Nickel is in short supply, strong demand and low inventory levels have made nickel is one of the best performing commodities since the start of the pandemic. The electric vehicle industry requires nickel mines at scale – Canada Nickel (TSXV:CNC) is a small cap nickel miner with world class potential.
Fundamentals and Price Action are Worlds Apart
Since the beginning of 2020 Nickel up 94% – significantly outperforming the Bloomberg Commodity Index which was up 32%. While the commodity nickel has outperformed the broad commodity index since 2020, nickel miners have not kept up.
Capital 10X’s nickel miner universe has meaningfully underperformed physical nickel – we view this as a glaring investment opportunity. The fundamentals for nickel miners could not be stronger, while the lagging performance of the miners relative to the metal provide investors an attractive risk/reward proposition.
Performance of Physical Nickel vs Nickel Miners (Last 6 Months)
Over just the last three years, nickel has emerged, along with copper, lithium and cobalt as a metal critical to the world’s ability to meet aggressive emission reduction targets. Electric vehicle and renewable energy storage adoption are accelerating and nickel is a key component in every battery chemistry in-use today.
The need for batteries and the electrification of cars is supercharging nickel demand from a historical rate of 4%/yr to more than 7%/yr.
But while nickel demand is running at a multi-decade high, nickel inventories are running dangerously low.
Nickel Inventories are Dangerously Low
The London Metal Exchange (LME) held 500,00 tonnes of metal in December 2022, less than half the tonnage held at the end of 2021 and an overall 100-year low, indicative of the toll the COVID pandemic and the Russia-Ukraine war have taken on global commodity supply chains.
The entire base metals universe is sitting on record low inventory while demand is set to grow at the fastest pace in decades. When supply is low into a historic spike in demand, price action of commodities can be explosive.
Major Nickel Producer Russia Under Pressure
Not only are nickel inventories tight, but future production is also at risk. Russia, the third largest global nickel producer is under pressure from ever tightening sanctions as it refused to give up on a ill-advised land grab of neighboring Ukraine.
So far nickel has continued to flow from Russia to the rest of the world, but sanctions on aluminum, industrial equipment imports and commodity exports will continue to bite, keeping nickel production growth weak from a key world supplier.
Export Taxes Risk Indonesia & Philippine’s Supply
Indonesia, armed with the world’s largest reserves of nickel, has recently banned nickel ore exports, pushing miners to process and export only higher value nickel products. While positive for the long term profitability of the domestic mining industry, these new rules will likely increase production costs and decrease supply in the medium term as mines must wait for processing facilities to be built domestically.
Potentially complicating matters, neighbor Philippines, also a major source of nickel, is seriously considering joining Indonesia in the heavy taxation or effective bans of nickel exports, placing even more pressure on supply over the next few years.
More expensive nickel exports from major producing countries may not limit supply longer term, but will increase mining costs, requiring ever higher nickel prices to incentivize increased exploration and production spending.
So what does the industry need? Mark Selby, CEO of Canada Nickel explains it best in a recent interview with Crux Investor
World Nickel Reserves by Country
Canada Nickel: Small Cap Developer with World Class Potential
Canada Nickel (TSXV:CNC OTC:CNIKF) is one of the only names in our mining universe screen with pure nickel exposure, operations in a low political risk jurisdiction, Canada, and world class nickel reserves already in hand but not appreciated by the market.
Canada Nickel’s Crawford project is the fifth largest nickel resource worldwide by estimated tons of nickel and at full planned production of 42,000 tons/yr would be the fifth largest producing project as well.
Canada Nickel has also had exploration success at Reid, a neighboring property where early drill results confirm the potential to double Canada Nickel’s total nickel resources. Drill results from Reid have already delineated an area 90% the size of Crawford and are just getting started.
Reid Resource Boundary Compared to Crawford (Same Scale)
Mark Selby, CEO of Canada Nickel was interviewed recently on how global car companies have realized they must incentivize significant CAPEX spending by miners to have any hope of supplying the batteries needed to reach lofty sales goals. This means car companies are poised to invest directly in nickel producers to lock down guaranteed sources of supply.
Unlike a typical acquirer, global car companies are sensitive to not only resource but also the emissions generated from mining and are gravitating away from high carbon sources of supply in Asia to low carbon sources specifically in Canada.
Canada Nickel will have World Leading Mining Efficiency
Canada Nickel also Stands out on Valuation
According to analysts at RedCloud Securities, Canada Nickel trades for only 0.25x NAV of $C6.51/sh, a 50% discount to small cap peers and far lower than peers in Asia at 1x-3x NAV or copper miners that trade above 1.5x NAV as a group.
Canada Nickel’s current enterprise value of C$185 million is only 10% of the net present value of the Crawford Project (C$1.6Bn) once it begins production in the middle of this decade.
With a mad dash brewing for minerals critical to the battery supply chain Nickel is one of the best positioned metals for the next decade.
With large nickel reserves, close to centers of demand, Canada Nickel looks to be well positioned to close its significant valuation gap to peers through the drill bit or through a potential tie up with a customer or mining major.
