Recording date: 30th November 2023

The Battery Show (Copper Bottomed, Episode 7)

A double-header this week as Merlin was on Jury Duty for the past fortnight. Key market news includes Supreme Court of Panama ruling that the Cobre Panama contract was unconstitutional. The mine produces about 25,000 tonnes of copper per month and has closed down, temporarily one would think. 

Also in the news is the purchase of the 1.9 Mt contained copper Khoemencau project by China’s MMG for US$1.9 billion. Another major that finds it easier to buy than to discover. 

Merlin then runs through two weeks’ of exploration results from: DLP Resources, American Pacific Mining, Atico Mining, Cascadia Minerals, Lara Exploration, Halcones Precious Metals, Northstar Gold, O3 Mining, Benton Resources, Minsud Resources, Arizona Sonoran Copper and Pacific Ridge Exploration. 

Poor drafting abounds, and several companies continue to ignore TSX reporting guidelines. Repeat offenders are losing airtime. Benton Resources is producing some cracking results. 

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Recording date: 17th November 2023

The Battery Show (Copper Bottomed, Episode 5)

Copper has long been considered a bellwether for the global economy, yet prices have held up remarkably well lately despite economic headwinds. This resilience is signaling strengthening fundamentals poised to drive copper higher. Supply constraints are mounting while demand continues to expand, tightening the market more rapidly than expected.

Most impactful was Ivanhoe Mines’ mega discovery in the Democratic Republic of Congo of over 16 million tons of 3.55% copper along with 154 million tons at 1.89% copper. This remarkable grade is nearly 7 times the global average, with over 3 million tons of contained copper. Once infrastructure is established, this could be a generational low-cost, high-margin mine.

Alarm bells are ringing on the supply side as smelters struggle to source enough copper concentrate. Trafigura is now having to help Chinese smelters obtain sufficient imports to meet blistering demand. With mines already operating full tilt, this sets the stage for the type of demand-driven copper bull markets of the past.

Meanwhile, Cobre Panama, one of the world’s largest new copper mines, is experiencing severe production issues. Output is being throttled back as protests block port shipments. Many experts believe its mining license will be revoked, potentially removing 300,000 tons of supply next year. This would substantially reduce the forecast 460,000 tonne market surplus in 2023.

The demand backdrop remains positive for copper as well. Commitments were renewed at COP27 to triple renewable energy capacity by 2030. This will necessitate a tremendous amount of copper, as renewable systems require 4-5 times more copper per megawatt than conventional energy.

While inflation is easing a bit, governments are still spending heavily on infrastructure and stimulus programs. Manufacturing and construction activity in top consumer China have also picked up. With the electrification of transport gathering pace, copper demand looks resilient despite economic hurdles.

The takeaway is clear - new supply is not coming online fast enough while demand continues expanding. Copper prices need to rise considerably to incentivize the huge investments required for new mines. Juniors offer upside potential, but extensive due diligence is mandatory given the risks.

With global decarbonization accelerating, copper will become increasingly scarce. Its essential role in renewable energy makes it poised to be one of the best performing commodities of the coming decade. Investors seeking commodities exposure should have copper at the top of their list. The warning signs of a major supply shortfall are already flashing bright red.

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Recording date: 16th November 2023

Nickel, trading down again around $17,000/tonne level (think may briefly touch $16,500), but expect to trade in its recent range between $17,000-$17,500 before we start moving higher at year-end. LME inventories in the same range. Ore and NPI prices both came off their recent highs as was reported that Indonesia granted some temporary ore quotas to reduce the need to import ore.

Before getting to company news, and a follow-up from last week, global EV sales were up 23% in September and YTD up 39% - hardly a death spiral that you might think given some of the recent headlines…Remember some key markets saw the removal of some subsidies which obscure overall trend.

Is anything wrong with CNC?

