Royal Nickel (TSX: RNX; US-OTC: RNKLF) says it will build what will be one of the largest nickel sulphide mines in the world at its Dumont project early next year, after securing a key environmental permit from the Quebec government.
The company started the permitting process for its 100%-owned magmatic nickel sulphide project in December 2011, and announced June 25 that it had received the Certificate of Authorization — the most important permit for mining projects in Quebec — from the province’s Ministry of Sustainable Development, Environment and the Fight Against Climate Change.
“Quebec is a good place to permit a mine,” Mark Selby, Royal Nickel’s president and CEO, says in an interview. “Three and a half years in the mining business from start to finish is excellent. In some jurisdictions, you’re looking at two or three times that long.”
With the permit Royal Nickel can get on with raising money for the project, which could produce nickel for over 30 years. Based on a bankable feasibility study in 2013, total capital costs over the mine life will reach US$2.8 billion.
Royal Nickel has appointed Norway’s Swedbank — one of the largest banks in Europe’s Nordic and Baltic region, with nearly 600,000 corporate clients — as its advisors for a contemplated senior bond financing of US$600 million.
“Swedbank has done US$7 billion in bond financing in the last 24 months,” Selby says. “it has an investor base where they do construction bonds.”
In addition to the US$600 million Royal Nickel’s management team expects to raise through Swedbank, the company plans to raise another US$300 million to US$400 million before year-end, and has been in discussions with a number of stainless steel companies, Asian trading houses, potential offtake partners and pension and equity funds.
He says the company will kick off the process later this year, and be “in a position to take the best capital from those sources to complete financing by year-end, and start construction early next year.”
Analysts at U.K.-based Investec Securities, however, say financing Dumont might be challenging while nickel sells for US$5.60 per lb. “We are skeptical that financing will get off the ground in light of the persistently weak nickel price, for which we see little near-term reason for improvement,” they write. “Furthermore, whilst clearly a large deposit, the grades are low.”
Selby says that he would love to see a higher nickel price, but that Swedbank, for one, has an investor base with a longer-term view that “doesn’t necessarily look at today’s nickel price.” He adds that the metal has “always been cyclical, but it’s amazing how many people forget about that at the top of the cycle and how many people forget about that at the bottom of the cycle.”
He notes that nickel was US$2 per lb. in 2001, before climbing to US$24 per lb. in 2007.
Nickel has traded on the London Metal Exchange since the late 1970s, he continues, and has gone through seven cycles since then. “From trough to peak in the last five cycles, the price of nickel has gone up by 150–300%, depending on the cycle,” he explains. “If the trough price is $5.60 per lb., you’re basically looking at a peak price in the range of US$15 to US$20 per lb.”
Selby notes that Dumont has a lifespan of more than three decades and won’t be at the commissioning stage until early 2018, or in production until late 2018. He also points out that even at the current US$5.60 per lb. nickel price, Dumont would make a margin of US$2 per lb., based on the recent US$3.85 per lb. cash-cost estimate in Dumont’s feasibility study (which were flexed to US80¢ to the Canadian dollar and US$60 per barrel oil). An earlier US$4.31 per lb. estimate used US90¢ and US$90 oil.
The mining executive points to news of Independence Group’s recent US$1.4-billion acquisition of Sirius Resources, which is building a vast nickel mine in Western Australia. Sirius discovered the Nova nickel and copper deposit in the Fraser Range in Western Australia’s Goldfields in 2012. “Independence Group paid US$1.4 billion to acquire Sirius Resources,” Selby says. “It is high-grade, but in the middle of nowhere in Western Australia, so its cash cost is about the same as us.”
He dismisses Investec Securities’ caution about Dumont’s low grades. “All we’re doing is taking the same scale as Osisko and Detour Gold did with their large, low-grade deposits in the Abitibi to our low-grade nickel deposit in the Abitibi.
“We’ll be the fifth-largest nickel sulphide mine in the world,” he says. “We’ll be one of the largest base metal mines in Canada, right up there with Highland Valley and Voisey’s Bay — so that’s pretty good company to be in.”
Dumont is the largest nickel sulphide discovery since 1960, Selby says, with 9.8 billion contained lb. nickel in the measured and indicated categories, and another 2.9 billion lb. nickel in the inferred category.
Dumont has a measured resource of 372 million tonnes grading 0.3% nickel; an indicated resource of 1.3 billion tonnes averaging 0.3% nickel; and an inferred resource of 500 million tonnes of 0.3% nickel.
Dumont’s ore will be processed into a high-grade nickel concentrate and shipped for refining elsewhere. The mine will not have acid-generating rock or tailings. A 2013 bankable feasibility study envisioned a 52,500-tonne-per-day milling operation, growing to 105,000 tonnes per day in year six to produce 113 million lb. nickel a year.
The economic analysis forecast a $1.1-billion after-tax net present value at an 8% discount rate and a 15.2% after-tax internal rate of return. Payback is estimated in six years.
Stefan Ioannou of Haywood Securities says Royal Nickel is a company “best suited for investors with a ‘stronger-for-longer’ nickel-price outlook,” and writes in a research note that “Royal Nickel/Dumont offers a compelling growth opportunity for a number of base metal majors seeking a large, [permitted] advanced-stage project to add to their portfolio. Hence, we look to corporate activity as a wildcard catalyst that could drive the company’s market valuation higher.”
At press time Royal Nickel traded at 39¢ per share within a 52-week range of 26¢ to 67¢ per share. The company has 120 million basic shares outstanding, for a $36-million market capitalization.
Salman Partners has a 12-month target price on the stock of $1.30 per share.
I have followed Royal Nickel for some time and believe it is a good company for future investment.