Nickel: The Best Idea No One Is Talking About and 4 Ways To Profit From It

Adem Tumerkan April 20, 2018
Category: Research

 

Nickel prices over the last year have been rallying – it’s up over 15% in the last week alone.

 

Even though nickel prices have soared to a three-year high – it still has a long way to go. . .

I wrote about the opportunity in nickel months ago for our readers when the price was 11% less than it is today.

Why am I so sure things are just getting started? Two reasons:

One, using our ‘Capital Cycle Guide’ (CCG) shows that the last three years of falling prices has set the foundation for a re-newed bull market. 

And two, because nickel supplies are bleeding out fast. 

Just over the last five months, the supply of nickel at the LME’s warehouse has dropped 18%. . .

Just over the last five months, the supply of nickel at the LME’s warehouse has dropped 18%. . .

 

This is an important factor telling us that the price of nickel needs to – and will – rise much more.

The last three years of weak prices has caused nickel output to drop. Mining companies need sustained high-prices to justify all the expenses that go into nickel production – from exploration to mine construction.

There isn’t a switch that they flick to suddenly increase nickel output. It takes several months and even years.

History is littered with situations like this: periods of low prices causing mine operations to shut down or cut production. This leads to a shortage of the commodity over-time.

The looming nickel deficits won’t be fixed easily, at least for a couple of yearsand it’s happening at the worst possible time.

The huge demand for electric vehicles is causing shortages in various battery metals – such as nickel and cobalt.

 

The [nickel] market dynamics will change in the coming years as a result of electric vehicles,” said Peter Bradford, chief executive of Independence Group Ltd, which is aiming to produce around 25,0000 tonnes of high-purity nickel this year from a new mine. . . Battery growth is going to disrupt the
market. . .
UBS estimates that 15 million electric vehicles will be on the road by 2025, lifting nickel demand by 300,000-900,000 tonnes, or by 10-40 percent of the current market.”

 

The only cure is much higher nickel prices so that producers can justify mining more of it.

This is great for investors.

To make out-sized returns, you need to understand market cycles and supply-demand fundamentals. These topics are important for us at Palisade Research when finding asymmetric (little downside – huge reward) opportunities.

Doing so can make you a lot of money. And protect your portfolio.

A commodity cycle goes something like this. . .

When the price of a commodity increases many times over, producers find it profitable to start producing more of it and take advantage of the extra profits. Not to mention a wave of new entrepreneurs entering the sector trying to also strike it rich. This leads to increasing supplies. 

Then on the demand side, the higher prices mean consumers use less of the commodity and instead look for alternatives. For example, think about when the price of oil soared after 2008 – trucks and SUV sales tanked because consumers couldn’t afford to fuel these gas guzzlers.

So, the increased supply from producers, and the decreased demand from consumers eventually causes prices to collapse.

That’s what happened to nickel in-between 2014 and 2016. . .

 

Looking at the above chart, you can see how periods of low prices led to periods of high prices.

And between August 2015 and August 2017 – #3 on the chart – prices formed a floor.

These low prices made producing nickel not as profitable anymore. Producers had to shut down mines, and new entrepreneurs left to invest in other sectors.

The market was left with a glut of nickel that needed to be worked through – which takes a long time. . .

Now – after 2 ½ years of weak nickel prices and over-supplies, the cycle is turning again.

As I wrote at the beginning of this article, the LME’s warehouse stock levels of nickel are down almost 20% in just five months.

This is a BUY signal for investors – nickel prices will rally for much longer.

 

So, what can you do?

First and our favorite method – is to invest in the nickel exploration stocks.

These are the companies that are sitting on quality nickel assets.

And as the price of nickel continues to rise, they will be worth significantly more.

It only makes sense – if you’re sitting on a huge nickel project and the price of nickel doubles – so does your assets value.

Right now, these small exploration stocks have a lag compared to the price of nickel. That’s because for big investors to get involved, they must make sure nickel prices will continue to climb.

Imagine if they spend tons of money on these nickel assets, only for the price of nickel to collapse. . .

But after studying the investment cycle and the declining nickel warehouse supplies – that’s not going to happen. Prices are going to continue higher, and these projects will keep increasing in value.

This lag creates a great buying opportunity for retail investors. Once the market realizes that nickel is entering another bull market, these exploration stocks will be re-valued with higher expected nickel prices.

And they will surge.

The top three junior nickel exploration stocks we like at Palisade are. . .

Giga Metals Corp. (CVE:GIGA, FRA:BRR2, OTC:HNCKF) – “Giga Metals owns 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. . .”

Mustang Minerals Corp. (CVE:MUM, FRA:NJF1, OTC:MSMGF) – “a completely mis-priced and forgotten asset of two near-surface open-pit deposits – Mayville and Makwa. . . They even have a PEA (preliminary economic assessment) done that shows positive project economics. . . There is considerable exploration upside that awaits future drilling. . .

Tartisan Nickel (CSE:TN, FRA :8TA) – “Tartisan Resources is a Canadian mineral exploration and development company focused on base and precious metals in Canada and Peru. . . Recently, they gained a critical nickel and base metal property – The Kenbridge Deposit – in Ontario, Canada by acquiring Canadian Arrow Mines Limited. . .

Make sure to read our past reports to get a closer look at these three companies and why we’re so bullish on them.   

 

Second is to buy and hold physical nickel.

You can do this by finding niche bullion banks that store various kinds of metals and commodities.

But there’s a problem. . .

That sort of bullion bank and storage doesn’t exist for nickel – except for one. 

A bullion bank we recommend is Silver Bullion SG. The founder and owner, Gregor Gregerson, is a brilliant man and has created one of the largest precious metals dealerships in Singapore.

They also operate The Safe Housea world class storage facility. They currently store over half a billion in gold and silver.

Gregor saw the deficits taking place in the nickel markets – and knows that prices will keep rising. . .

So, he started purchasing tons of 99.8% battery grade nickel straight from the LME warehouse a couple months ago – getting in at cheaper prices

This is a great way for individuals to have a direct exposure to nickel.

So if you’re interested in the physical market – check with Silver Bullion SG.

 

We spend a lot of time looking through cyclical markets and sectors that have bottomed out and have the right fundamentals. Once we know the cycle is in our favor, we look for the best optionality to take advantage of it. 

Nickel has an exciting future. It’s in a tight market where demand is outstripping supply. And there is still a disconnect in the nickel exploration stocks that offer great opportunities.

But these bargains won’t last forever as the market starts catching on. . . 

Food for thought. 

 

Palisade Global Investments Limited holds shares of Giga, Mustang, and Tartisan. 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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