Two nickel firms on a tear today

By Market Index
Mon 12 Sep 22, 3:37pm (AEST)
This side up
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Key Points

  • 5.7% jump in the nickel price over the weekend
  • Nickel Industries and De Grey Mining were both up over 5% in late afternoon trading
  • UBS believes De Grey Mining's Hemi deposit could be on track to be one of the largest gold deposits in Australia

Following on the heels of a 5.7% jump in the nickel price over the weekend, two nickel firms Nickel Industries (ASX: NIC) and De Grey Mining (ASX: DEG) were among the market’s top gainers today, up 7.3% and 6.22% respectively.

The nickel price appears to have responded favourably to recent projections by Brazilian mining company and major nickel supplier Vale that see global demand for nickel increasing 44% by 2030, on the back of high demand for EV batteries.

Vale sees the demand for nickel increasing rapidly this decade with the energy transition, noting that the new forecast would be of 6.2m tonnes in demand.

In addition to Vale estimating mid-term production volumes reaching between 230,000 and 245,000 tonnes of nickel annually - compared to a 2022 projection of up to 190,000 tonnes – the Brazilian miner expects growth in nickel supplies to be driven mainly by Indonesia, Canada and Australia.

Today’s gains by Nickel Industries and De Grey followed an 11% jump by Vale last week. 

What's driving Nickel Industries higher?

Nickel price gains aside, what’s also underpinning gains by Nickel Industries today is the release of an update on its Hengjaya Mine in Indonesia which upgrades its mineral resource to 300m dry metric tons (dmt), with an average grade of 1.22% nickel and 0.09% cobalt.

This equates to approximately 3,700,000 tons of nickel metal and 270,000 tons of cobalt.

Overall, the S&P/ASX 200 company’s measured resources have increased 333%, while indicated resources are up 20%, and inferred resources are up 53% since the last resource estimate in June 2020.

Significant resource increase

Management notes the mineral resource estimate is based on data incorporating 529kms of ultra-ground penetrating radar survey, 4,657 drill holes, and 111,643 sample assays from drill cores taken from a 3,000-hectare area at the Hengjaya Mine.

Nickel Industries managing director, Justin Werner told investors that the significant increase in the resource at the Hengjaya Mine - from 2.4m tonnes to 3.7m tonnes of contained nickel metal represents a 56% increase, with further upside remaining.

What brokers think

Nickel Industries is down -11% over one year but recovered from a year-to-date low of $0.86 early September to $0.95 today.

Consensus on Nickel Industries is Moderate Buy.

Based on Morningstar’s fair value of $1.37 the stock appears to be undervalued.

Based on the four brokers that cover Nickel Industries (as reported on by FN Arena) the stock is currently trading with 47.4% upside to the target price of $1.40.

While Citi has Buy rating and $1.60 target price, Macquarie has downgraded the company to Neutral from Outperform, noting that further weakness in the stainless-steel market could further impact earnings.

Nickel Industries share price over three months.

De Grey Mining

While the S&P/ASX 300 company is arguably benefitting from higher nickel prices, the miner is continuing to enjoy upward momentum that saw the share price rally by around 3% on Friday after releasing good news from its Mallina project in WA.

Following the release of prefeasibility study on Friday, the explorer has increased its expected earnings for the life of its mine to $7.1bn from $4.8bn.

Highlights with the prefeasibility study upgrade include:

  • Average processed grade up to 1.6 g/t Au from 1.4 g/t Au

  • Ore tonnes mined up to 136 metric tonnes from 100 metric tonnes

  • Recovered gold up to 6.4m ounces from 4.3m ounces

  • Total pre-production capital costs up to $1.05bn from $893m

Maiden Hemi Reserve

De Grey also announced told investors that maiden Hemi Reserve has 5.1m ounces of gold at a grade of 1.5g/t Au – which management believes is one of the largest and highest-grade maiden reserves in recent decades.

Commenting on recent updates, De Grey’s CEO Glenn Jardine notes total production has increased by nearly 50% from the scoping study to 6.4Moz with the annual gold production rate increasing by around 25% to 540,0000zpa over the first ten years.

“The increased production has been achieved at increased levels of JORC measured and indicated resources within the production profile averaging close to 9096 over the first ten years of production compared with 70% in the scoping study,” Jardine noted.

“… the Company saw increased resource grade at most Hemi deposits from resource definition drilling conducted over the past 12 months, particularly at Diucon and Eagle where the average combined resource grade increased by over 30%.”

What brokers think

De Grey’s share price is up around 12% over one year but has been on a tear since trading at a year-to-date low of $0.73 mid-July.

Consensus on De Grey is Strong Buy.

Based on Morningstar’s fair value of $1.49 the stock appears to be undervalued.

Based on the two brokers that cover De Grey (as reported on by FN Arena) the stock is currently trading with 19.7% upside to the target price of $1.40.

After the release of a pre-feasibility study (PFS), UBS believes the Hemi deposit could be on track to be one of the largest gold deposits in Australia.

The broker retains a Buy rating (target $1.15) and notes a longer than expected mine life could mean new discoveries and ongoing project optimisation.

De Grey Mining share price snapshot.


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