FPX Nickel Corp is a 2025 Favorite because it is a contrarian bet that President Trump's hostility toward the concept of climate change and energy transition goals will prove to be mere flatulence dispersed by the march of reality. FPX has a Bottom-Fish Spec Value rating because at the moment nothing is working in its favor. Its flagship project in central British Columbia which it has advanced through the PFS stage since recognizing the unusual nature of the nickel mineralization at Decar, is worthless at the current nickel spot price of $6.86/lb. The 2023 PFS used $8.75/lb as a base case price which gives the project an after-tax NPV per share value ranging from $2.52 at a 10% discount rate to $10.28 at 5%. The price of nickel, however, has been clobbered by the emergence of Indonesia has a supplier of more than 50% of global nickel production. How did this happen? During the China super-cycle Chinese stainless steel producers dealt with a soaring nickel price by developing a process that allowed them to feed something called "nickel pig iron" into their stainless steel mills. NPI was created by strip mining mineralized laterite ore in Indonesia and the Philippines, shipping it as whole rock ore to China, and feeding it into legacy blast furnaces to make nickel pig iron which was good enough to meet Chinese standards for stainless steel. During the past decade Indonesia imposed a moratorium on this process which forced the Chinese to finance smelting capacity in Indonesia which worked because Indonesia has lax environmental standards and abundant coal powered electricity. So Indonesian nickel is a cheap supply of dirty nickel that is flooding the market and forcing nickel sulphide based mines operated in the Global West to shut down. Canada's WokeOlympics gold medalist prime minister was so pleased by the idea of dumping costs outside of Canada to preserve Canada as sacred territory for its First Nations that he recently struck a free trade deal with Indonesia that will flood Canada with cheap dirty nickel.
None of this is good for FPX Nickel because what makes Decar stand out is that its 30 plus year mining plan has a very low carbon footprint that may even achieve zero carbon neutrality. The key is a mineral called awaruite, a nickel-iron alloy that is effectively natural stainless steel. It occurs in ultramafic ophiolite complexes that have undergone metamorphism that squeezed the nickel out of its otherwise inert silicate lattice prison and enabled it to combine with iron. The awaruite grains are magnetic and have a very high specific gravity which allows it to be extracted through grinding and magnetic separation. The concentrate can then be upgraded to a 75% ferro-nickel concentrate through flotation that, similar to nickel pig iron, can be fed directly into stainless steel mills. In addition to the resulting low per unit energy cost, the tailings are not only benign thanks to the absence of sulphide, but the nature of the magnesium gangue mineral, brucite, that occurs in this type of deposit, makes it very good at sequestering atmospheric carbon dioxide into an inert carbonate mineral.
The low carbon nature of Decar's potential nickel output attracted the Finnish stainless steelmaker Outokumpu as a 9.9% strategic investor with market price based offtake rights, joining an earlier secret strategic investor that owns just under 10%. The identity of that secret investor who secured no offtake rights used to tantalize the market, but today the market simply wonders who was stupid enough to think that ESG principles would prevail over the long run? My own suspicion is that the strategic investor is the carmaker Toyota which skipped the EV race because it knew the prevailing lithium ion battery was not good enough to support mass adoption except in China where "good enough" has a much lower threshold, but which was also internally working on a cost effective solid state lithium ion battery that would be good enough to support mass adoption. Given that commercialization is still a couple years down the road it would make sense that a strategic investor like Toyota would seek to remain secret. FPX has invested money developing the flowsheet for a refinery that converts the ferro-nickel concentrate into battery grade nickel sulphate, which apparently the current configuration of Toyota's solid state LiB still requires for the cathode. This refinery subtracts from the NPV and IRR of the Decar PFS, so is something for a downstream party which needs nickel sulphate to bankroll and which it can claim as "clean".
Further support for this speculation emerged when Sumitomo Metal, a real mining company focused on profits from mining, not downstream marketing advantages, also became a strategic investor just under 10%, but with the right to grow its position to 15% through open market purchases, something that has yet to happen. In addition, FPX has formed an alliance with JOGMEC, the Japanese government agency tasked with securing metal supply for Japanese conglomerates. The purpose of this alliance is to seek out other potential awaruite dominated nickel deposits in British Columbia and the rest of the world. Outokumpu and likely the secret strategic investor have a business model of selling "clean energy" products, but when Trump assumes power on January 20, 2025 they will be fighting the mantra "clean is had, dirty is good". FPX Nickel is thus a bet that the apocalyptic mind-set that personifies the MAGA movement will be short-lived, and also that the conflict between Global West and East does get hot and disrupts the flow of dirty Indonesian nickel to the Global West.
Betting that the world will reject cheap dirty nickel from Indonesia is something of a hard sell in the current political climate, but FPX does have a 75% stake in CO2 Lock which it launched in 2022 to hold those projects FPX had unsuccessfully investigated as having awaruite potential but which had an abundance of the brucite magnesium mineral which is so effective at converting carbon dioxide into a carbonate mineral. Given the vocal celebration of fossil fuel combustion by the incoming Trump administration it may seem foolish to care about carbon capture.
Interest in carbon capture may come from the fossil fuel sector itself. The current problem is that clean energy activists have been absolutists who want fossil fuels dumped yesterday and have no understanding what "energy transition" means. The fossil fuel producers do understand that there is a transition underway, and they need look no further than China to appreciate why electric vehicles are the future of transportation. While oil refined into diesel or gasoline may be a sunset industry, this is not so obvious for natural gas as a source of electricity. Until fusion energy becomes a commercial reality, natural gas and nuclear energy serving as baseload supply alongside renewables are the energy future. While nuclear energy is largely carbon free, natural gas is not. But its emissions from power generation, unlike the tailpipe emissions of ICE cars, occur in a single place, so carbon capture is a plausible strategy for limiting greenhouse gas emissions, something Big Oil will be eager to pursue. At some point FPX Nickel will spin out its 75% stake in CO2 Lock, which, if it has been successful in securing multiple "brucite" deposits suitable for carbon sequestration, could end up being worth far more than the nickel production capacity. FPX Nickel and its Decar project are stuck in the value trough of the Lassonde Curve defined by feasibility studies and permitting, at a time when the nickel price is below what it needs to be for Decar to be developed. But beyond a bet that demand for clean nickel priced at a premium to dirty nickel will emerge, FPX Nickel is also a proxy bet that energy transition goals will not be flushed down the toilet. |