Spruce Ridge just acquired 80% interest in Homeland Nickel with the project in Oregon which was home to US’s only nickel mine for quite a while. Steve Balch, interim President and CEO, stated, “Spruce is poised to enter the U.S. critical minerals market with two important properties containing significant resources of nickel with further expansion potential. We have now signed the definitive agreement to complete the acquisition. Together, Cleopatra and Red Flat have resources equivalent to over 1 billion pounds of nickel.” Cleopatra and Red Flat are nickel laterites with resources identified in soil and rock. The most recent work included unpublished NI 43-101 reports (“Evaluation of the Cleopatra Ni/Co Property Mining Potential, Curry County, Oregon, U.S.A.”, A.J. Rancourt, 2009 and “Evaluation of the Red Flat Ni/Co Property Mining Potential, Curry Country, Oregon, U.S.A”, A.J. Rancourt, 2009) which identified total inferred resources at Cleopatra of 39.5 Mt grading 0.93% Ni and at Red Flat of 18.8 Mt grading 0.84% Ni both using a 0.7% Ni cut-off.

Horizonte Minerals, from bad to worse, and not sure what’s worse than worse. Provided project updates, ”to manage resources and funds whilst undertaking discussions with the Company’s cornerstone shareholders and lenders, the Company intends to reduce construction activities at Araguaia, advancing only critical work streams” to preserve remaining cash into the new year. Not expecting the funding solution to close until the end Q1/24. On earlier shows, we were suspicious of capex estimates (given Barro Alto and Onca Puma costs), but after multiple investors came in, thought maybe we were being too hard…

Centaurus announced a further delay in completing FS – now coming in Q1/2024 because engineer Ausenco needed more time to complete opex and capex estimates as suppliers are slow in responding

TLO released 14 holes – some good grades – 14 out of 20 outside the current resource.

IGO-Buxton Resources JV – had one of the best holes and new greenfield discovery in the Kimberly region in the north.  Good picture of “pentlandite eyes” in the core and a well-laid-out release which lets you see the size of the target (currently not massive)
Table 1: Dogleg Prospect Significant Drill Intersections: 23WKDD003 177.34 13.24metres of 4.35Ni,  0.34Cu,  0.15Co includes 5.60metres of 7.47Ni, 0.31Cu, 0.25Co

IGO - Cosmos - have spent more than $A500 million developing so far, suspended guidance for the year. Was part of the acquisition of Western Areas they wrote off nearly $A1 billion shortly after the acquisition. Figuring out how to ramp up. Talk about grade so often – this is a past-producing mine targeting new deposits with 10 million tonnes at 2% nickel and they’re struggling. 

Premium Nickel (PRNL) also released drill results – consistent with what’s there but grade x widths at the depths they’re talking about are tough to see how economic it is.

SNUG-23-025 (South Limb): 9.25 metres of 1.78% NiEq (1.35% Ni; 0.67% Cu; 0.07 % Co)

SNUG-23-018 (N2 Limb): 9.85 metres of 1.28% NiEq (0.77% Ni; 0.95% Cu; 0.04% Co)

including 5.6 metres of 1.06% NiEq (0.50% Ni; 1.13% Cu; 0.03% Co) and 2.45m of 2.24% NiEq (1.75% Ni; 0.72% Cu; 0.09% Co)

After Horizonte Minerals and Chalice Mining,  need to highlight this company valuation (and kudos to them for getting it to this level) relative to other projects in the nickel space.  It’s more than a number of other nickel projects with larger and/or higher grade resources, much more advanced, is ¾ of Centaurus which is going to have FS out shortly.

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Recording date: 9th November 2023

The Battery Show (Copper Bottomed, Episode 5)

This week's discussion covers recent exploration results and market news related to copper mining companies. Merlin starts with Arizona Sonoran who announced drill results from its Parks/Salyer and Cactus Mine projects in Arizona, USA. The company completed infill drilling at 38-meter spacings at both deposits, highlighting continued mineralization. The best results were 1.97% total copper over 165 meters at Parks/Salyer and 83 meters at 2.5% soluble copper at Cactus East.

