Global demand for primary nickel is expected to increase 12% in 2021 to 2.67 million tonnes, while primary nickel production is expected to increase only 9% to 2.7 million tonnes, according to International Nickel Study Group. Currently, about 65% of annual nickel production is used to make stainless steel. However, electrified vehicles (EV), the demand for nickel for use in batteries, is expected to reach 1.3 million tonnes per year by 2030. You read that right, EV demand alone could consume nearly 50% of current global nickel production for the foreseeable future. There is no renewable or low carbon replacement for stainless steel, so the demand is not going to go away. Suffice it to say that the supply and demand picture looks reasonably healthy for nickel for the foreseeable future, which could explain why nickel prices have risen nearly 10% since the start of the l year, despite an 11% drop from their recent highs in September.
when we last visit an interesting opportunity to gain exposure to this raw material, Nickel 28 Capital Corp. (TSXV: NKL), was on the cusp of a transformational change whereby they were on the verge of repaying the operating debt of the Company’s core asset, an 8.56% stake in the joint venture Operation Ramu Nickel-Cobalt in Papua New Guinea. Under a joint venture agreement with the mine’s majority owner and operator, Metallurgical Corporation of China Limited (MCC), it, MCC, provided financing for the construction and development of the Ramu mine. Nickel 28 had two separate debt agreements with MCC – one to finance the initial construction of the mine (construction debt) and a second amount to finance the ramp-up and initial operating expenses of the mine (operating debt ). 100% of the mine’s operating surplus has first been used to repay operating debt and related interest, which means that once these are repaid, a significant amount of free cash is available for Nickel 28.
Once the operating debt is repaid, Nickel 28 can repay the construction debt at any time without penalty, but is entitled to its 35% share of the mine’s operating surplus, with the remaining 65% being used to repay any remaining construction debt and related interest. For the three months ended June 30, 2021, Nickel 28 Capital Corp. recorded $ 8.4 million for its share of operating profit from the Ramu mine and $ 14.9 million for the first six months of 2021. Assuming they make the final payment of $ 10.2 million dollars to operating debt, which is expected to leave $ 1.6 million ($ 4.7 million x 35%) to add to quarter-end cash of $ 4.6 million. Going forward, Nickel 28 could add 35% to $ 7-10 million per quarter, depending on mine production and commodity prices. But what to do with all this money? This is significant liquidity for a company that also manages a portfolio of eleven royalties (see below). Nickel 28 says it intends to continue investing in a portfolio of streams, royalties and direct interests in mining properties focused on cobalt and nickel, which could use some of that additional cash.
Source: Nickel 28 Capital Corp. Q2 / 2021 management report
But perhaps even more compelling than all the potential benefits of royalties is the path society takes on the environmental, social and governance (ESG) front. There is no doubt that the focus is more and more globally on safety and with a minimal environmental footprint that you provide your merchandise. To this end, on February 9, 2021, the Company announced that it had completed an independent greenhouse gas (GHG) intensity analysis for the Ramu nickel-cobalt operation, confirming that the operation is one of the least GHG emitting in the world. industry. Ramu’s average GHG intensity was calculated to be 15.6 tonnes of carbon dioxide equivalent per tonne of nickel (15.6 tCO2e / t Ni) contained in the mixed hydroxide product. This compares favorably with an average nickel industry GHG intensity of 36.6 tCO2e / t Ni calculated by Wood Mackenzie. Then, on March 15, 2021, in an industry first, Nickel 28 purchased carbon offsets for its share of Ramu’s nickel and cobalt production. The carbon offsets will fully offset Nickel 28’s anticipated 2021 attributable GHG emissions from Ramu’s integrated nickel-cobalt mine, making it the mining industry’s leading carbon-neutral refined nickel-cobalt producer. That should put Nickel 28 in all green ETFs once everyone gets the hang of that.
With 85.7 million shares outstanding, the company has a market capitalization of approximately C $ 79 million based on yesterday’s close of C $ 0.92. When you think about the value of an 8.56% stake in a world-class producing nickel-cobalt mine, plus the cash flow it is about to start generating, one can do a thesis quite convincing investment. The fact that they are perhaps the greenest miner around should give it a premium over any other metric you want to use to measure this business. So if you are interested in having some exposure to nickel, the commodity, you might want to look at Nickel 28 Capital Corp.