Disclosure: Power Metallic Mines Inc. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
Subscribe for free to get exclusive insights and fair value data.
Highlights
Power Nickel has completed a resource estimate for its NISK high-grade nickel sulphide project in Quebec. NISK hosts class 1 nickel; the type used in lithium-ion batteries powering electric vehicles/EVs.
PNPN has delineated a medium-sized/high-grade resource totaling 178 Mlbs Nickel Equivalent (NiEq), up 94% compared to a previous resource calculated in 2009. We were pleased with this estimate as it aligns closely with our estimate of 188 Mlbs, per our previous report in July 2023.
Indicated resources account for 70% of total resources, implying a high level of confidence.
The average grade of the new estimate is 1.12% NiEq, which is 6% lower than our estimate of 1.17%. We consider grades of >1% NiEq high.
We believe the project has significant resource upside potential as the deposit remains open at depth. In addition, several targets remain untested.
Strengthened balance sheet through equity financings totaling $7.6M in the past four months, including $1M from Rob McEwen. Management is focused on completing a Feasibility Study (FS) by Q3-2024.
BHP (ASX: BHP), First Quantum Minerals (TSX: FM), and Wyloo Metals, are temporarily suspending production at some of their nickel mines in Australia due to a 44% YoY decline in prices, driven by slower global GDP growth, and rising supply. LME inventories are up 37% YoY. We foresee these production shutdowns exerting upward pressure on prices. We are anticipating nickel to average US$8.75/lb this year vs the current spot price of US$7.09/lb.
We maintain a positive outlook on juniors focused on EV metals. Battery/EV manufacturers/miners are actively seeking stable/long-term supply sources for EV metals. Earlier this month, Sumitomo Metal Mining (TSE: 5713) acquired a 10% interest in nickel junior FPX Nickel Corp. (TSXV: FPX) for $14M, or $0.48/share, reflecting a 45% premium over FPX’s last closing price.
PNPN is trading at $0.21/lb vs the sector average of $0.39/lb, a 46% discount.
Upcoming catalysts include resource expansion drilling, FS, and positive sentiment towards juniors focused on EV metals.
Portfolio Summary
Source: FRC/ Company
One nickel project, four copper-gold projects, and royalties in a development-stage copper project owned by Teck (TSX: TECK)
Maiden Resources for the NISK Project (Quebec)
The NISK property hosts a high-grade nickel sulphide deposit encompassing open-pit, and underground resources.
NISK Location Map
Source: Company
One nickel project, four copper-gold projects, and royalties in a development-stage copper project owned by Teck (TSX: TECK)
NISK is located in an active mining region, hosting several advanced stage lithium projects
Excellent infrastructure in place, including access to water, and low-cost hydro power
In addition to high-grade nickel, the project hosts low-medium grade copper, and low-grade gold, silver, PGM, and cobalt
2023 Resource Estimate
A medium-sized/high-grade resource
70% of resources are in the indicated category, implying high confidence
We were pleased with the new resource estimate (178 Mlbs NiEq at 1.12%) as it aligns closely with our estimate (188 Mlbs at 1.19%) from our last report in July 2023
Resource Expansion Potential
Source: Company
We believe there is significant resource expansion potential as the deposit remains open at depth
In addition, several targets remain untested
Targets
Source: Company
Commenced a drill program for evaluating four new targets
Management is aiming to complete a FS by Q3-2024
Financials
Strong balance sheet
Subsequent to Q3-2023, PNPN raised $7.64M through equity financings
Source: FRC/Company
In-the-money options and warrant can bring in $6.46M
FRC Valuation and Rating
The following table compares PNPN to other juniors with high-grade nickel projects.
High-Grade Ni Projects
PNPN is trading at $0.21/lb NiEq (previously $0.24/lb) vs the sector average of $0.39/lb (previously $0.49/lb)
Source: FRC/S&P Capital IQ/ Various Companies
Juniors with higher grades generally exhibit a higher EV/lb
We note that the EV/lb of juniors with high-grades (>1%) is at least 10x higher than that of juniors with low-grades (<0.4%)
As the new resource is in line with our estimate, we are not making any material changes to our valuation models
Source: FRC
Based on a sum-of-parts valuation model, we arrived at a fair value estimate of $0.41/share (previously $0.48/share)
Valuation decreased due to lower sector EV/lb, and share dilution since our previous report
We are reiterating our BUY rating, and adjusting our fair value estimate from $0.48 to $0.41/share. Upcoming catalysts include resource expansion drilling, FS, and positive sentiment towards juniors focused on EV metals.
Risks
We believe the company is exposed to the following key risks (not exhaustive):
- The value of the company is primarily dependent on nickel prices
- Exploration and development
- Access to capital and potential for share dilution
- No assurance that the company can advance all of its projects simultaneously