Valhalla Metals, a small exploration company with an $8 million market cap, reported results from its maiden 4-hole, 1100-meter drill program at the Sun project in Alaska, USA. Highlights included 21 meters at 6.8% copper equivalent. However, only 1.3% was actual copper, with the rest being zinc. The company used questionable assumptions for the copper equivalent calculation. Overall, the project relies on nearby infrastructure being built by Trilogy Metals.

Benton Resources, market cap of $24 million, announced partial assays from its first drill program at the Great Burnt copper-gold project in Newfoundland, Canada. Early highlights included 4% copper over 3 meters and 8% copper over 4 meters. Due to early success, the initial 2000-meter program has been expanded to 4000 meters. However, the news release included confusing technical jargon and lacked cross-sections. Previous drilling delineated a 670,000-tonne resource at 3% copper.

Imperial Metals, market cap of $312 million, drilled 165 meters at 3% copper at its Whitting Creek target, located 8.5km from its past-producing Huckleberry mine in British Columbia, Canada. The intersection is at the reserve grade of the former mine, which closed in 2016. More exploration work is underway to potentially expand resources and restart the Huckleberry Mine.

Mine supply is expected to peak in 2026 while the project pipeline is low, pointing to supply shortages. $120 billion of investment is estimated to be needed over the next decade to fill supply gaps. Demand continues to grow, especially related to electrification and grid infrastructure. Overall, higher copper prices will be needed to incentivize new mine development.

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Recording date: 7th November 2023

Nickel prices trading this AM at $17,600 ($8.00) after trading back up to $18,000 at start of the week. Got a little boost as a few thousand tonnes came off LME inventories taking them back to where we were at the start of October. Expect nickel prices to bounce off the bottom here for the next little while until we underlying growth in both EV and stainless comes through and we get past battery chain destocking from lower lithium prices (will get into some of the details later in the discussion today).

“Great convergence” still underway – sulphate prices trading flat to nickel prices, NPI discounts continue to contract by another several per cent, and MHP now trading at 78-80% of LME price (about halfway back to the low 90s% level 18 months ago). One analyst reported seeing more contracts now incorporating processing fees (25,000 RMB / $3,400 per tonne) rather than %.
Bulls emboldened to push back as more stories about ore quotas and ore imports from the Philippines. Indonesia set to unveil new pricing mechanisms at the end of the month – stay tuned. Indonesia has more control over the nickel market than OPEC did at its peak – no 4X increase in price, but will do what it takes to maximize value from a finite resource base.

China’s Stainless Steel Council has released the country’s output figures for the first nine months of this year. Crude stainless steel output over this period was 26.6Mt, up 11.8% on a y/y basis, while that of nickel-intensive 300-series was up 14% y/y at 13.6Mt. Combining production and trade, China’s stainless steel apparent consumption rose 9.2% y/y to 22.3Mt during the first nine months. Will see production rates drop off a little bit during the last few months as Chinese seasonal demand is not as strong as anticipated – but strong demand given all of the economic headwinds we’ve had over the last 12 months.

EV sales – will have more next week for September – but China is up 22% y-o-y.  People seeing a few models not selling well and extrapolating across the market – will be interesting to see what totals look like for the US. Will have more on this next week.

Rumours of possible limited FT agreement with Indonesia. Letter from bipartisan.

Not a concern – we need some amount of Indo nickel into US/Europe – no real new Western supply- effectively zero in next 2-3 years. Western car companies (particularly the higher end of the market, not going to depend on high carbon, environmentally damaging nickel from Indonesia. 

Canada Nickel Crawford project is the only large sulphide project that can come online by the end of 2027. We need more than half a million tonnes for US/Europe. We need EVERY big project in Canada to come to market – current across-board weakness is not reflected in physical discussions. The urgency of automakers and battery supply chain has taken a massive step change in the past 6 months – we are formally starting our process for Crawford in early December once FS report is filed end of month and expect it is going to be a very fun, profitable process for our shareholders. 

