Consolidation Opportunities in an Emerging Nickel Region

Report Highlights

• Kenbridge hosts high-grade open-pittable/underground resources totaling 146 Mlbs Ni, and 78 Mlbs copper. The property hosts class 1 nickel, essential for lithium-ion batteries in electric vehicles/EVs.
• Although EV metal prices have weakened due to slower EV sales growth, and rising supply, we maintain a positive long-term outlook on the EV sector. Battery and EV manufacturers, along with miners, are actively seeking stable and long-term supply sources of EV metals.
• A 2022 Preliminary Economic Assessment (PEA) on the Kenbridge project returned an After Tax-NPV5% of $109M, and an AT-IRR of 20%, using US$10/lb nickel vs the current spot price of US$7/lb. The project’s break-even nickel price is US$8/lb for a minimum 8% IRR.
• Nickel prices are down 11% YoY amid a higher supply surplus, and a stronger US$. With the market expected to stay in a supply surplus in 2025, we foresee nickel prices remaining soft in the near term. However, we anticipate long-term prices to range between US$8-US$10/lb, as most large undeveloped nickel projects cannot generate attractive economics if prices fall below US$8/lb.
• Although near-term EV prospects are impacted by Trump’s policy changes and reduced incentives, global EV sales growth forecasts remain robust (15-20% in 2025 vs. 25% in 2024). While Trump’s tariff threats create uncertainties, we anticipate demand for consolidating EV metal sources in North America to reduce reliance on China.
• TN is trading at $0.12/lb NiEq vs the sector average of $0.19/lb, a 40% discount. 
• Upcoming catalysts include completion of the all-season road, resource upgrade/expansion drilling, and M&A prospects. 

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:

• $4M for resource expansion and upgrade drilling
• <$1M for EM and IP surveys, as well as geotechnical drilling and testing
• $1.5M for environmental baseline studies related to project permitting, and completion of the all-season access road

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):

• Volatility in nickel and copper prices 
• Exploration and development 
• Project financing may take longer than expected
• EIA and permitting 
• No guarantee that the company will be able to simultaneously advance all of its projects
• Ongoing support from First Nation communities near the project is crucial