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Price Performance (1-year)
Portfolio Summary
Owns three polymetallic projects in Ontario
Kenbridge Nickel Project
Located in an emerging nickel region, home to several advanced-stage nickel juniors, presenting opportunities for consolidation
Notably, Talon Metals (TSX: TLO, MCAP: $70M) has an offtake agreement with Tesla (NASDAQ: TSLA) for its Tamarack nickel project in Minnesota
Kenbridge’s mineralization is similar to Tamarack, and could serve as a potential source of feed for Talon’s proposed processing plant
Located 80 km north of New Gold’s (TSX: NGD) Rainy River gold mine which has been in production since 2017. TN has an exploration agreement in place with First Nations groups in the area
In September 2024, TN began constructing a 12.7 km long all-season road to the Kenbridge project, a move projected to significantly lower exploration costs. Additionally, environmental baseline studies are ongoing.
Management anticipates completing the construction, and related upgrades, by September 2025
The project hosts a high-grade nickel sulphide deposit. Since 1937, 667 drill holes (99,741 m) have been completed on the project.
Open-pit and underground resources totaling 146 Mlbs Ni, and 78 Mlbs copper
The deposit measures 250 m long x 60 m wide x 900 m deep. Underground resources have an average nickel grade of 1.08%; we view grades of 1%+ as high
A 2022 PEA targeted deeper/higher-grade resources. Higher-grade ore will be accessed in the initial years, implying potential for relatively high cash flows in the early stages
AT-NPV5% of $109M, and a high AT-IRR of 20%, using US$10/lb nickel, and US$3.8/lb in cash costs; the current spot price of nickel is US$7/lb; the project’s break-even price is US$8/lb for a minimum 8% IRR
TN is planning an aggressive resource expansion program, with a focus on evaluating mineralization along strike and down dip, as well as upgrading inferred resources to the indicated category.
We note that nickel sulphide deposits often have extensive vertical depths, with offset or parallel zones
Management's near-term plans include the following:
TN aims to commence a pre-feasibility study by 2026.
Financials
Subsequent to Q2-FY2024, TN raised $2M through equity financings
FRC Valuation and Rating
Juniors with higher grades generally exhibit a higher EV/lb. TN is trading at $0.12/lb NiEq vs the sector average of $0.19/lb (previously $0.27/lb), a 40% discount
The following table compares TN to other high-grade nickel juniors.
Applying $0.19/lb to TN’s resources, we arrived at a fair value estimate of $0.30/share (previously $0.38/share)
We are not making any material changes to our DCF model. However, our DCF valuation increased from $0.55 to $0.60/share due to a stronger US$
Our valuation remains highly sensitive to nickel prices
We are reiterating our BUY rating, while adjusting our fair value estimate from $0.47 to $0.45/share (the average of our DCF and comparables valuations). Valuation declined slightly due to lower sector multiples, partially offset by the positive impact of a stronger US$.
Despite facing near-term headwinds from price volatility and policy uncertainties, we believe the long-term outlook for EV metals remains strong, fueled by robust EV sales growth forecasts, and the industry's drive for secure, domestic supply chains. TN's Kenbridge project, with its high-grade resources located in an emerging nickel region, presents a compelling value proposition, particularly for larger industry players seeking strategic acquisitions. We note that through regional resource consolidation, and centralized processing, individual project economics can improve significantly through lower CAPEX, and a quicker path to production.
Risks
Maintaining our risk rating of 5 (Highly Speculative)
We believe the company is exposed to the following key risks (not exhaustive):