Glencore announced that Nickel Rim South (core mine in Sudbury) going on care & maintenance next April. Will be replaced by Onaping Deep mine which is ramping up in Sudbury. Keeping on C&M to be able to access Vale’s Victor deposit (which is larger than the original Nickel Rim Deposit) – is a shame for Sudbury & Canada that this hasn’t happened yet (was a key part of synergies in the 2005 Inco-Falco merger).

Magna Mining released more drill results from 4 holes from its Crean Hill project – the best intercept (into crown pillar) was 96m of 0.75% Nickel, 1.29% Copper, and 2 g/t PM.

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Recording date: 2nd November 2023

The Battery Show (Copper Bottomed, Episode 4)

Copper prices hit $3.67/lb this week, up from $3.57/lb last week, partly driven by protests in Panama that threatened production at First Quantum's Cobre Panama mine. The mine contributes nearly 5% of Panama's GDP but protests erupted after the government rapidly passed a law extending First Quantum's mining concession by 20-40 years. The protests highlight political and social risks for mining projects, even major contributors to local economies. The resolution of the protests remains uncertain but Panama relies heavily on Cobre Panama so an extended shutdown seems unlikely.

The copper market faces a 460,000 tonne surplus in 2024 per the International Copper Study Group. However, Anglo and Teck recently cut guidance so the market could balance or even tighten if more mines miss targets. Tightness underscores the asymmetry in copper due to the lack of new mega projects coming online in the next decade.

Filo Mining discovered a new high-grade copper/gold zone outside its main Aurora resource area in Argentina, highlighting expansion potential. However, with a $2.3 billion market cap, significant new discoveries are needed to double Filo's valuation. The resource used relatively high metal price assumptions while the latest results used more conservative prices. More metallurgical work is also needed. Filo is a quality asset but substantial upside is challenging from the current share price.

Lion Copper & Gold hit high-grade copper intercepts but they were 700-900 metres deep, likely requiring underground mining. The results are encouraging but Lion needs to better demonstrate potential to delineate high-grade zones for a lower cost open pit before getting investors excited. More complete drill hole depth disclosure and metric unit reporting would also help.

Meridian Mining discovered a 3+ km long copper/zinc zone near its flagship project which could provide additional mill feed. However, reporting excavation results as copper equivalents based on existing resources is questionable. The potential value from the new zone is also unclear until more detailed economic studies are done. Meridian has upside but still carries risks typical of single-asset junior miners.

The copper market shows signs of emerging tightness but juniors with new discoveries still need to de-risk projects substantially before onboarding large institutional investors. Retail investors with higher risk tolerance may find upside in selecting exploration stories like Filo, Meridian and Lion but expect volatility and invest small amounts as part of a diversified portfolio.
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Recording date: 1st November 2023

Nickel prices bounced off the $17,500-$18,000 range as expected, with inventories continuing to gradually increase. The "great convergence" continues as the premium between nickel sulphate and NPI has narrowed.

Fastmarkets launched new price indexes for nickel pig iron (NPI) and mixed hydroxide precipitate (MHP) exports from Indonesia to bring more transparency to battery raw material markets.

Indonesia is re-confirming the ban on new class II nickel smelters to maintain balance between nickel ore supply and demand. Mining quotas will likely be used to manage supply.

Company News:
Canada Nickel released a feasibility study for its project. Alaska Energy released more drill results for its bulk tonnage nickel project and plans to release an inferred resource in 2023.

Rio Tinto signed an agreement to earn up to 80% of a nickel project from Sultan Resources by spending $2m on exploration.

Alliance Nickel delayed its feasibility study for its nickel leach project in Australia to mid-2024 due to higher than expected costs. Australian nickel leach projects have historically struggled, so new projects will need cautious evaluation.

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Recording date: 26th October 2023

Copper Bottomed, Episode 3.

