Which ASX nickel stock offers the best value?

At its simplest form, investing in mining is all about who has the biggest resource with the best grades, and the capability to extract it at the lowest cost.

In this series, we’ll be looking at which ASX-listed nickel explorers, developers and producers offer the best value for money based on:

• Market capitalisation

• Latest Mineral Resource Estimate

• Nickel grades

Which nickel stock offers the best value?

The chart below puts into perspective how much investors are paying for a tonne of nickel based on the company’s market capitalisation and resource.

It’s important to note that the data does not take into consideration other factors such as project status, production costs, project location etc. While the data is a good starting point for comparisons, it does not paint the full picture and should be used for illustrative purposes.

• X-Axis: Measures how much you’re paying for a tonne of nickel based on market cap and resource

• Y-Axis: Nickel grade

• Colour: Green (producer), Blue (developer) and Green (explorer)

• Bubble Size: Size of resource – In terms of Contained Nickel

Nickel market cap and resource comparison (Source: Market Index)

And this is the data in table format.

Market cap as at 20 June 2023 and based on latest Mineral Resource Estimate or Annual Report (Source: Market Index)

A big resource but no love

Ardea Resources (ASX: ARL) says its Kalgoorlie Project has the largest nickel-cobalt resource in Australia, which consists of 5.9 million tonnes of contained nickel and 384,000 tonnes of cobalt – enough to produce more than 147 million EVs.

The company expects to deliver a Pre-Feasibility Study in June followed by a Definitive Feasibility Study shortly after, subject to strategic partner requirements. The studies will provide greater visibility to current plans of a 3.5Mtpa operation. If all goes to plan, Kalgoorlie is expected to hit production status in the first half of 2027.

Despite its massive resource, Ardea shares are down 52% year-to-date and trading at levels not seen since July 2020.

There was a notable period of euphoria for Ardea – Where the stock rallied almost 350% in early 2022. However, it’s been in a rather consistent downtrend since its $2.05 peak on 20 April 2022.

Ardea Resources 12-month price chart (Source: Market Index)

Nico Resources (ASX: NC1) rings a bell for two reasons:

1. It listed in January 2022 and rallied almost 400% in three months (now that I mention it – This coincides with Ardea’s run) 

2. During the January to April share price rally, Non-Executive Director Rod Corps was buying shares almost every day. You can check out the transaction history here.

The stock is down 20% year-to-date but its been trading sideways since March. In terms of timeline, the company completed a Pre-Feasibility Study for its flagship Wingellina Nickel-Cobalt Project in WA back in December 2022. Highlights from the PFS include:

• Post-tax NPV: $3.34 billion

• Revenue (Life of Mine): $61.7 billion

• Production: HPAL processing facility to produce 180,000tpa of Mixed Hydroxide Precipitate for battery market

• Capex: $2.39 billion plus contingency of $520 million

• Payback period: 4.9 years

Wingellina is evidently a globally significant Tier 1 asset with a hefty price tag – which likely sees further capex risks amid the current inflation environment. While the company continues to deliver positive announcements (e.g. 19 January 2023 – Nico confirms high grade pits for first decade of production) the capex and funding requirements could be acting as an overhang on its share price.

Will Nico opt to sell a portion of the project to fund its development? Find an offtake partner that’ll help with financing? Raise equity? Debt? 

Nico Resources 12-month price chart (Source: Market Index)

The largest nickel pure play

Nickel Industries (ASX: NIC) sits in the middle of the table in both grades and dollar per tonne. 

In a recent interview with Darko Kuzmanovic – Senior Portfolio Manager of the Global Natural Resources Fund at Janus Henderson Investors – he noted NIC as one of their holdings. 

“We own Nickel Industries because it’s one of the fastest growing nickel stocks on the ASX as far as production is concerned,” he said.

“It's been increasing equity in various projects in Indonesia, which is the engine of nickel growth over the next decade or so. By the time they execute on the current strategy, they’ll arguably be the single largest pure play nickel exposure globally.”

It’s also one of the better performing nickel stocks, down just 7% year-to-date. (It’s worth noting that nickel prices are down around 30% year-to-date to US$21,000 a tonne).

Fletcher Building 12-month price chart (Source: Market Index)

The outlier

Lunnon Metals (ASX: LM8) operates the Kambalda Project in WA, which is located within close proximity to Mincor’s Kambalda North Project and IGO’s Nova Project. 

The company says its goal is to replicate the success of Mincor, IGO and Panoramic Resources in extending the mine life of Kambalda assets. 

Lunnon’s project consists of the Foster Mine and Baker Project. In May, the company completed a Preliminary Feasibility Study for Baker, which outlined:

• Post-tax NPV: $121 million

• Post-tax free cash flow: $145 million

• Life of Mine: 35 months

• Pre-production capex: $18.6 million

Perhaps the prime location, Baker’s low capex startup and exploration upside has enabled a higher dollar per tonne metric. Lunnon is also one of the best performing nickel stocks on the ASX, up 4.5% year-to-date and 28.1% in the last twelve months.

Lunnon Metals 12-month price chart (Source: Market Index)