Global Nickel Shortage in Focus, Canada has a Key Role to Play

Like many other battery metals, nickel is staring at a looming supply shortage. Fourteen years of underinvestment is running headlong into surging demand from a rapidly electrifying world.

Source: INSG, CNC Analysis

At the same time demand is exploding, mining capital spending is running at the same level as 12 years ago and forecasts call for continued cuts in spending.

Global Mining Capex Forecast

Global producers are aware of the Manhattan project needed for supply to meet the doubling demand, but investor’s, not so much.

Global producer Vale is racing to build a battery metals refining operation in Canada while also acknowledging the nickel industry will need to spend an additional $20bn this decade for supply to have any chance of meeting demand.

If we turn and look at the stock performance of global nickel producers, this urgency is nowhere to be found.

Even with strong fundamentals, an eye-opening gulf between performance of the commodity and the companies that mine nickel has emerged. So far in 2022 the price of nickel is up 54% while a basket of global nickel miners is down a whopping 40%.

An 94% spread in less than 12 months sends a powerful message about the disconnect between industry fundamentals (the commodity price) and investors expectations (the stock price).

Nickel Price vs Nickel Producer Prices (YTD 2022)

Interestingly, this relationship is not playing out in other commodity markets. Contrast nickel with oil where the price of the commodity is up 17% so far in 2022, while oil producer stocks are up 53%, an outperformance of 36% for the producers.

Oil Performance vs Oil Stocks (YTD 2022)

Oil investors are clearly aware of the state of oil supply and are looking through short term volatility of the commodity.

Nickel producers in contrast are deeply unloved, even as the underlying commodity continues to rally and is still up 100% from pre-covid levels.

Nickel is facing the same supply shortage effecting battery metals and energy, yet investors are clearly focused on near term slowing economic growth and missing the big picture.

Historically producer stocks track the underlying commodity and large divergences always close.

A recent interview with Mark Selby, CEO of Canada Nickel (CVE:CNC) neatly explains the supply dynamics going on in the nickel market today.

The fact that the government of Indonesia reached out to Canada on forming a nickel OPEC-like cartel, tells us nickel rich territories expect nickel to gain even more strategic national importance across the world.

Indonesia is signaling it expects to have significant bargaining power for years to come as supply struggles to keep up with demand.

Indonesia barred exports of their nickel last year, which sparked an ongoing trade dispute with the European Union. Indonesia has moved from being a small player in the 90’s to producing almost half of the world’s nickel supply today.

Canada will be a key country to help the world meet rising nickel demand

Canada is already a major global player when it comes to the largest producing nickel mines. Three of the eight largest nickel producing properties are located in Canada.

Global miners are already positioning for Canada to become a global battery metals hub with Vale announcing plans on Wednesday to split off its base metal assets (includes nickel) from the larger iron ore business. Vale understands the strategic value of battery metals as it relates to the company’s valuation.

As mentioned above Vale estimates ramping nickel production will require $20 billion of additional investments in exploration and production.

“We all know this is nickel and copper’s time, on the back of decarbonization,” Deshnee Vaidoo, executive vice-president of base metals for Vale in Toronto, said during Vale’s investor presentation this week.

Source: Canada Nickel

Canada Nickel: Crawford Mine

Canada has also been home to a number of significant exploration discoveries lately, the Crawford and Timmins Nickel districts in particular. Both located in Northeastern Ontario, these districts are home to discoveries that could rival the largest nickel sulfide operations globally.

Canada Nickel’s Crawford mine is estimated to contain 3.5 million tons of nickel, on par with the four largest nickel projects in the world.

Source: Canada Nickel

Canada Nickel is drilling additional properties as well and two recent drilling programs results in promising samples.

Canada Nickel Property Map (Reid and Sothman Highlighted)

Source: Canada Nickel

The company’s Reid asset has already confirmed a mineralized footprint that is 90% the size of the massive Crawford resource and there is still significant land to explore.

Reid (left) Comparison to Crawford (right)

Source: Canada Nickel

New holes at Reid encountered mineralized dunite with 0.29%-0.35% nickel content, competitive with other North American projects.

The Sothman property is 70km south of Timmins and also confirmed mineralization, meaning nickel was found in peridotite rock, though the final assays are not yet completed to confirm the detailed nickel content.

Next Canada Nickel will be drilling in an area of Sothman where prior drilling has found intervals greater than 1% nickel, compared to typical concentrations below 0.50% in the region.

Current production and exciting exploration results make it likely Canada will remain a top three nickel destination through this decade if not longer.

Quebec Nickel: The Ducros Project

Quebec Nickel (CNSX:QNI) is a company focused on exploring high-grade nickel-copper-platinum group element deposits in Quebec; they are starting with its 100%-owned Ducros property located in the eastern Abitibi Greenstone Belt.

The Quebec based nickel explorer recently announced preliminary drill results at the company’s Ducros project with nickel content of 1.21%.

A 1.21% concentration is in line with some of the best recent discoveries around the world and is far higher than many recent discoveries in Canada with concentrations below 0.50%.

Quebec Nickel Drill Sample

Source: Quebec Nickel

High ESG Score = More Investor Dollars

Canada has an overwhelming emissions advantage over mines in Asia.

Developed government’s and investors are fixated on bringing down Co2 emissions. Most of the mining and refining done in Indonesia, China and Russia is powered by coal generated electricity vs the hydro and increasingly renewable nature of electricity in Canada.

The result is that future mines in Canada will potentially give off 90% less Co2/ton than Indonesia, the world’s largest nickel mining jurisdiction.

Investor dollars continue to flow into companies with low and falling emissions. Canada’s low emission nickel projects should have a lower cost of funding and will have an easier time funding projects than an equivalent mine in the east, an important competitive advantage.

Summing up the Opportunity for Nickel

The rapid adoption of electric vehicles and the rise of renewable energy, which requires battery storage to truly replace fossil fuels, are fueling unprecedented demand for nickel and other battery metals.

Investment in new supply is not keeping up with demand however. A new supercycle in nickel, which happens every 15 years or so is now upon us.

Most importantly, investors are focused on slowing economic growth in the short term instead of the multi-year opportunity over the long term.

It is still very early days for nickel investors.

Canada Nickel is a market awareness client of Capital 10X. For more information, including potential conflicts of interest please see our Content Disclaimer.

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