Chalice’s bonanza find just gets better – and cheaper

Plus, shares in battery graphite producer Syrah hitch an EV ride while Mincor looks set to follow suit in the name of nickel
29th January 2021
Barry FitzGerald

Buying into one of the best metals discoveries in recent times – Chalice’s Julimar near Perth – has just got a lot cheaper, even though its story has just got a lot better, such are the joys of investing in the resources space during periods of metal price volatility.

Chalice (CHN) was off 13% in Thursday’s market to $4.04. Nothing particularly wrong with that given $4.04 compares with a pre-Julimar discovery 52-week low of 14.5c. But it is down from a recent high of $4.92.

Like the rest of the resources sector in recent days, Chalice’s share price has succumbed to the risk-off mood of investors on fears that China’s liquidity tightening – and its Lunar new year break next month – would hit demand, taking metal prices down in the process.

But as mentioned, the Julimar story has just got better, with Chalice reporting the six-rig drill-out at the greenfields site has defined four new high-grade and shallow zones.

One of the hits was indeed special – the hit in the G11 zone of 11m at 13g/t palladium, 1.3g/t platinum, 0.3g/t gold, 0.1% nickel, 0.1% copper and a sniff of cobalt from 78m.

Even at its “reduced” price of $4.04, Chalice commands a market cap of $1.44 billion (fully diluted). That’s too rich for some ahead of Chalice reporting a maiden resource estimate for Julimar later this year.

But not for all. Macquarie has long been a fan of Julimar and has continued with a $5.40 a share price target on the stock.

“The discovery of four new higher-grade zones at Julimar suggests that there is likely to be considerably more near-surface mineralisation mineable via an open pit than we currently assume in our base case development scenario for the project,” Macquarie said.

“Importantly, the core high grade zones are being confirmed as continuous at depth over longer strike lengths, with additional mineralisation also confirmed in shallow extensions to the south.

“The completion of the infill drill out of Julimar and release of the maiden resource later this year presents as a material catalyst for the stock. We note there remains material upside risk to our base case valuation under a spot price scenario.”

SYRAH (SYR):

When the US Government announces it will phase out its internal combustion engine (ICE) fleet of vehicles and replace them with a made-in-America electric fleet, you know it’s time to take the electric vehicle revolution seriously, if you haven’t already.

It matters not that the phase-out of the ICE fleet involves 650,000 vehicles, a drop in the global auto market. It’s all about the optics, and where America and the rest of the world are headed.

It’s a case of bye-bye ICE and hello EVs, which is why battery material suppliers (graphite, lithium, nickel, manganese, cobalt, zinc and others) have been on the tear in recent times, notwithstanding the current weakness.

Today’s initial interest from all that is Syrah (SYR) which was mentioned here on November 6 when it was trading at all 46c a share. In yesterday’s beaten up market it was $1.14, having got as high as $1.31 earlier in the month.

It’s remarkable stuff given Syrah’s world-scale Balama graphite operation (anodes in batteries and a range of industrial applications) in Mozambique has been shuttered since March last year, having only started production in November 2017.

As mentioned in November when the stock was 46c, Syrah built what is the world’s biggest graphite operation with the notion that its product would fetch $US1,000 a tonne.

But in the September quarter last quarter it received $US470/t for finished product inventory. Graphite prices have turned since, and Balama could be restarted within 2-3 months. In the meantime, Syrah has been plotting its move up the value chain by becoming a vertically integrated anode producer in the US.

Prices have been on the rise since October, which is not surprising given global EV sales rebounded by 89% in the December half after being down by 17% in the first half when disruption from COVID-19 was at its worst.

After more doubling since November, the question is whether Syrah’s share price has more petrol in the tank. UBS thinks so. Earlier this week it upgraded its 12-month price target on the stock to $1.50.

It said that Balama was likely to restart in 2021, suggesting the world needs it to because of runaway growth in demand.  “Our revised projection for EV sales and in turn battery production out to 2030 sees demand for natural flake graphite rising five -fold to about 3.7mtpa from 703,000tpa (Balama’s nameplate is 350,000tpa).

MINCOR (MCR):

Remember Tesla’s Elon Musk in July last year calling on the global mining industry to “please mine more nickel”?

And remember BHP nickel president Eddy Haegel at Diggers & Dealers in October saying “nickel is a standout winner from a decarbonising world”?

Both were touching on the fact that it is nickel-dense battery chemistries that provide the long-range and load capacity needed to give EV’s victory over ICEs.

Unlike most of the other key battery materials, there are real concerns that nickel supplies for the EV and battery storage of renewable energy will struggle to keep up with demand.

Battery demand is currently a small component of nickel consumption, with stainless steel by the far the biggest end -user.

But most have battery demand alone for nickel increasing by seven-fold to around 1.4mtpa by the end of the decade. No one is sure where it will come from.

That’s why, after ignoring the broad shakedown in base metals in recent days, nickel has been a star performer in recent times.

Nickel averaged $US12,450 in the first six months of calendar 2020 and then climbed to an average of $US15,140t in the final six months. It is currently trading at $US17,866t or $US8.10/lb if you prefer.

Now it has to be said that most analysts have lower nickel prices in their models out to about 2025 when the full impact of the switch from ICE vehicles to EVs will be causing real concern around nickel supplies.

But have they underestimated the coming nickel squeeze, just as they did with iron ore, which was supposed to be $US80t by now compared with its current $165/t thanks to China’s V-shaped recovery and the supply shock in Brazil?

Time will tell. What is more certain is that nickel looks to be the place to be in coming years. It is against that backdrop that Mincor (MCR) has positioned itself to resume production at its Kambalda operation early next year.

Kambalda is coming back as a producer of 14,000tpa (in concentrates) at a life-of-mine all in-sustaining cost of $US3.13/lb, with the new Cassini orebody discovered during the downtime underpinning the low cost.

Macquarie has a 12-month target on the stock of $1.40 which compares with the current market price of $1.03, down as it is from a recent high of $1.22 due to price base metals coming off the boil, most likely temporarily in the case of nickel.

It noted that while construction is now Mincor’s focus, exploration to the north of Cassini could be a “potential positive” catalyst.

 

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