost of that capital. So I think by the second half of the year you'll see some interesting developments on that front as we push forward to the completion of the Feasibility Study. Then in terms of being able to unlock that district-scale potential, we created one of the top 10 Nickel Sulphide resources with less than CAD$10M of exploration dollars. Again, going back to what I said around this resource statement and our value-focused approach on exploration, I’m not a geologist, sometimes geologists get caught up in what's interesting as opposed to what adds value. So our drilling will be very, very focused on just getting to that district potential for the lowest dollar potential amount. So it's not going to take a huge amount of exploration dollars at this point to unlock those. Again, if it makes sense once we've seen if something's there to unlock them, we'll do it at that time. If the market's rewarding us for finding them then we'll go back and raise the capital at that point in time. I'm very confident. We've got a good amount of cash in the bank and we'll be in good shape to do the balance of what we need to do in 2021.
Matthew Gordon: There are 2 audiences you're normally talking to. 1 is the strategic partner, but if you're saying you want to retain 100% of what you've got here then you're going to have to drill to appease the market. You've got to kind of give and take there in the sense that the market wants to hear 1 thing and a strategic partner may be slightly more technical and want to hear other things. So how do you get that balance?
Mark Selby: Well, I think the whole stream of work in terms of the PEA and Feasibility Study and the various components of that, which we had laid out last fall and are executing on now, will feed the strategic investor side of the investment equations. In terms of exploration around Crawford and then exploration step-outs around the option properties will I think will provide the market with some pretty significant things to get excited about as the year goes on.
Matthew Gordon: We've seen a few models employed this year. Have you worked out how you would approach funding the company going forward outside of more dilutive equity raises?
Mark Selby: I think at this point, it'll be getting a strategic investor. At the equity level, again we're not talking about selling 30% of the company at this point, we're talking about 5% - 10% of the company. That's this quantum of capital that we need right now. I'd like to keep 100% ownership of the asset right now that maximises any value in an auction, which ultimately I think we'll end up in at some point in time. I think in terms of Streams and Royalties unless it's for our own account. Royalties and Streams at this point, while we're still unlocking the resource, just don't make sense. But we've got all those levers there to play with if for some reason the equity market's not there. I'm not anticipating any issues getting the capital we need this year.
Matthew Gordon: Just go start your own Royalty company, Mark. It's very popular.
Mark Selby: Who knows, yes.
Matthew Gordon: I appreciate you giving us that update. You have delivered the accelerated bit last year and if you can hit some of those targets for this year in an accelerated manner, these could be very exciting times for you.
Mark Selby: Oh, no, Matthew, thanks again for your support. 2020 was a great year but to be honest, I think 2021 is going to be even more exciting as we really take some concrete steps moving this project forward. By this time next year and we're having this conversation, hopefully, we've delivered on the Glencore Kidd Creek MOU by early this year, we'll have followed that up with the PEA that will be in line with our expectations, we'll have delivered the test results that prove that we can hit the net 0 Nickel and net 0 Iron that we talked about, which I think is a very, very exciting development in this kind of market. I think we'll have our Feasibility Study complete by the end of this year on Crawford and as we just talked about, the option property potential of this area that we've got the potential for having multiple Crawfords, again in a market that's desperate for large amounts of Nickel to be able to meet the demand coming from the EV sector. I think we're going to hit all these milestones in a year. At this point next year, people are going to be even more excited about the Nickel market as we see a huge year for the EV market. I think with this Biden election it's going to be a very, very exciting 2021 on that front as well.
Matthew Gordon: What do you think is going to be big this year?
Mark Selby: To me, I think the 2 big things are the Copper trickle down, so the Capstones and Tasekos of the world are up by 8X but you still don't see a lot of stuff happening in the exploration and development stuff. I think that's where the money's come in, it's gone down one level and now it's going to try and find Copper quote staying at 350, which it won't, but it'll be there for a while. Then people will be like, 'Oh, okay, the Copper explorer developers will start to pick up.' The other thing is I think the whole ESG, as much as people think it got a lot of airtime last year, there are those times where there's a theme that emerges and people think that got a lot of airtime. I think it's going to go up a whole other level this year in terms of, with Joe Biden in the White House. The Keystone XL Pipeline is critical for Canada and one of the day 1 things will be killing that pipeline. So if you're a Talon Metals shareholder, I think you should sell your stock but that's a whole other story.
Matthew Gordon: Why's that? Why is Talon affected by the pipeline?
Mark Selby: They don't want resource development. The regulators are going to go, 'Yeah, my boy's back in here, I need mining and I’m just going to put your thing on the side of my desk.'
Matthew Gordon: Do you think it's going to be that bad for another 8-years?
Mark Selby: No, but Kamala will take over in the second 4, or Buttigieg.
To Find out more, go to Canada Nickel's Website.
Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.