This week's copper exploration news highlights both positive results and poor reporting practices. Doubleview Gold reported strong copper and scandium grades but misleadingly used copper equivalents, violating disclosure rules. American Eagle Gold also reported copper equivalents despite promising 900m of 0.5% copper. Kodiak Copper reported more copper at its MPD project but persists with questionable copper equivalents.

On the positive side, Galantas Gold properly reported 1.87 g/t gold, 1.17% copper and 1.2% zinc over 34m at its Omagh project without resorting to equivalents. However, slow progress with just 5 holes drilled in 10 months explains the stagnant share price. Excelsior Mining is being funded by BHP's Newmont to explore the Johnson Camp copper project, with good grades like 7% copper over 130m. This offers non-dilutive funding while Gunnison remains problematic.

American Pacific Mining reported an excellent 1.78% copper and 13.73% zinc over 23.4m but the share price has languished despite multiple project acquisitions. Ownership structure and plans for the Palmer project are unclear. Finally, Decade Resources reported promising copper hits and increased volume and share price traction, with mineralization outlining over 200m. However, reporting copper equivalents was unhelpful and cross-sections would aid understanding.

Overall, some promising results but poor reporting practices persist, confusing investors. Juniors need to focus on transparency, accelerating work programs, and clarifying ownership structures and financing plans to build market confidence. Adhering to disclosure rules and reporting standalone grades without questionable equivalents would also help. Promising projects need time and careful execution to prove themselves.
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Recording date: 23rd October 2023

Copper Bottomed, Episode 2. Our latest addition to the Crux Investor Batteries thematic. 

The copper price has shown resilience in recent weeks, trading around $3.60/lb, despite bearish predictions of a 467,000 tonne global surplus in 2024 from the International Copper Study Group (ICSG). Major new mines are slated to ramp up production, potentially outpacing demand growth. However, early drilling results from junior explorers around the world offer a glimmer of hope that new discoveries could help fill future supply gaps. While not without challenges, leading juniors have reported impressive early-stage intercepts, contingent on further delineation.

Double View Gold generated substantial investor enthusiasm with reported copper-equivalent grades up to 1.09% over 552 meters at its British Columbia project. However, with the actual copper grades quite modest, the company likely erred in publishing the misleading equivalents without an initial resource estimate as required by regulators. While gold, silver and scandium offer additional upside, metallurgical recoveries are still unknown. Double View also likely faces delays in its planned Q1 2024 maiden resource. More transparency around timelines and contributory metals would serve investors better than flashy copper equivalents.

Peru-focused DLP Resources fell into the same trap, touting 0.81% copper-equivalent grades that proved unsupported once underlying assays showed just 0.7% copper. By factoring in minimal credits from silver and molybdenum too early, DLP inflated perceptions of the potential copper resource. Investors should remain focused on actual metal grades rather than homogenized equivalents when reviewing early-stage exploration results.

In contrast, Hercules Silver executed an exemplary drill result release after intersecting 185m of high-grade copper at its Idaho project. Rather than wrap the results in a copper-equivalent bow, Hercules simply reported the outstanding 1.9% copper intercept transparently alongside modest silver and gold byproduct credits. Combined with releasing exceptional visual core photos, Hercules gave investors an accurate and exciting view of the discovery's world-class potential, powering a doubling of its share price.

C3 Metals also impressed by transparently outlining both significant upside and technical challenges from early drilling at its Jamaica project. Highlighting issues reaching target depth shows leadership and provides a balanced perspective. While grades currently seem modest, C3 systematically outlined an impressive scale copper-gold porphyry system with ample room for growth through further delineation.

Conversely, Aston Bay Holdings faces extreme challenges advancing a very high-grade copper-zinc discovery in remote Nunavut, Canada. The region's lack of infrastructure means only massive, exceptional deposits have hope of feasible development. Thus, impressive initial assays are currently insufficient to attract investor attention absent a dramatic increase in delineated tonnage.

