Nickel turnaround on the cards after stocks savaged by 20pc price drop

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1 Nickel turnaround on the cards after stocks savaged by 20pc drop Resources Reuben Adams October 3, 2018 Leonardo DiCaprio and a friend in The Revenant (2015) Nickel s have plummeted more than 20 per cent in four months, taking nickel stocks with them but experts expect a turn-around in Nickel hit a two-and-a-half year high of $US15,575 in June and is now trading at $US12,542. Only a handful of nickel stocks have made gains since June many have suffered double digit losses (see table below). But in spite of the drop, more nickel is being consumed than produced. Nickel LME warehouse stocks have continued to fall steadily. Over the past 12 months, nickel stores have dropped from 387,948 tonnes to 228,564 tonnes on September 28. Most nickel supply is used in the production of stainless steel, but demand for high-grade nickel from the small but growing lithium-ion battery market is increasing. Here s a graph showing the of nickel over the past year:

2 Nickel s (USD) over the past year. Wood Mackenzie analyst Andrew Mitchell expects s to stay about where they are for the remainder of the year, before increasing slightly in The trade war between the US and China hasn t helped pricing at all in the second half of the year prior to that, nickel demand looked like it would pick up nicely. There were [supply] deficits in the market, and everyone was getting quite excited about that scenario, he said. The trade war has given that [momentum] a real kicking in the interim. Our outlook for the reminder of the year is for s to stay about where they are our average for the year is $US13,400/ tonne. Wood Mackenzie also see a modest rise in next year to about $US14,500/t, and then going forward, s increasing further as EV demand takes hold. Demand from battery makers for nickel is already increasing and increasing significantly albeit from a modest base, Mr Mitchell said. That is going to grow much more strongly going forward, but where the tipping point actually occurs is still open for debate, he said. We have it at 2026 or 2027, where the of batteries become truly competitive. Nickel-rich batteries could put a huge dent in supply The next generation of high nickel, low cobalt NCM batteries for EV could significantly increase nickel demand and the supply could struggle to keep up. While there is still a lot of work to be done around NCMs, they have the potential to significantly increase the demand for nickel in EV vehicles, Mr Mitchell said. Whether the market can keep up with that demand looks questionable at the moment. We aren t saying it s impossible, but it is going to be a challenge.

3 But a couple of recently announced Indonesian projects could effectively wipe off those deficits if they come to fruition, Mr Mitchell said. Last week, companies led by Chinese battery maker GEM announced a $US700 million project to produce 50,000 tonnes per annum of battery-grade nickel. We do see rising s in the market going forward, but this is based on predicted supply deficits, Mr Mitchell said. We are coming to a view that the current deficits we show will be eroded somewhat by virtue of developments in Indonesia (in particular). Nickel players confident in the future Cassini Resources managing director Richard Bevan agrees that the noise around US-China trade tariffs have impacted on commodity s and share s but most producers are confident about the medium-to-long term outlook. Cassini s flagship West Musgrave Project hosts more than 1 million tonnes of contained nickel and 2 million tonnes of contained copper making it the largest undeveloped nickel copper project in Australia. The fundamentals for nickel are still good stockpiles are decreasing and there seems to be a broad acceptance that the nickel market is currently in deficit, due to the demand for stainless steel, he said. And a lot of demand is expected to kick in about 2022 to 2025 from the EV market. The fundamentals are really good. A lot of the stuff at the moment is just short-term noise. West Musgrave is currently undergoing feasibility studies, which means there is already a high level of interest from a number of Chinese off-takers looking to secure product. That is fairly common, because most of the Chinese end users have a longer-term vision they are looking to secure long term contracts for product, Mr Bevan said. Many Asian and other offshore investors take a longer-term view when making investment decisions they are trying to position themselves for the next 10 to 20 years. Here s a selection of 50 stocks with exposure to nickel: ADY ADMIRALTY RESOUR 15% 88% M AGS ALLIANCE RESOURC 32% 37% M AKM ASPIRE MINING 21% 35% M ANW AUS TIN MINING L 38% 175% M

4 AQD AUSQUEST 8% 65% M ARL ARDEA RESOURCES -34% -23% M AUZ AUSTRALIAN MINES -52% 188% M AVQ AXIOM MINING -31% -57% M AXE ARCHER EXPLORATI -24% 57% M BHP BHP BILLITON 5% 35% B CLQ CLEAN TEQ HOLDIN -42% -39% M CXX CRADLE RESOURCES -4% -32% M CZI CASSINI RESOURCE 7% 3% M CZN CORAZON MINING L -36% -70% M GMD GENESIS MINERALS -5% 33% M GME GME RESOURCES -29% 41% M GTE GREAT WESTERN EX -50% -54% M HIG HIGHLANDS PAC -23% 71% M HNR HANNANS -7% 17% M IGO INDEPENDENCE GRP -9% 36% B IPT IMPACT MINERALS 0% -45% M JRV JERVOIS MINING -24% 0% M KNL KIBARAN RESOURCE 35% 11% M KOR KORAB RESOURCES -9% 55% M

5 LML LINCOLN MINERALS -58% -75% M LSR LODESTAR MINERAL -18% 109% M MAU MAGNETIC RESOURC -23% -47% M MCR MINCOR RESOURCES -17% 39% M MEI METEORIC RESOURC -44% -60% M MGV MUSGRAVE MINERAL -8% 0% M MLM METALLICA MINRAL -34% -47% M MLX METALS X -33% -28% M PAN PANORAMIC RESOUR -4% 100% M PEK PEAK RESOURCES L -22% -14% M PNN PEPINNINI LITHIU -68% -56% M POS POSEIDON NICKEL -2% 125% M RDM RED METAL 0% -32% M RIO RIO TINTO -5% 19% B RMI RESOURCE MINING 29% 13% M RVR RED RIVER RESOUR -25% -18% M SAU SOUTHERN GOLD -32% -39% M SCI SILVER CITY MINE -37% 4% M SGQ ST GEORGE MINING 0% 14% M SPI SPITFIRE MATERIA -29% -33% M

6 TAS TASMAN RESOURCES -17% -64% M VMS VENTURE MINERALS -23% 5% M VRX VENTNOR RESOURCE 3% 1007% M WCN WHITE CLIFF MINE -81% -88% M WSA WESTERN AREAS -23% 9% M