Uranium Superstar Goes All-In On Impending Nickel Crunch

Palisade Research November 2, 2017
Category: Research

Mike Beck is surgical when it comes to investing.

Utilizing a top-down approach, he first performs detailed analysis on a given commodity.

If a supply crunch is imminent, he will hunt down the cheapest projects and acquire them. He believes that prices must reflect scarcity.

In early 2005, Mike identified the gaping supply crunch in uranium. Prices had been beaten, but a decline in supply was on the horizon. Accompanied by extraordinary lead times to new production, Mike saw an opportunity and began consolidating assets with his partner Stephen Dattels.

UraMin was birthed in 2005, and soon had developing mining projects in Namibia, South Africa, and the Central African Republic—to the tune of roughly 170 million pounds of uranium.

Time proved Beck’s thesis was dead on. Over the next two years the Uranium price would sky-rocket, from $20.54/lb in January 2005 to $136.22/lb by June of 2007.

UraMin did not discover anything. Mike simply picked-up depressed assets for pennies on the dollar, most of which were low-grade deposits. His market acumen would soon land him in the middle of a full-fledged bidding war.

The company listed on the TSX in December 2006. A property package stiched together by Mike’s group for a mere US$4M was acquired by French uranium company Areva in June of 2007— for US$2.5-billion.

Since then, Mike has kept a fairly low profile, researching ideas and searching for his next thesis.

And it appears he found it. Beck is convinced that this next market sensation will not just trump uranium’s move a decade ago; he believes this could be the biggest move in a commodity since the invention of tin foil in the early 1900s!

When the electric vehicle revolution blipped on his radar, he immersed himself in the numbers, contacting his vast network of industry insiders and institutional analysts for information. After literally years of research, he readied for his next big trade.

Different commodity, yet the plan remains consistent: avoid exploration risk by identifying a known deposit which is out of favor, but poised to come roaring back.

Mike’s EV thesis can be summed up as follows:

– Governments around the world are cracking down on emissions, which will lead to a drastic decrease in conventional vehicles sales

– Electric vehicle batteries are becoming cheaper and cheaper. In fact, by 2024, it will be cheaper to own an EV than an ICE-vehicle in the EU, United States, and China.

– EVs are faster and easier to build than internal combustion engines. EV factories have half the footprint, thus require half the capital investment. They are also 30% more efficient, and can easily be scaled and reconfigured to support demand.

In short, it is inevitable that the EV market will overtake the personal vehicle market.

Currently, lithium, cobalt, and nickel are the key ingredients in the lithium-ion battery. Mike found the best way to leverage each in the coming supply crunch.

Mike’s Lithium Play – LSC Lithium Corporation (TSXV:LSC)

LSC Lithium is the owner of the largest lithium land package in northern Argentina, arguably the largest in the world. Located in the prolific “Lithium Triangle” in South America, the company has amassed a portfolio of prospective lithium rich salars—vast salt flats that contain most of the world’s lithium.

This includes six major development properties: Pozuelos (Salta), Pastos Grandes (Salta), Salinas Grandes (Salta), Salinas Grandes (Jujuy), Rio Grande (Salta) and Jama (Jujuy). The acreage is on high-quality salars in the provinces of Salta and Jujuy, and is being fast tracked to production.

LSC Lithium was formed in 2016, and listed on TSX Venture in February 2017 via RTO. In conjunction with the RTO, LSC raised $40 million, and recently closed another $20 million. The company is currently working to develop a Preliminary Economic Assessment (PEA) and define mineral resource estimates for its flagship properties.

The company is spending around $1M per week to advance their lithium projects towards a resource. This is a serious operation, backed by lots of capital and serious brain power.

In a recent new release, the company announced it was reviewing strategic alternatives, which is industry talk for entertaining acquisition offers. A take-out in the near future would not surprise us; LSC is on the exact same trajectory as UraMin.

Mike’s Cobalt Play – Cobalt 27 Capital Corp. (TSXV:KBLT, FSE: 27O)

Cobalt makes an incredibly compelling case for investors. Global production is just 100,000 tons per annum. Demand is expected to exceed production by a factor of 3X within the next decade. The problem though, is that cobalt is primarily produced as a by product of copper and nickel production. As such, getting exposure to the inevitable run in cobalt is not so simple.