Similarly, Turmalina Resources requires further drilling to prove continuity before its narrow but exceptionally high-grade Argentine copper-gold intercepts can be considered a valid development target. Promising results must evolve into contiguous, mineable mineralization to upgrade speculative appeal.

In summary, disciplined explorers with a track record of transparent reporting and communication stand the best odds of attracting investor capital amid sector volatility. While analysts call for copper market surpluses, exciting junior exploration results provide optimism that the next generation of deposits can offset the impending supply growth challenge.

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Recording date: 25th October

Nickel prices bouncing off $18,000 ($8.20) again for the balance of the week. Still expect further move lower down to $17,500 level – have seen a steady increase in LME inventories (still at a low level of 45,000) up about 1-2,000 per week

“Great convergence” – sulphate premium to briquette hanging in, NPI prices hanging it similar levels even with ore prices edging down slightly. Heading into a period where the Philippine's rainy season disrupts shipments and according to sources still seeing ore heading to Indonesia so interesting to see what will happen over the next few months as people stock up in advance

Big News out of China:

Big news overnight was Chinese stimulus which appears multiple measures to halt a slowdown in the economy.  Policy support has returned to the Chinese economy, with a plan approved to raise the fiscal deficit to 3.8% of GDP, well above the 3% target set earlier in the year. Furthermore, over and above this deficit the NPC has approved issuance of RMB1trn in long-term construction bonds, with half the funds to be spent in Q4 and half in 2024. PRC Macro note that proceeds from this issuance will be only used for infrastructure investment, mostly for hydropower and flood prevention. These funds cannot be used for building new production capacity. Meanwhile, the National Finance Conference has been confirmed to take place early next week (following President Xi’s first direct visit to the PBoC in his tenure), which will focus on containing financial risks and potentially the establishment of a permanent state equity stabilisation fund, suggesting supporting asset prices has become a policy mandate for the PBoC

Adamas Intelligence:

They look at MW of batteries installed. Remember LFP share by car is increasing but is smaller batteries on average.  High nickel batteries tend to be in bigger batteries.  In July 2023, Adamas Intelligence data shows that LFP share by MW was only up 1% to 31% and that the average passenger battery electric vehicle (BEV) sold globally contained 25.3 kilograms of nickel, up 8% year-over-year, while the average PHEV contained 6.5 kilograms, up 11% year-over-year. Multiply that by times increase in the number of cars sold.

Sharp LME price move lower driven by funds have amassed $4.6 billion in short positions against London Metal Exchange nickel contracts, helping to create a net short position valued at $2 billion, according to data from the bourse. Measured by value, that’s a record in data going back to 2018, while in tonnage terms the mismatch is near an all-time high seen in 2019.   We’ll see a move lower and also set the stage for a rebound at the end of the year (as will need to cover those shorts at some point) – given scale of the shorts is surprising nickel price not already lower !!

Company News:

Talon Metals raised $22 million to continue exploring Tamrack – a very tough market out there and good to see $ being raised.

SPC Nickel (talked about last week) – additional results from shallow infill holes WG-23-063: 1.01% Ni, 0.53% Cu over 17.00 metres (12.00 to 29.00 metres) within a wider zone grading 0.71% Ni, 0.38% Cu over 59.00 metres (2.00-59.00 metres).

Alaska Energy – first time talking about - prospect explored in 1990s by Inco.  First drilling is tapping similar historic grades over wide widths; highlights include:

• 341.6 meters averaging 0.23% nickel, 0.08% copper, 0.02% cobalt, 0.107 g/t palladium, 0.051 g/t platinum, and 0.011 g/t gold in hole EZ-23-001.

• 296.6 meters averaging 0.23% nickel, 0.09% copper, 0.02% cobalt, 0.115 g/t palladium, 0.052 g/t platinum, and 0.013 g/t gold in hole EZ-23-002.

Alaska is one of only a handful of locations where one can find nickel in the USA.

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