It was just over one year ago that Canada Nickel (TSX-V:CNC, OTC:CNIKF) began trading on the TSX-V and then the covid-19 pandemic essentially shut down the entire world. CNC shares have risen more than 1000% from their March 2020 lows to the recent high of $4.54 in February 2021, and Canada Nickel Chairman & CEO Mark Selby has navigated the tumultuous pandemic waters with relative ease. Canada Nickel is poised to deliver its maiden PEA for the Crawford Nickel-Cobalt Project by the end of next month which means that it was time to get Mark on the phone and get an update as to where we stand heading into this important milestone.
CNC.V (Daily - Since Inception)
Goldfinger: It's good to speak with you today Mark, I remember when things were looking pretty scary a year ago but you and the CNC team kept your head down and continued making progress even at the height of the pandemic fears last year. So far this year Canada Nickel has been busy, on February 17th you put out this new exploration target, MacDiarmid, that's larger than the Main Zone at Crawford. How did you discover this and when will you drill MacDiarmid?
Mark Selby: So it's always very exciting when it turns out you may not have found the biggest discovery on the property yet. These types of projects have a very unique to your physical footprint. Back 18 months ago when I first decided to acquire the property and informed Canada Nickel, they hired a good geophysicist who's our exploration guy, Steve Balch, and he realized there important of that unique footprint. And so what was amazing with the Crawford Main Zone was, we were able to use that coincident anomaly of a mag high and gravity low and use that to target our drilling.
So consequently, if you look at our first 24 holes that define that Main Zone, we did a good job defining the extent of the high grade mineralization. Obviously we doubled the size of it with our second resource, but we really were able to use that geophysical anomaly as a guide to zero in on the best part of what we built. And then the rest of the drilling of Crawford we had one or the other, but not that coincident anomaly, and consequently we've had decent results, but not the highest grade parts that we saw in that original drilling with Crawford.
So that's what makes this so exciting is that, again in terms of this coincidence, mag high gravity low in that area at MacDiarmid is 15% larger than what we have at Crawford. And the other part of it is, there were a bunch of about half a dozen holes that were drilled into this part of the anomaly. And they didn't do assays, they just logged the core. Again in those days if you didn't see massive sulfides, you often didn't bother asking what you're drilling for. And so, we are very excited about the potential from this target which we will drill as soon as permits received in April. Additionally, we have have several other excellent targets throughout the option properties and another half dozen good targets so no shortage of exploration potential still to unlock.
Investors need to realize that these deposits do occur in clusters sometimes: in Western Australia, the 3 largest nickel sulphide deposits: MT. Keith, Yakabindie, and Honeymoon well are all within 25 miles of each other. In the northern US, you have large low grade polymetallic Cu-Ni-cu_ PGM deposits again in a cluster: Glencore/Polymet, Antofagasta/Duluth, and several other deposits within 30-40 miles of each other. Given what we’ve seen so far in the geophysics we’re pretty excited by the potential.
Goldfinger: On February 24th, you issued a news release stating that Canada Nickel management are taking a portion of their 2021 compensation in the form of shares. I also noticed that you have continued buying CNC shares in the open market, and another insider also made an open market purchase recently.
Mark Selby: I am a big believer that if a CEO is asking new shareholders to buy stock at the current share price, that they should be willing to do the same. I think the commitment from our team to take a portion of their base compensation in equity speaks volumes to the potential of the project going forward.
Goldfinger: And then most recently, which is probably the biggest part of our conversation, you put out news that you have improved metallurgical results, and you're going to put out the maiden PEA at the end of April, because you need a little more time to run some of these tests. The metallurgy and the recovery of nickel is extremely important to the economics at Crawford. So taking some more time to get it right. Seems like a no-brainer. Can you tell us a little bit about what you're doing and how much the project economics could actually improve.
Mark Selby: Sure. You hit it on the head. Exactly. I mean, once the PEA's done, those are the numbers that we have to live with for the next eight months. I can't three weeks later put out a new set of numbers to say, "Hey, we've now included this", and the project NPV has increased by X and our cash costs have dropped by Y. What we put out in the PEA which will be out at the end of April, are the numbers that we'll have to live with until the feasibility study comes out at year end. And we've got a whole range of discussions that will open up as soon as that PEA is done. And so we wanted to have the best set of numbers there.
