Is Nickel a Good Investment Today?

For some time now, nickel has been the talk of the town, with prices steadily rising in part due to speculation around the green energy transition.

Investors interested in the electric vehicle (EV) story are well aware of nickel’s use in EVs, with the metal being an essential raw material in battery cathodes. As technology continues to evolve, the use of nickel has been favored for properties such as its energy density, among others.

Many experts predict that nickel demand from the EV industry will increase in the coming years, but the reality today is that nickel continues to be used mostly in stainless steel — more than 70 percent of global supply currently goes to this industry.

Rising steadily after a steep decline in March, nickel prices broke the US$20,000 per tonne mark on the London Metal Exchange early in September. Supply concerns paired with strong demand from China, a top stainless steel consumer, brought a perfect storm — but is it still a good time to invest in nickel?

To get some insight, the Investing News Network sat down with Brian Leni of Junior Stock Review to discuss the current nickel market and investing opportunities in the junior mining sector.

“My process for investing in the junior resource sector is straightforward,” he said. “I look for companies that are selling at a discount to their intrinsic value, which are run by good people and have catalysts that, if successful, will see their true value recognized by the market.”

Coming from the steel manufacturing industry, Leni said nickel has always been of interest to him.

“Plus, I think that I know much more about the nickel market than the average investor out there, and therefore I have an advantage,” he added.

Choosing nickel companies

Nickel production is dominated by Indonesia, the Philippines and Russia, with top producer Indonesia reaching 760,000 metric tons of output in 2020, according to the US Geological Survey.

Nickel ore exists in the Earth’s crust in two main deposit types: laterite and sulfide. Each deposit type presents unique challenges to nickel mining. Sulfide deposits are found very deep in the crust, making extraction difficult. They also tend to be smaller than laterite deposits and often have variable grades.

When asked about what type of nickel companies he is interested in, Leni said he prefers development companies that have defined resources.

“Nickel sulfide exploration is tough,” he said. “Typically the deposits are deep, and these days companies have to go to the more far-flung parts of the world to find them — hard terrain with little to no road access equals huge exploration costs.”

Leni is not overly interested in nickel exploration given that the odds of success are so poor.

“My focus has been on the developers, whose geographical location will be of the utmost importance moving forward given the world’s attention to reducing carbon footprint,” he said. “Not only this, but for nickel sulfide deposits that intend to feed the battery market, they will need to be as close as possible.”

As it stands right now, Europe is leading the way in terms of restrictions on battery metals‘ carbon footprints, but it’s only a matter of time before the same or similar standards are used in North America.

“With that said, remember that two-thirds of nickel is used in the stainless steel industry,” Leni explained. “Therefore, while the battery side of things is no doubt a big part of nickel’s future, it is by no means the dominant end user at the moment.”

For Leni, geographical location always matters, but it matters a little less if a company’s concentrate is headed into stainless steel rather than to battery manufacturers.

Another key aspect investors looking to jump into the nickel market should consider is environmental, social and governance (ESG) credentials.

“ESG matters today more than ever,” Leni said. “Social license to conduct exploration and hopefully one day become a producing mine is everything.”

Local stakeholders must be considered, he added, and in some cases directly involved in the exploration and development process. “Companies that fail to comply, I believe, will ultimately not be successful in returning value to their shareholders,” Leni said.

But at the same time, he said ESG has taken on a life of its own for some companies and has become a distraction to mineral exploration and development.

“I’m wary of companies that overemphasize the virtues of their ESG program,” he said.

Commenting on his stock pick for the market, Leni said FPX Nickel (TSXV:FPX,OTC Pink:FPOCF) continues to present the best value proposition in the nickel sector.

“It’s run by top management — CEO Martin Turenne is as good as they come in the sector,” he said. “Further, FPX’s Decar district, which is host to the Baptiste deposit, has a very unique characteristic in that the future mine’s tailings have the capacity to sequester carbon.”

This ability will make Decar the first mine, to Leni’s knowledge, to be carbon neutral without the acquisition of carbon credits.

“Moving forward, this is a huge plus for the owner/operator of the future Decar mine,” he said.

“Any nickel investor would do well to take a look at FPX’s story and find out for themselves why it is one of the best junior nickel companies out there.”

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: FPX Nickel is a client of the Investing News Network. This article is not paid-for content.

The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.