A Risk on a Junior – Working Towards Being a Nickel Producer
A Quote from Norilsk Nickel
Nickel prices jumped almost 5 percent as OAO GMK Norilsk Nickel, the world’s largest producer of refined metal, said the global market will swing to a deficit next year.
The Changes in the Price of Nickel – The Metal
Charts from Kitco Metals.com
An Overview
In the world of junior miners and producers, there has been great devastation. The shares of the vast majority of these junior companies have plummeted to unheard of lows. Some have marginally recovered, but in the world of junior resource stocks, most are struggling just to stay afloat.
If you believe that this cycle, like every previous cycle since record keeping began, will run its course, and those that buy at today’s very depressed markets, will do very well, then you might do well to have a look at Royal Nickel.
We have held Royal Nickel Corporation (RNX) for some years now, and have watched the value plummet. Recently there have been a number of positive indicators, which although marginally positive, could foretell a buying opportunity.
RNX Stock Price
The chart showing the dramatic increase in value recently. From a low of $0.25, the stock took off as fears of nickel supply grew, reaching $0.75 and closed yesterday at $0.65.
If we examine the following chart, the stock opened in 2011 at around $3.00, and tumbled ever since until recently, the forecast rice of nickel started rising..
What is Royal Nickel Corporation
This is a Canadian company, listed on the Toronto Stock Exchange under the trading symbol RNX. It has excellent management, with many executives who have worked at senior positions in the major mining companies, and who then joined RNX believing that the company would be a future major nickel mining corporation.
It has a lower grade nickel deposit, that is enormous in size and is world class, ranking around 3rd worldwide in magnitude.
It is in a safe jurisdiction – Quebec Canada, where the government completely supports the company.
It has worked through most of the permits and reports necessary to move forward towards building the mine.
It’s greatest problem is the sheer magnitude of the Capex required to bring this mine into production.
The Best Way to Gain an Understanding of the Company
You can listen to the company’s presentation at its website.
You can listen to live presentation this month at the Richmond Club.
A better way to see value, is to buy when insiders are buying. Insiders are now buying this stock.
What is This All About?
It is about the world supply of nickel, and the increasing demand for nickel from the developing economies, such as China and Korea, the increasing demand for nickel as the older economies, such as the USA & the EU recover from the 2008 debacle. This is coupled with the Indonesian ban on the export of nickel and the supply difficulties from existing mines elsewhere.
When you put these factors together, industry analysts project a large and increasing shortage in the short term availability of nickel. Hence, Royal Nickel Corporation is becoming a very attractive target. See the attached article from Reuters News Agency for some details on the Indonesian ban on exports.
The following article reprinted from Bloomberg, illustrates the existing supply difficulty.
Nickel at Two-Year High as Vale Suspension Fuels Supply Concern
BY AGNIESZKA TROSZKIEWICZ, BLOOMBERG May 8, 2014 • Reprints
The suspension at the plant was ordered after a spill, according to the island archipelago’s Southern Province government. Nickel surged 41 percent in London trading this year after leading global miner Indonesia barred exports of raw ores in January. The potential for sanctions against Russia also aided prices, according to Societe Generale SA.
“Clearly with the nickel market already tightening on Indonesia and possible sanctions against Russia, this is adding to the general sense that the market is facing a supply shortage over the coming months, if not years,” Robin Bhar, an analyst at Societe Generale in London, said by phone today.
Nickel for delivery in three months gained 4.5 percent to $19,487 a metric ton by 1:48 p.m. on the London Metal Exchange after touching $19,786, the highest level since March 2, 2012.
The spill was yesterday and operations were suspended, Cory McPhee, a Vale spokesman in Toronto, said by e-mail today. “At this point an investigation into the spill and its impacts is underway and I have no forecast on how long the suspension of operations will continue.”
Norilsk Nickel
Russia, which may face Western sanctions after intervening in Ukraine, is home to OAO GMK Norilsk Nickel, the biggest producer of refined metal. The stainless-steel industry is the main source of demand, the Nickel Institute says. Outokumpu Oyj, which delivered 2.59 million tons of stainless steel in 2013, in April predicted better base prices in the current quarter.
The refined-nickel market will move to a 111,000-ton deficit next year from a 19,000-ton surplus in 2014, Barclays Plc estimates show. Indonesia supplies about 30 percent of global mined nickel, according to Deutsche Bank AG.
Vale, the world’s second-biggest nickel producer, is aiming for 40,000 tons of output this year at the New Caledonia site, formerly known as Goro, Gerd Peter Poppinga, executive officer of base metalsand information technology, said in November.
“Acid spills generally tend to be not that significant,” said Bhar at Societe Generale. “If that’s the case, production could be up and running fairly soon. If it’s weeks or months, that will change production outlook for the mine.”
A Bet on the Nickel Market – Base Metals
This is a company that has a world class asset, great management, great potential, a low cost base metal producing structure, a low cost of capex that compares favorably with other world class nickel deposits, a company that could be a 10 bagger, and a company that could be a bust.
Risks
Obviously there are risks here.
The largest being a reversal of Indonesia’s ban on nickel exports. If you listen to the experts, or to the company, they believe this risk is small.
Another large risk is whether the price of nickel will continue to rise due to production constraints, or whether, mysteriously, more nickel will start appearing.
The large Capex required is difficult to obtain in this depressed market, but if the shortage does worsen, perhaps the capital will be found.
Royal Nickel recently reported some other positive developments including a joint venture, a reduction in energy costs, and gathering interest in the story. Perhaps the largest risk is that this is a junior company that may never develop the ability to bring this property into production.
CymorFund Investment Letter Stock Picks – Buy Royal Nickel Corporation (TSXV- RNX $0.65)
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