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 Fri Aug 21, 2020
Tracker: What's Next for FPX Nickel Corp
    Publisher: Kaiser Research Online
    Author: Copyright 2020 John A. Kaiser

 
FPX Nickel Corp (FPX-V: $0.530)
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Tracker - August 21, 2020: What's Next for FPX Nickel Corp

FPX Nickel Corp is a Bottom-Fish Spec Value rated Favorite based on the work the junior has done since acquiring 100% back from Cliffs in 2015 to improve the economics defined by a PEA Cliffs produced in 2013 after spending $22 million on the project since optioning it in 2009. Nickel prices have traded between $4-$6/lb since FPX recovered 100% which has been a problem for the junior because the 2013 PEA required a $9.39/lb price for Decar to be viable. During the past 5 years FPX has worked to improve the fundamentals of Decar. One improvement was an updated resource estimate in 2018 after FPX delineated the higher grade Southeast Baptiste zone which runs 0.13%-0.16% nickel and can be mined during the first six or so years of what would be a 40 year mine life operating at 120,000 tpd with an average grade of 0.123% nickel. An even more important change was to demonstrate that a flotation circuit could replace Cliffs' gravity circuit after the initial magnetic separation stage. With the help of finer grinding magnetic separation reduces the ore mass to 10% which can be floated at 12,000 tpd to separate the magnetite. The result is a 65% nickel concentrate with 90%-95% payability instead of a 13.5% nickel concentrate whose payability Cliffs estimated at 75% of the LME nickel price. There have also been changes on the more abstract ESG front. Studies indicate that the magnesium rich tailings play a carbon sequestration role that could make the Decar nickel mine carbon neutral. Preliminary testing has shown that high pressure leaching of the concentrate can produce battery grade nickel sulphate of great interest to the electric vehicle industry. In addition the whole ESG concept has moved beyond the fringes and is being taken very seriously by brands such as Tesla and Apple who face serious challenges demonstrating that their raw material supply chains are not polluted by very dirty inputs. While FPX has disclosed all these changes, what the market really needs to know is how have these changes impacted CapEx and OpEx. FPX has signaled that CapEx will be significantly higher than envisioned, and it is hard to imagine that OpEx has gone down as a result of the flowsheet changes and greater attention to the tailings management plan. in late February 2020 FPX made a decision to proceed with publishing an updated 43-101 compliant PEA which is now expected by mid September 2020. Tracker Aug 18, 2020 is a must read review which also includes a speculative DCF model of what the updated PEA might look like. The model shows extreme variability for Decar's value, ranging from a negative value at $5/lb nickel using a 10% discount rate to $19/sh at $10/lb. FPX's updated PEA will thus be a very important milestone because the market will be able to use FPX's numbers to model how the future value behaves at different nickel prices. Key will be the lowest nickel price needed to justify development and how that relates to long term nickel price expectations. CEO Martin Turenne estimates that completion of a PFS, the next logical step, would cost about CAD $10 million and take until Q3 of 2022 to complete. The PFS would involve large scale metallurgical studies and geotechnical drilling for pit and tailings facility design, neither of which generates news of much interest to new investors. The PFS budget, however, would allow for a first ever exploratory drill program on the Van target which has a tonnage footprint similar to Baptiste, but outcrop runs values in the 0.14%-0.16% nickel range. Given the homogeneity of these deposits it would not take much to establish a maiden resource estimate for Van by early 2022, though reported grades during 2021 drilling will pretty much tell the story to the market. This could give the stock a "discovery" boost because metallurgy will not be different, allowing Van to become the initial deposit mined. A key milestone following release of the updated PEA will be a financing that allows FPX to start with the PFS. If the PEA numbers are similar to what I am modeling, I expect the stock to re-price fairly quickly into the $1.00-$1.50 range where it should be able to attract institutional backing. And if Elon Musk is not a drivel fountain, and truly wants an ESG qualified source of nickel for his products, maybe he will step up with some cash to show his support. If the PFS still shows the project is viable in Q3 of 2022, a feasibility study would be the next step which Turenne estimates would cost $15 million and take a couple years. However, the permitting cycle would have to start at the same time, could run 3-4 years, and cost an extra $10-$15 million. That means the earliest for a permit and construction decision would be late 2026. So a bet on FPX is also pretty much a bet on what the price of nickel will be in 2026 and beyond without taking general inflation into account. Since nickel lacks the glamour of gold, a big uncertainty will be the market reception to the updated PEA, particularly in the eyes of ESG credit hunters and producers looking for a long lived, homogenous nickel supply in a secure jurisdiction close to primary markets and not requiring access to a smelter. Depending on the quality of FPX Nickel's new backers, the stock could establish a price in the $2-$4 range by the end of 2021 ahead of a buyout by a producer. Any such buyout will not be done cheaply, for insiders who have been funding FPX with zero warrant financings since 2015 own about 44% of the issued stock. If the updated PEA numbers are good, FPX Nickel Corp will be upgraded to a Fair or Godd Spec Value rating.

*JK owns shares in FPX Nickel Corp

 
 

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