Mike could not find an actual asset to play cobalt, so instead he bought the physical commodity itself – and a lot of it. In 2017, Mike’s group became the second largest buyer of physical cobalt in the world. They then took that hoard and put it into a company called Cobalt 27, a pure-play investment that offers direct leverage to cobalt. Cobalt 27, which IPO’d in June of this year, was the largest resource IPO since Robert Friedland took Ivanhoe public in 2012.

It is underpinned by C$170 million of physical cobalt, but is also looking to grow through streaming and royalty acquisitions. The company currently holds 7 cobalt royalties.

Cobalt 27 will track the cobalt price as it continues to rise. Adding additional streams to the portfolio will provide an asymmetrical reward profile for investors.

And since Mike believes that Cobalt will blow through $100 per pound, it’s no surprise he sees this as a great way to play.

Mike’s Nickel Play – Giga Metals Corporation (TSXV:GIGA, FSE: BRR2)

Lithium and cobalt have already seen their prices soar, however, people are only now beginning to realize the impact that the EV revolution will have on the nickel market. Nickel is at multi-year lows, providing an ideal entry point for the contrarians of the world.

The current nickel market represents 2.25 million tonnes per annum. The market is beginning to bifurcate, however, only nickel sulphide deposits can produce the class 1 nickel that is suitable for batteries. Class 1 nickel represents just 50% of current nickel production.

Using conservative EV adoption rates, the demand for class 1 nickel is expected to increase 3-fold in the coming decade. That is a lot of catch up required for nickel production and a massive opportunity for investors!

In Giga Metals, Mike found the 2nd Largest undeveloped nickel-cobalt sulphide deposit in the world! The 100%-owned Turnagain Project contains a resource of 1.8 billion tonnes, which is based on less than 25% of the prospective geology, meaning there is significant exploration upside with minimal drilling. Turnagain has the potential to become the world’s largest undeveloped nickel cobalt-sulphide deposit, and one of the largest cobalt producers outside of the Congo.

Giga plans on completing an internal scoping study and undertaking additional exploration and metallurgical work on the Turnagain Project. This will allow them to reoptimize the project – by concentrating on the high-grade, the company can significantly reduce capex.

The optionality on Turnagain is significant. We cannot forget that the market once valued the company at C$150 million when nickel prices were rising:

Still not convinced about the value yet to be unlocked here? Giga Metals has 5 times the amount of nickel reserves as Robert Friedland’s Clean TeQ Holdings Limited (ASX:CLQ), yet has a market cap 2% the size!

Mike’s Next Nickel Play – Mustang Minerals Corp (TSXV:MUM)

Worried you missed the boat on Giga Metals? We’d beg to differ, but here is Mike’s next, lesser known nickel play – Mustang Minerals (TSX-V:MUM).

It has the same storyline as Giga, a completely mispriced and forgotten asset in two near-surface open-pit deposits, Mayville (Cu-Ni-PGM), and Makwa (Ni-Cu-PGM-Co).

The projects have had C$40-50 million in past exploration and development expenditures, with PEA level economics. Like Giga, the economics were calculated in a more favorable nickel environment – at one point in time Mustang boasted a ~C$100 million market cap:

Mustang’s projects are viable in the near future as capex is more digestible at C$207 million. Mining will be simple with low-cost extraction and processing methods. The pits will be shovel mined and ore hauled with conventional trucks. The company plans on optimizing several aspects of the current plan, including resource definition, improvement of metallurgical recoveries, and defining high-grade depth extensions to deposits. Like Giga, there is also considerable exploration upside in prospective geology.

Both stocks have already performed incredibly well in 2017, but the nickel narrative is just beginning to play out. We expect to see a greater run-up before some very large, sophisticated pools of investment capital take positions to finance these emerging stories. Nickel will be in deficit in the coming years; we believe Giga and Mustang are the best vehicles out there to lever the bet on nickel.

Palisade Global Investments Limited holds shares of LSC Lithium, Cobalt 27, Giga Metals, & Mustang Minerals. We receive either monetary or securities compensation for our services. We stand to benefit from any volume this write-up may generate. The information contained in such write-ups is not intended as individual investment advice and is not designed to meet your personal financial situation. Information contained in this report is obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The opinions expressed in this report are those of Palisade Global Investments and are subject to change without notice. The information in this report may become outdated and there is no obligation to update any such information. Do your own due diligence.

 

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