And again, the importance of this thing, I realized it's a little bit technical, but it's really, really important for two key reasons. So one is, in a large, lower grade deposit, like our deposit, electricity is one of the, if not the single biggest expense. And so when you're able to, by not grinding as much, reduce the amount of energy per ton, that you're going to be using by 15%, that means we're able to take the single largest cost item and reduce that on a per ton or per pound, of nickel basis by 15%, which is tremendous. The other big thing with this is again, with these larger, low grade deposits, it's all about scale.
And so again, because it takes less energy per ton, your main grinding circuit, which for our kind of project is always usually the rate limiting step. If for the same sag mill and ball mill configuration, you can now get 15% more throughput through, it's a tremendous opportunity because again all those extra tons create a significant amount of incremental cash flows. So these kind of 15% steps you don't get very often. And it makes sense for the sake of 30 days to be able to make those into the numbers.
Goldfinger: So back in October, when you put out the resource, I spent a couple hours doing some back of the napkin math, trying to get my head around what the economics might look like at Crawford. And obviously it's probably a ballpark estimate at best, some of the assumptions I made were probably not quite accurate, but it gave me a rough idea of what the economics could be with an NPV of around $800 or $900 million was roughly what I came up with. Am I in the ballpark? Is that sort of what you're seeing with your internal numbers? I mean, is there anything that you can tell us about the economics and how much the Kidd Creek angle to the story could change the economics?
Mark Selby: So in terms of the first part, I think one thing I have encouraged investors to do is look at analogues to get a real sense of what the operating costs or capital costs for a project could look like. So we're fortunate in this case is the Dumont nickel project, which I advanced in my past life with RNC, and now it's owned by Waterton. If you go to the Dumontnickel website, you can see their updated feasibility study from 2019 and in there, you'll see cash costs of the first five years sort of just under $3 a pound.I think life of mine, cash costs were approximately $3.25 a pound, and then they're all in sustaining cash costs, which are obviously the most important one because that's how much capital you need to continue to stay in the mine going forward were, I believe, $3.80/lb.
That's one of the big advantages of these large low-grade deposits is you have a huge resource that you've already basically drilled off and developed when the mine starts so you have very low AISC costs. So we're using an alternate flow sheet configuration that Dumont uses. If you go to the chapter 24 of the Dumont feasibility study, you can see what that alternate configuration looks like. And again, because we're going to use a 20% coarser grind that uses 15% less energy. We should be able to get 15% more throughput from that same configuration. At Dumont, the initial capital for their original configuration was roughly US$1 billion and had roughly a US$1 billion NPV.
So the kind of numbers that you threw out for our initial resource, we're probably going to be in that zip code when we're done. I think the key thing for us is so Dumont that was the one resource they had. That was drilled off and there was no upside by the time we got to doing our feasibility study. We'll have a significantly larger, maybe as much as double the resource by the time we lock in the resource say next fall, for the feasibility studies, that'll come out by year end. So that initial NPV numbers should be able to go up dramatically from there.
Goldfinger: So this is something we've talked about previously, I think in our last conversation we talked about this and that is the Lassonde Curve, which is something that most seasoned investors in the sector are very aware of. Look, let's talk a little bit about that because obviously you're at the PEA stage now, but you will enter the feasibility stage very soon or you're actually at the start of it now. And the feasibility stage can be challenging. And one of the things that you said though, was, well, if it was only just one project in one small area that could not be explored further, I would agree with you, but we're making new discoveries and we're stepping out across all these option properties and there's potentially a larger deposits that we haven't found yet. So there's a potential for a new discovery in a sort of a game-changer to the story. So can you tell us a little bit more about that in how you think about this as a feasibility story at the same time as it's a new exploration story?
