Nickel the stand-out opportunity, says respected minerals economist

And the falling stockpiles are more good news for Mincor and its growing Cassini discovery
26th April 2019
Barry FitzGerald

Copper is the favoured metal of the big end of town miners like BHP and Rio Tinto when it comes to allocating exploration dollars.

Revved up in part by the electric vehicle revolution and the electrification of Asia, demand for the red metal will certainly move in the right direction in the years to come.

But does that mean that the price will also head higher from what veteran minerals economist Richard Schodde at MinEx Consulting calls the “wisdom of the crowd” on long-term prices, or the consensus of economic forecasts put another way?

Schodde, a refugee from his minerals economist days at WMC and then BHP, does not think so.

At a recent “Mining Mates Lunch” in Melbourne hosted by the corporate advisory and equities firm, Rawson Lewis, Schodde worked his way through 80 slides of facts, figures and trends to make his point.

To the surprise of many in the room who thought copper’s rosy demand outlook would also mean rising prices, Schodde said the crowd’s $US2.75/lb long-term price for the metal was about right.

But he painted a different picture for the other leading metals.

“The wisdom of the crowd doesn’t fully capture the realities of the inefficiency of exploration and the challenges of getting a discovery in to production,” Schodde said.

“So if you take a 20-year view, basically the consensus economic forecasts from all of the smart people in industry are getting it wrong, in my opinion. They are too low. Except for copper.

In essence, Schodde was saying that as the crowd’s long-term price forecasts are too low for metals other than copper, there would be a lack of incentive to conduct the exploration required to find the next generation of deposits.

It raises the question of whether we are in danger of not finding enough metal – other than copper - to meet our future needs. The fix is higher prices.

“At $US1200 an oz gold (consensus long-term pricing) we are not finding enough economic gold that will be mined to meet our future needs. So $1200 an oz gold is not the right price of gold going forward, or we have to be smarter in how we do our exploration,” Schodde said.

“You get the same thing for zinc. It looks reasonable in terms of discovery rates going forward but when you adjust for the likelihood of them being developed, $US1/lb for zinc is probably not enough to clear the market.

“And the clearing price for uranium for the market to be in balance is $US65/lb.

“Nickel is even more extreme because we are just not finding nickel sulphide deposits (nickel laterites are difficult to turn in to economic mines). So a price of $US7.30/lb is clearly not sufficient going forward,” Schodde said.

Of the non-copper metals mentioned there, gold and zinc are currently trading above the crowd’s long-term forecasts, gold modestly and zinc substantially.

That leaves nickel and uranium where some serious upwards price action from current levels, to beyond long-term consensus, is needed if we don’t want to run short of the stuff.

That’s got to be good news for the nickel stocks and just maybe, the uranium hopefuls.

 

Mincor

Mincor’s (ASX:MCR) March quarter report this week neatly fleshed out Schodde’s “extreme” nickel rating.

Saying that the nickel price and industry dynamics were “very positive” in the quarter, Mincor noted that LME stockpiles fell to 182,574t by the end of the period, the lowest in five years.

The stockpiles have fallen further since to 176,946t.

“To put this in perspective, the LME stockpile now represents just one month of global supply – reinforcing that demand has been outstripping supply for several years,’’ Mincor noted.

Mincor’s share price is benefitting from all that. Last mentioned here on March 22 when it was 42c, Mincor has since moved higher to 49c as the market warms to plans by  new MD David Southam to resume production at Kambalda.

To that end, and as previously reported, Southam has secured an offtake agreement with BHP on “substantially” better terms than the previous arrangement.

Another kicker came during the week with news that the resource base at the Cassini discovery had been increased by 9,800 tonnes or 52% to 28,500 tonnes at an impressive grade 3.7% nickel, carrying Mincor’s total Kambalda resource base to 128,600t of nickel.

Cassini, along with the two existing mines (Ken/McMahon and Durkin North), underpin Mincor’s restart plans, with the Cassini upgrade answering a lot of questions about the ability of the Kambalda field to keep on giving to ensure a long-life.

Alchemy Resources

There are many reasons to think the market is being overly mean in valuing Alchemy Resources (ASX:ALY) at 1.6c for a market cap of about $7m.

Its suite of NSW nickel-cobalt (with resources) and gold/base metals interests are enough in themselves to justify the argument.

Then there is its big tenure position at its Karonie project in WA along strike from some big known gold deposits, and its royalty payments to come in the fourth quarter from the Hermes gold mine, and the joint venture with the TSX-listed Superior Gold (TSX:V:SGI).

Today’s interest though is its involvement in Sandfire’s (ASX:SFR) hunt for another DeGrussa/Monty orebody in WA’s Bryah Basin.

The program has just kicked off and got a special mention by Sandfire on its analysts call for the March quarterly.

Sandfire’s exploration guy said the Alchemy ground which Sandfire is farming into was a new area for the company.

He said it was poorly tested but that Sandfire believed it was “exceedingly prospective” for DeGrussa/Monty style orebodies.

He also commented that it was the first time he had a greenfields area to drill along strike from DeGrussa on the northern side of the Bryah.

Sandfire needs another discovery in the Bryah to extend the remaining four-year mine life of DeGrussa/Monty. Alchemy needs some trigger to bring a sharper market focus on to its value proposition.

Who knows, the drilling program (Sandfire is spending $3.1m by the end of the year to earn up to an 80%) just might meet the needs of both.

Alchemy MD Leigh Ryan summed up the state of play: “Sandfire has unequalled knowledge and information on De Grussa-style mineralisation and are fully incentivised to find another major copper-gold deposit in the district. This is a very exciting time for Alchemy and we’re looking forward to a steady flow of drilling results over the next few months.”

By the way, Northern Star (ASX:NST) is a 14% shareholder in Alchemy.

 

 

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