Toronto-based explorer Royal Nickel (TSX: RNX; US-OTC: RNKLF) has seen its shares climb more than 50% since April, when it gave an upbeat outlook on nickel prices and announced acquiring a minority interest in a private company that’s exploring a prospective nickel property in Sudbury, Ont.
Royal Nickel has bought a 25% stake in Sudbury Platinum Corp. (SPC), a private subsidiary of Transition Metals (TSXV: XTM), which holds an option to earn up to 70% of the Aer–Kidd nickel–copper–platinum group metals project for $1.5 million. Under that deal, Royal Nickel acquired 6 million SPC units, consisting of one share and one warrant priced at 25¢ apiece.
On a recent conference call, Royal Nickel’s interim CEO Mark Selby said the acquisition fits the company’s strategy of adding high-quality nickel projects to its portfolio, given limited new supply and an anticipated shortage of the metal in mid-2015: “We’re always looking for the best opportunities in the nickel space, and we believe that the Aer–Kidd property is truly one of the great exploration opportunities in the world.”
The 2.8 sq. km Aer–Kidd property covers 1.3 km of the Worthington offset dyke near Worthington, Ont., in the Sudbury basin. The past-producing project sits between Vale’s (NYSE: VALE) Totten mine and KGHM International’s Victoria deposit. Both host large resources of nickel, copper and PGMs.
Selby is counting on SPC’s management team — led by Scott McLean — to unlock the potential value at Aer–Kidd. McLean’s team has discovered a dozen nickel deposits to date, including the producing Nickel Rim South mine in Sudbury. “We hope they’re able to work their magic and expertise on the Aer–Kidd property,” Selby told analysts and investors on the call.
McLean says his team intends to spend $1.5 million on Aer–Kidd this year. Some planned work includes re-logging old drill core and finishing borehole geophysics and drilling. The project, wholly owned by CaNickel Mining (TSX: CML; US-OTC: CMLGF), has seen little modern exploration, particularly at depth. “We will be aggressive on Aer–Kidd, McLean noted. “That will be our main focus of activity for the next six to eight months.”
SPC also wholly owns the Owen nickel property near Sudbury, while Royal Nickel’s main asset is the Dumont nickel project, near Amos, Que.
At press time Royal Nickel shares traded for 66¢, after hitting a 52-week high of 75¢ in the days after the deal.
Royal Nickel believes the fundamentals for nickel are strong, with prices possibly returning to 2006–2007 levels of US$15 to US$20 per lb., as demand surpasses supply.
The spot price for nickel is hovering around US$8 per lb., up US$2 from the lows of January, in response to Indonesia’s ban on exporting unprocessed nickel ores, Selby said on the call. He believes the Jan. 12 ban will stick around and reduce nickel pig-iron supply, which is an intermediate nickel product used to make stainless steel.
Haywood Securities analysts say the Indonesian ban limits low-cost nickel pig-iron feed to the Chinese market, causing the recent rally in nickel prices. The firm says that three-quarters of Chinese nickel pig iron was sourced from Indonesian ore, noting there are little sources of similar-quality ore elsewhere, and concluding that “a strictly enforced ban could lead to a significant global deficit as early as mid-2015, despite current high LME inventories . . . and large ore stockpiles within China.”
Salman Partners analyst Raymond Goldie believes that by next year China would need to cut back its nickel pig-iron production, further driving up nickel prices.