Mark Selby: Yeah, that's a great point, and we very purposely structured our activities to be able to maintain that exploration pipeline. So we've got the Crawford, which we're advancing the PEA and FS and we're confident about the results there and that's why we're keen to get it done, but again we're sort of working our way quickly through the option properties. There are - a lot of junior miners who have one real project and one real target only. They kind of dread the impact of the curve and trying to drag out the exploration phase as long as possible because they know as soon as they start to put some economics on it, a lot of projects don't stack up very well at that point. But we're very confident in terms of where we'll end up with the project economics and pushing as hard and fast on Crawford make sense.
At the same time, It’s important , you always have to have “a little bit of sizzle along with the steak” and having the significant exploration potential that we have again what we've identified here at McDiarmid is extremely exciting. And again, we know we've got multiple targets in behind that will continue to unlock going forward. And as well too we've got a pretty good recipe here that we think we have sort of some market edge on. And so I wouldn't be surprised if we pick up a few other properties to be able to have a very deep pipeline of very high quality exploration opportunities that are going to continue to generate more new flow.
And again, obviously the ones in and around Timmins we'll continue to support a larger and larger project. The way we're designing the mill is to make it effectively modular. So you can see from the work done at Dumont, it started at 75, it went to a hundred, again, we'll have that 15% premium on top of each of those scenarios. But there's an opportunity for us to start at half that scale. Initially, we'll see whether it's half or half of that number or twice in terms of sag mill ball integrations, but we can continue to add those as the resource expands.
And again, if we expect to find what we'll find as we go forward here, that number, in terms of ultimately the scale of what we're doing, maybe it could be 50% more, maybe double? You know, we'll just see have to see what the resource base we'll be able to understand. And again, that will have a profound impact on the overall value of the asset as a whole.
Goldfinger: Well, thank you for that. I think that it definitely explains it to me a lot better, and I understand the big picture, upside, here. Let's take a step back and sort of wrap up the conversation talking about the nickel market, and battery metals market. You know, we've seen copper hit $4.40, just a couple of weeks ago. It pulled back, we're still about $4.00 a pound. We saw nickel hit about $9.00 and then drop sharply on news from China. What's your feel for the battery metals market and how high can nickel go over the coming year?
I mean, we're seeing some crazy moves in tin, all kinds of these obscure metals that most people who aren't super insiders in the industry don't really follow or even know about. But, we're just seeing shortages, we're seeing a lot of shortages. And if you read various reports about the amount, just the sheer volume of battery metals, like copper and nickel that are going to be needed over the coming decade, you could potentially get to some pretty frothy price forecast. But then, we know from being in this industry that once prices go up to a certain level, you get new supply just flooding on, and that will eventually drop the price as sharply again. So, can you tell us about what you're seeing there?
Mark Selby: Sure. So, in the nickel copper space, I provide nickel views on one of the online channels – CRUX, and are quite proud of the fact that I called the sharp move higher across the base metals back in early may when copper was $2.50 a pound and now through $4. We’ve seen this before back in 2008, '09, when we came out of that recession and at other points in time. You know, the Chinese government does a very good job when they want to stimulate their economy, they're very good at pushing capital into the excess sectors to reflate their economy. And those tend to be fairly metal intensive industries.
And so, once you sort of see that start to happen, you know it's going to move very aggressively going forward. The key piece going forward, and I think structurally medium term to keep in mind what's going to be driving it, is, again, if you look past nickel super cycle, so we had one in the late 60s, the one in the late 80s, the one in the mid 00s. And again, what I've said before is we kind of feel like we're shaping up for something heading in the middle part of this decade. The fundamental sort of consistent theme across each of those was you had a period of underinvestment that was then followed by a new source of demand that people underestimated how quickly it would ramp up and just how large that new source of demand would be.
So, in the current environment, outside of Indonesia, we've seen very little investment in new nickel supply. In fact, nickel supply and the rest of the world has actually been decreasing for most of the past decade. We now have this new EV demand growth, EV growth coming down the pipeline, and so when you take strong demand growth from stainless steel, which is always there, which people always underestimate, and then layer on some pretty heavy nickel growth forecast. And EVs, again, everything that transpired in the last six months, just say, there's going to be more EVs sooner than most people were expecting. And so, if this new source of demand from EVs on top of the existing demand from stainless, that really feels like things are going to tighten up by the middle part of this decade and tightened up pretty dramatically.
