Disclosure: SPC Nickel Corp. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
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91% of resources are open-pittable, implying potential for relatively low OPEX/CAPEX. We view WGD as a large-tonnage deposit, with attractive grades for potential open-pit operations.
We see potential for resource expansion as the WGD remains open in multiple directions. Additionally, the current estimate excludes the high-grade LKE deposit, located 200 m from the WGD.
SPC is currently updating the historical resource of its LKE deposit, which we believe will likely be followed by a PEA encompassing both WGD and LKE.
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 46% YoY decline in prices, driven by slower global GDP growth, and rising supply. LME inventories are up 40% 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$7.30/lb.
We maintain a positive outlook on juniors focused on EV metals. Battery/EV manufacturers/miners are actively seeking stable/long-term supply sources of 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.
SPC is trading at $0.02/lb vs the sector average of $0.13/lb, an 89% discount.
Upcoming catalysts include a resource update, PEA, and positive sentiment on EV-metal juniors.
Maiden Resources for the WGD, Lockerby East Project
The Lockerby East project encompasses the West Graham Deposit (WGD), and the LKE deposit.
Project Location
Located adjacent to past-producing mines in the Sudbury camp, one of the richest mining districts in the world
We believe the proximity to active mills allows SPC to potentially expedite projects to production quickly with a relatively low CAPEX
West Graham Resource Estimate
The maiden NI 43-101 compliant resource estimate, which was based on 67-holes/14,180 m, has confirmed and expanded historic resources
Source: Company/FRC
A large-tonnage deposit with indicated resources totaling 309 NiEq (0.64%), and inferred resources totaling 121 Mlbs (0.83%)
Resource Envelope
The resource envelope measures 900 m (length) x 3-60 m (width) x 1,000 m (depth)
Source: Company
91% of resources are open-pittable, implying potential for relatively low OPEX/CAPEX
Attractive grades for open-pit operations
We believe there is potential for resource expansion as the WGD remains open in multiple directions
In addition, the current estimate does not include the high-grade LKE deposit, located 200 m down dip of the WGD
Source: FRC/Company
In total, the Lockerby East project hosts 443 Mlbs of NiEq across its two deposits
A direct comparable of SPC is Magna Mining (TSXV: NICU/MCAP: $64M). Magna is developing the historic Crean Hill mine, located 40 km southwest of Crean Hill. These projects share similar mineralogy, resources, and grades as SPC's propreties. A recent PEA on Crean Hill returned robust economics.
Source: Magna/FRC
We believe SPC should be able to demonstrate similar economics as its resources are similar to that of Magna
Upcoming Plans
SPC is currently updating the historical resource of its LKE deposit, which we believe will likely be followed by a PEA encompassing both WGD and LKE.
Financials
Source: Company Data/FRC
We believe SPC will likely raise $1-$2M through equity financings in H2-2024
FRC Valuation
The following section compares SPC to other nickel juniors.
Source: FRC/ S&P Capital IQ/ Various
SPC is one of the most undervalued nickel juniors on this list
Juniors with higher grades generally exhibit a higher EV/lb
SPC is trading at $0.02/lb NiEq (previously $0.09/lb) vs the sector average of $0.13/lb (previously $0.29/lb), an 89% discount
Applying $0.13/lb to SPC’s resources, we arrived at a fair value estimate of $0.33/share (previously $0.28/share)
Source: FRC/ S&P Capital IQ/ Various
Valuation increased due to higher resources, partially offset by lower sector EV/lb
We are reiterating our BUY rating, and adjusting our fair value estimate from $0.28 to $0.33/share. Upcoming catalysts include a resource update, PEA, and positive sentiment towards juniors focused on EV metals. Despite the promising maiden resource estimate, SPC is down 25% since the announcement, reflecting broader weakness in the junior resource sector. We anticipate a rebound in small-cap stocks when the Fed starts cutting rates, possibly in Q2-2024.
Risks
We believe the company is exposed to the following key risks (not exhaustive):
- Sensitive to nickel prices
- Exploration and development
- Access to capital and potential for share dilution
- No guarantee that the company will be able to advance all of its projects simultaneously
- No economic studies
