Nickel Mines Limited

NIC Details

Expansion of Strategic Partnership: Nickel Mines Limited (ASX: NIC) is engaged in the mining of nickel ore and nickel pig iron production in Australia. On 22 November 2021, NIC informed the market that it plans to expand its strategic deal with Shanghai Decent in a multifaceted Memorandum of Understanding (‘MoU’) over the next several years.

• Per the deal, NIC will acquire 70% interest in the Oracle Nickel Project. The MoU expands the long-standing strategic deal between Shanghai Decent and NIC and summaries a strategy by which Nickel Mines can contribute to several upcoming growth projects.
• Notably, the MoU also portrays a structure under which both parties will work together on future energy projects to curb the impact of carbon emissions and cleaner energy solutions across both industrial parks.

Other Recent Updates:

• The company has updated that its substantial shareholder Baillie Gifford & Co has increased its voting power from 6.19% to 7.21%.
• In another update, the company informed the market about the resignation of Mr. Peter Nightingale as Executive Director and Chief Financial Officer (‘CFO’) of the company. Mr. Peter will be succeeded by Mr. Chris Shepherd as the company’s new CFO.

September Quarter 2021 Update:

• RKEF quarterly production declined marginally by 0.3% (from 10,143.0 tonnes in June 2021 quarter) to 10,113.3 tonnes of nickel metal (on a 100% basis).
• NIC attributable nickel ore production from Hengjaya Mine for the period increased by 0.8% from 574,791 wmt in the June quarter to 579,156 wmt in the September quarter.
• RKEF sales for the period increased by 12.5% from US$150.2 million to US$168.9 million (100% basis), as compared to the previous quarter. RKEF EBITDA for the period increased by 23.2% from US$50.8 million to US$62.6 million (100% basis), as compared to the previous quarter.
• RKEF cash costs for Hengjaya Nickel and Ranger Nickel for the period stood at US$ 10,429/tonne and US$ 10,327/tonne, respectively.

Sales Revenue Highlight (Analysis by Kalkine Group)

Key Risks: The company is susceptible to certain financial risks such as credit risk, liquidity risk, and market risk. It is also exposed to volatility in the price, demand, and nickel production, COVID-19 disruptions, ore, and reserve estimation.

What to Expect: The company expects it first Nickel Pig Iron (‘NPI’) production from its 80% owned Angel Nickel Project (‘ANI’) within the Indonesia Weda Bay Industrial Park (‘IWIP’) in 1QFY22. Further, the company expects to commence the commissioning of the ANI power plant by the end of September 2022. In addition, the company anticipates achieving the full NPI production capacity around one month following the commissioning of the ANI power plant.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per ASX, the stock of NIC is trading above its average 52-weeks levels of A$0.885-A$1.535. The stock of NIC gave a positive return of ~31.19% in the past six months. It has a support level of $1.13 and a resistance level of $1.39. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price with a correction of high single-digit (in % terms). The company can trade at a slight premium to its peers, considering its recently signed MoU, robust NPI price momentum in near term, ramping up of production capacity on the newly acquired Angel nickel project, etc. For this purpose of valuation, few peers like Regis Resources Ltd (ASX: RRL), 29Metals Ltd (ASX: 29M), OZ Minerals Ltd (ASX: OZL), and others have been considered. Considering the current trading levels, steep price movement in past months, correction in valuation, volatility in the price, demand, and nickel production, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of A$1.345 as on 23 November 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

NIC Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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