You know, nickel has always been the most expensive base metal. So it's typically only used in places where you really have to use it. . When the market is short of metal, you need significant price increases to drive some demand substitution. Now, with supply from Indonesia and laterite processing in China from nickel, or from somewhere else, that'll help take a little bit of that out. But again, it feels like in many ways that that's where we're headed. Now, news in the past week, Tsingshan announced that they were going to deliver a 100,000 tons of mat a year, starting in October, just a couple of battery producers in China, using the same ore that they used to make NPI.
Again, if you've listened to anything I've said in the nickel market the last two years... and I've been saying this for three or four years... this is not a new process. And Inco has been doing this in Indonesia for 50 years, it's the way that they make metal from the deposits they have, and said that this was a far better way to get nickel units into the EV sector, than looking at H-PAL or some other technologies that are much riskier. So, to me, A, it made sense. B, I was expecting it. And so, I think people who firmly believe in this class one versus class two thing, saw it as some sort of surprise. Again, to me it's really about not class one or class two nickel, but it's having enough nickel units overall .
Because, when you get out to the later part of this decade, Tesla's numbers alone, whether it's their 3TW of batteries in 2030, or their 20 million car target, which was talked about at their conference call at the end of January. You know, Tesla alone will need a million, a million and a half tons of nickel per year, and that's on an overall market today of two and a half million tons. And GM's going to make a lot of cars. VW's is going to make a lot of cars...
Goldfinger: Can you say that again? So, by the end of this decade, just Tesla alone could need up to a million and a half tons, and the whole size of the nickel market is two and a half million tons?
Mark Selby: Yep, exactly. So, when GM is buying Super Bowl ads and Volkswagen has Super Bowl ads about their EV platform, and both companies are banking on not close to 90% nickel batteries, there's going to be a lot of nickel needed. And, I think one thing coming out of this pandemic is there's been talking about building back better and focusing on where the world economy should go. So, you know, again, there'll be lots of incentives and a lot more people looking to get electric cars. And so, I'd rather see more supply coming so that we can grab a bigger market share. I think we're shaping up for exactly what's happened before. People in the mid 2000s completely underestimated how much metal China would need, and we saw what happened at that point. I think people are fundamentally underestimating how much new metal the EV market is going to need. So, it will make for some interesting price moves, by 2024, 2025, 2026.
Goldfinger: Yeah. That's interesting that you mentioned three, four years from now, because if all goes well with Crawford in permitting, I would guess... this is my opinion... that the project will probably come on-line about four to five years from now. So the timing could actually be perfect.
Mark Selby: Exactly. I mean, again, that's part of the reason that we're so keen to get the PEA and feasibility study done so that we are in a position to take advantage of what will be a strong nickel market. I mean, the reality is there's very little new supply outside of Indonesia. So again, I'm not that nervous about new supply coming there because Western automakers are not going to anchor their supply chain to Chinese controlled production from Indonesia. That's just too much supply chain risk. And, particularly what we've seen with the trade wars between China and US, and other markets, over the last few years. So, being one of the only people who has a shot of getting into production by the middle part of this decade, I think is a pretty exciting place to be.
Goldfinger: Can you tell us what sort of news flow we can expect over the next three to four months?
Mark Selby: Yes, PEA at the end of April. You'll see MacDiarmid drilling results sometime by the end of April. You will see additional infill and step out drilling around Crawford, and potentially some of the other targets. You'll see additional news on project engineering work get completed through the balance of the year. You'll also see more work on community, First Nations, and permitting, as we kick that off after the PEA is done.
Goldfinger: Thank you Mark, I'm looking forward to reading the maiden PEA and seeing some of those step-out drilling results.
Disclosure: Author owns CNC.V shares at the time of publishing and may choose to buy or sell at any time without notice. Author has been compensated for marketing services by Canada Nickel Company Inc.
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