Tracker - April 7, 2021: What's Next for FPX Nickel Corp?
FPX Nickel Corp was made a Bottom-Fish Spec Value rated 2020 Favorite at $0.16 on December 31, 2019, which was upgraded to a Good Spec Value rating on September 9, 2020 at $0.68 after FPX published a positive updated PEA on Sept 9, 2020 for its Decar nickel project in British Columbia, Canada. FPX was continued as a Good Spec Value rated 2021 Favorite at $0.72 on December 31, 2020, and confirmed on April 7, 2021 @ $0.71 following completion of a $16.1 million bought deal at $0.65 which brings working capital to $21 million, more than enough to fund the estimated $15 million cost to deliver a prefeasibility study by the end of 2022. The Good Spec Value rating is based on a $2-$3 fair value target price range for a project at PFS stage with an after tax NPV of USD $1.4 billion at 8% as defined by the PEA. For FPX Nickel to achieve this target price range in the near term it must overcome market skepticism that putting a 0.12% nickel deposit into profitable large scale production is plausible. The junior's closing of a $16.1 million bought deal at $0.65 (no warrant and immediately free trading) suggests the market is warming up to this idea.
SVR Overview Tracker Apr 7, 2021 explains why the stock should be at $2-$3 ahead of climbing into the $4-$6 range at the end of 2022 if a PFS confirms the PEA's number. It also describes the 3 additional vectors that could deliver much higher prices over the next 12 months. With $21 million working capital FPX is more than enough funded to complete a $15 million PFS over the next 20 months. The PFS work will involve infill and geotechnical drilling, larger scale metallurgical studies, and environmental baseline studies. None of this will generate market moving news flow. But Decar is unusual in terms of a feasibility demonstration stage project because it can add value through 3 extra channels.
FPX will begin a 3,000 m 10 hole $1 million drill program in June on the Van target located 7 km north of the Baptiste deposit that is the focus of the 2020 PEA mining plan. The 300 m angled holes will test a tonnage footprint of 500-700 million tonnes which is hypothesized to represent a homogenous ultramafic body similar to Baptiste, except that surface sampling at Van suggests a 20%-30% higher grade potential. The program should be done by mid August, with the last assays arriving in October. However, core logging will reveal very early to what extent Van is similar to Baptiste in terms of awaruite grain size distribution, homogeneity and absence of sulphides. Once assays start arriving in August we will also know how grade behaves in the third dimension, allowing back of the napkin resource estimates. Assuming FPX gets enough holes done to fulfill the hole density required for an inferred resource, we can expect a 43-101 resource estimate in Q1 of 2022. Success at Van could boost FPX Nickel's value in two ways: 1) if higher grade it could be prioritized for development which would boost the NPV, and/or, 2) if similar in nature and grade it could become a parallel mine development if FPX subdivides the Decar property and spins Van out as a separate company. The value of such a plan is that it could speed up a buyout decision by a major mining company.
The second value channel is the outcome of a metallurgical study on the conversion of the ferro-nickel concentrate into nickel sulphate expected in Q2 of 2021. The question is whether making battery grade nickel sulphate is cheap enough for Decar to serve as a nickel sulphate supplier to the EV market. At this stage we do not know if nickel will be part of the EV battery that eventually becomes standard, but having this option will be of interest to end-users concerned about the ESG status of their inputs. If FPX is successful it will need to report the cobalt grade of Baptiste in its next resource update because cobalt sulphate will be available for extraction from the pregnant liquor after the iron and nickel have been extracted. FPX has cobalt assays but has never reported them because the cobalt, which does end up in the ferro-nickel concentrate, is not payable when it is used as stainless steel feedstock. The PFS requires an indicated resource but only 17% of Baptiste is still in the inferred category; infill drilling this summer would quickly upgrade this portion of the deposit, allowing a resource update later this year which reveals the cobalt content and allows us to see what sort of revenue contribution cobalt could make if nickel sulphate conversion proves viable.
The third extra value channel will be the results of ongoing studies about the carbon sequestration potential of the magnesium rich tailings which would support the push for carbon neutrality. Decar already has world class scale; achieving a very high ESG rating would attract institutional audiences, mining majors and big end-users.
*JK owns shares in FPX Nickel Corp