On May 17, 2023 FPX Nickel Corp published the results of a hydrometallurgical study for the production of battery grade nickel and cobalt sulphate from the 60%-66% ferro-nickel concentrate it plans to produce from its 120,000 tpd Decar nickel project in central British Columbia. The study by Sherritt Technologies built on a scoping study published in September 2022 using a concentrate sample produced by the PFS calibre study done on the primary flowsheet for the awaruite mineralized ore in the Baptiste deposit. The work improved upon the scoping study flowsheet by adding an atmospheric leaching stage for the discharge from an initial pressure oxidation stage which allowed the recovery of a minor copper by-product and which neutralized the acid in the discharge courtesy of a reactive property of the partially leached awaruite so that the discharge could be sent back through the autoclave.
The change created three benefits: 1) removing the copper impurity in a form that has resale value, 2) reducing the amount of reagent needed to neutralize the acidity of the autoclave's discharge, and, 3) reducing the size of the required autoclave. This part of the flowsheet also removed the iron impurity which previously required a subsequent stage. Solvent extraction was then used on the pregnant liquor solution to remove the cobalt and precipitate it as a cobalt hydroxide with 99% cobalt recovery, and then applied to the nickel to precipitate nickel sulphate crystals. The optimized flowsheet demonstrated that the nickel sulphate crystals had a minimum 22% nickel content and impurity levels well below maximum specifications. The market not surprisingly yawned at this confirmation that battery grade nickel sulphate can be made from Decar's ferro-nickel concentrate which would otherwise be destined as a direct feedstock for stainless steel mills.
The nickel sulphate flowsheet will be incorporated into the PFS which is still projected for delivery in September 2023. The significance of this development is not that the nickel sulphate will add economic value to the Decar project, though this may be possible if the nickel sulphate premium above LME refined nickel is high enough. However, that outcome has two variables: the future price of LME nickel and the future premium for nickel sulphate. The real importance of this news is that it demonstrates the technical achievement of making battery grade nickel sulphate and establishes the cost of doing so. Quite likely the cost will be similar to what a battery maker may be able to pay for nickel sulphate from Indonesia, but it is the source and associated carbon footprint that matters. This is important because it expands the end-user audience for Decar's ferro-nickel concentrate beyond stainless steel makers. Currently nickel sulphate is made from dissolution of LME grade nickel briquette (matte) created by smelting of sulphide concentrates or mixed sulphide precipitates from laterite ores. Both these sources have more stages than FPX Nickel's flowsheet and have higher carbon footprints, especially in the case of Indonesia's nickel output which is mainly processed with coal powered electricity. Decar's nickel sulphate output is thus of great potential interest to North American and European carmakers, as described in a May 21, 2023 NYT article, The US Needs Minerals for Electric Cars. Everybody Else Wants them Too..
There has been plenty of head-scratching as to why none of this positive PFS related news budges FPX Nickel out of its $0.40-$0.50 trading range. I've done a 20% cost escalation for the 2020 PEA and the project still clears key development hurdles for a project of its scale and longevity. The PFS will reveal how much cost escalation has affected economics, but it will also reveal benefits from optimizations such as better recoveries. Retail audiences are generally not motivated to buy a junior whose project is at the feasibility demonstration stage, but will chase one that is trending up. Stocks at this development stage generally cannot develop an uptrend without the inflow of institutional capital. But institutions are currently avoiding the resource sector while they eye the weak post zero-covid rebound of China's economy and fret about a potential North American recession caused by persistent or even higher interest rates driven by the refusal of inflation to subside or perhaps even by a debt ceiling related default. Resource sector investors are hunkered down in the trenches.
The next fact based trigger for a repricing of FPX Nickel will be publication of the PFS in September, but that carries the risk that the numbers will disappoint the market, or nickel prices may have temporarily swooned as a result of new Indonesian supply not being matched by an increase in Chinese demand. It is possible that the revealed identity of the 9.9% strategic investor who paid $12 million at $0.50 last year would inspire an upwards repricing of FPX Nickel, but the identity of the investor would need to be a special surprise that turns heads. A mining company like Vale or BHP would inspire a shoulder shrug.
When I pressed CEO Martin Turenne on this topic he insisted that the revealed identity would have a big impact on the market's perception. That suggests it is a downstream entity. If it is a battery maker such as LG or CATL that would want an ESG qualified feedstock the strategic investment makes sense and the nickel sulphate news would be vindication even if it turns out be an economic wash. But I think a battery maker waiting to offtake nickel sulphate would hardly stir the market, even less so a more upstream chemical company with a name ordinary people never heard of. And a carmaker like Tesla also would induce a yawn because Tesla has not insisted on secrecy in other deals and having done so with FPX would just induce puzzlement. Maybe one of the other American, Japanese or European carmaker giants might excite the market, but secrecy tantalizes for only so long; when we finally find out the identity the only thing that will make jaws drop is if it turns out to be a giant, very well known brand that isn't supposed to be interested in battery feedstocks, something on the scale of an Apple or Google.
With regard to the Van deposit within the Decar property which grades similar to Baptiste and in some parts has better grades, FPX Nickel has decided not to conduct a followup drill program this year. Turenne estimates it would cost $4-$5 million to achieve the density required for a maiden inferred resource estimate. Spending less than needed to deliver a resource estimate would have no market impact other than have shareholders worry that another financing will be needed sooner than later. If FPX delivered a resource for Van similar to Baptiste the market would then ask, what is the NPV of a 40 year mine life that begins 45 years from now? Not much. What about if a parallel operation was started 15 years from now? Still don't care because the market isn't assigning a fair value to Baptiste that reflects confidence Baptiste will ever be put into production on the terms outlined in the PEA. So what difference would two birds in the bush make? Van's existence backed by a resource estimate would only matter if it could serve as a bargaining chip when majors get serious about acquiring and developing Decar. Then the threat of spinning out Van as a separate property could ratchet up the bid or the competition. So I think it is wise not to spend more money on Van for now. Does this mean there is an internal assumption no producer will come knocking until 2025? Not necessarily, because any potential bidder for FPX Nickel would understand the nature of the Baptiste and Van mineralization, would secure access to core logs through a non-disclosure agreement, and would know how to approximate a 43-101 resource estimate. |
