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 Mon May 15, 2017
Bottom-Fish Comment: First Point to drill higher grade Baptiste southeast extension at Decar
    Publisher: Kaiser Research Online
    Author: Copyright 2017 John A. Kaiser

First Point Minerals Corp (FPX-V: $0.11)

Bottom-Fish Comment - May 15, 2017: First Point to drill higher grade Baptiste southeast extension at Decar

First Point Minerals Corp announced on May 15, 2017 that it is raising $830,000 through a private placement of 8,300,000 shares at $0.10 to fund a 2,000 m stepout program on the 100% owned Decar nickel project in central British Columbia. As with earlier private placements, there are no warrants attached. A good part of the financing is being taken down by founder Peter Bradshaw, who currently owns 13.9 million shares, and a couple other 5.0%-9.9% shareholders. The drill program will follow up a higher grade zone encountered in 2012 at the southeast limit of the Baptiste zone where a 0.15% nickel DTR (Davis Tube magnetically-recovered) grade was obtained. The average grade for the 1,159,000,000 tonne indicated resource in the PEA delivered by Cliffs in March 2013 was 0.124% nickel DTR. The PEA involved a 114,000 tpd open-pit mine with a gravity-magnetic recovery circuit. The PEA used 0.124% nickel as a life-of-mine average which First Point believes can be optimized with an ore schedule that mines higher grade ore in the earlier years. CEO Martin Turenne estimates that the drilling will test a 60-80 million tonne footprint to a depth of 350 metres in what First Point call the Baptiste Southeast Extension. If drilling confirms a higher grade zone of 0.15% nickel DTR, this zone could supply up to two years of 20% higher mill feed at the start of mining. The good news for bottom-fishers is that 2017 will not just be a year of hibernation during which the company conducts research on the marketability of a nickel-iron concentrate, but one where the fundamentals of the project itself can improve independent of the nickel price.

At 0.15% nickel DTR a tonne of ore contains 3.3 lbs of nickel, which, at the recent low of USD $4/lb nickel, is worth only US $13.20 per tonne. It is important to keep in mind that a Davis Tube assay is not the same as a fire assay which measures total nickel content regardless of its recovery characteristics. A Davis Tube assay is in effect a metallurgical recovery test which involves grinding the sample to a size fraction deemed optimal for a commercial gravity-magnetic flowsheet. In other words, nickel-iron alloy grains (awaruite) below a certain size threshold will not be "assayed" because the encasing gangue mineral reduces magnetic susceptibility. Only commercially recoverable nickel will be "assayed". The coarseness of the nickel-iron alloy grains is thus a factor in the Davis Tube grade and it appears that higher grain coarseness is a factor in the area of the Baptiste Southeast Extension. Nickel atoms tied up in the lattice of olivine are also not measured, and neither are nickel-sulphide molecules. There exist nickel "deposits" with a higher grade than Decar, but they are worthless because their nickel content has a much higher recover cost. Thus while the nickel grade seems horribly low, a 0.15% nickel DTR grade is very impressive in a bulk mining context as contemplated for Decar. However, at the current $4.00-$4.25 nickel price range Decar is sub-economic. Decar needs a nickel price in the $6-$8 per lb range to be worth developing, so at this stage Decarremains a nickel optionality play. The decision to delineate the Baptiste Southeast Extension is a positive development for two reasons: 1) it puts First Point in a better position to launch a PFS when a nickel uptrend develops, and, 2) it reduces the risk that in 2020 the US $5 million loan used to acquire Cliffs' 60% interest turns into a foreclosure by enhancing the value of Decar and thus increasing the likelihood that a future equity financing will eliminate the secured loan.

First Point, which plans to change its name to FPX Nickel Corp, was converted from a Spec Value Hunter Buy recommendation at the end of 2016 into a Bottom-Fish accumulation target below $0.10 because nickel optionality appears to be a long term play. The profitability of nickel mining has been destroyed by the Chinese invention of using nickel-pig-iron to make a stainless steel that meets China's domestic quality standards without relying on the refined nickel that comes from conventional laterite and sulphide nickel mines. Surplus blast furnace capacity enabled China to import lower grade nickel laterite ore as raw ore that was fed into the furnaces to make nickel pig iron. Indonesia and the Philippines became the world's biggest nickel producer. Indonesia introduced laws which prohibited the export of raw ore, which shut down the Indonesia as a supply of raw ore to make nickel pig iron, but the Philippines picked up the slack and is now the world's biggest nickel producers thanks to the export of raw ore. The nickel production industry looked set to get a reprieve when the new President Rodrigo Duterte appointed Regina Lopez as Environment and Natural Resources Secretary. Duterte himself has a history of hostility toward the mining industry, and appeared to support Lopez who went on a rampage shutting down half of the operating mines and many projects in the permitting process. However, her anti-mining zealotry which included shutting down gold mines such as one operated by Oceana prompted the Commission on Appointments to reject her appointment on May 3, 2017 (see The rise and fall of Regina Lopez, the Philippines' maverick environment minister for the story from an environmentalist perspective). She has since been replaced by Roy Cimatu, who is expected to take a more moderate approach to protecting the environment rather than simply rolling back Lopez's changes to "business as usual". If this turns out to be the case, we will still see a decline in nickel supply from the Philippines as the worst offending laterite operations get shut down, though not an abrupt shut down of the nickep pig iron problem. A big problem with globalized metall supply is that some jurisdictions are willing to savage their environment while others impose standards that create a higher comparative cost. This creates supply concentration different from that caused by "grade is king". First Point is thus a bet that environmental standards will eventually shut down this unfair form of competition which dumps costs onto parties who receive no benefits.

*JK owns shares in First Point Minerals Corp


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