Tracker - February 27, 2020: FPX Nickel to proceed with updated Decar PEA
FPX Nickel Corp announced on February 25, 2020 that it has decided to complete an updated PEA for the 100% owned Decar nickel project in central British Columbia. At the same time it announced a $1.5 million private placement of 8,333,333 shares at $0.15 which will boost fully diluted to 176 million and working capital to $2.4 million after making an early repayment of $675,000 on one of the underlying loans. Insiders will participate, and when I spoke with CEO Martin Turenne on February 27 after the stock had slid to $0.165 amid a broad market sell-off related to the eruption of Covid-19 in the United States, he said the financing is effectively done and will not have its price revised downward. Since preparation of the updated PEA does not require any additional physical work, I asked what FPX might spend its working capital on. In Tracker January 7, 2020 I had reported that Turenne had floated possibilities such as drilling to upgrade to indicated category the 15% of Decar's resource still classified as inferred, larger scale metallurgical studies, studies related to conversion of the 65% nickel concentrate into more broadly marketable forms, and, finally, drilling the Van target to see if higher grades at surface than Baptiste persist at depth. In light of the current market uncertainty FPX Nickel has resolved to do none of those things, and will instead focus only on delivering the updated PEA while preserving its cash for later, which makes a lot of sense to me. When I asked why FPX decided now to start work on the updated PEA, at a time where nickel has sagged below $6/lb in the wake of reduced demand due to China's coronavirus related economic slowdown, his response was that the relevant nickel price is what we might expect 5-7 years from now which is the earliest one could hope to see a large project like Decar to achieve production. Furthermore, even though we may see a lower nickel price until the market finally decides to shrug off the "pandemic" risks, supply side relief is already in the works. Construction work on $11 billion worth of Indonesian HPAL operations for limonitic ore and Nickel-Pig-Iron smelters for saprolitic ore has been suspended while the government waits for a turnaround in China. Furthermore, FPX has received feedback from potential investors and even future offtakers and developers that they want to see the cost structure of Decar in light of all the improvements FPX has achieved since the 2013 PEA by Cliffs. What the project needs is not more "discovery" of grade and tonnage, but discovery of the underlying economics of developing the project. Everybody has their own idea about the long term nickel price, but only FPX has a detailed understanding of the all-in-sustaining cost per lb of recovered nickel. The updated PEA will be a 43-101 event signed off on by third party qualified professionals. By the end of 2020 we will know what Decar is worth at different nickel prices, by which time the worst of Covid-19 will be over. The stock was offered at $0.165 on Thursday when the exchange seized up due to a technical glitch that kept it closed for the remaining two hours of the trading session. The resource juniors will remain under selling pressure until senior equity markets have stopped correcting on the downside. FPX Nickel has now given us a timeline for a potential substantial upwards repricing by the end of the year. FPX Nickel Corp is also a member of the Post Boomer Club which I have launched as part of an effort to educate new audiences about the junior resource sector. While Trackers such as this one will be restricted to paying KRO members, I will publish unrestricted Trackers tagged as "Post Boomer Club" which feature material previously presented to KRO members.
*JK owns shares in FPX Nickel Corp