Conic Metals Shareholder Update As we close out 2020 and our first full year of trading at Conic, I want to take a moment to provide an update to our shareholders and partners. With few nickel producers listed on the Toronto Stock Exchange, Conic is a unique vehicle providing shareholders leverage to the price of nickel and cobalt through our interest in the producing Ramu nickel mine as well as royalties on quality Canadian-based nickel sulphide deposits – Dumont and Turnagain.
Ramu is one of the top performing nickel mines in the world and is on pace to exceed the mine’s nameplate capacity of 32,600 tonnes of nickel per annum for the fourth year in a row. Cash costs at Ramu net of by-products is approximately $2.00/lb. of nickel, making it highly profitable at today’s nickel prices and giving shareholders leverage to nickel price moves. At current nickel prices, Conic is on track to repay its Ramu operating debt in 2021. Once the operating debt is repaid it will entitle Conic to 35% of its attributable cash flow, a milestone event for the Company and giving management the opportunity to explore a share buyback and/or dividend. MCC, our joint venture partner at Ramu for over 13 years, continues to prove itself as one of the top operators of nickel projects in the world and a great partner.
We are also encouraged by the progress at two of our important royalties. Both Dumont and Turnagain are two of the world’s largest undeveloped nickel sulphide projects which are located in tier one mining jurisdictions. Going forward, it is unlikely the market will fund new large capex-intensive HPAL projects that were prone to massive capital cost overruns in the last cycle, and instead focus on tier one nickel sulphide projects such Dumont and Turnagain. As the global energy transition continues, we believe that the Turnagain and Dumont projects have the potential to be low carbon footprint nickel mines and critical suppliers to OEMs and battery makers for decades to come.
We are excited about Conic’s portfolio. Its unique mix of producing and development nickel projects provide investors with leverage to nickel price moves. Moreover, the balance sheet of the company will be transformed once the Ramu operating debt is paid down and the company begins receiving its first material cash flow from Ramu.
Reflection on the 2020 Nickel Market
The year started with great anticipation by market participants that nickel would finally break out in response to continued growth by the EV sector and increased demand for nickel-rich lithium-ion batteries. However, the Covid-19 pandemic which hit the global economy in full force disrupted these estimates resulting in an initial sell off in nickel, like most other commodities, but by the end of the year the Nickel price was back at levels seen in late 2019 of close to US$8.00/lb.
As the world begins to emerge from the global pandemic and economies recover, the nickel market again is looking to EVs to drive future demand. Macquarie recently reported that at the end of October European EV car sales were up 119% over 2019 and global EV car sales are up 27%. This bodes well for nickel producers of battery suitable nickel (such as Ramu) as demand for this material is expected to strengthen in the years ahead. Nickel-rich lithium-ion batteries appear to have taken a stronghold in the industry with all major OEMs committing to lithium-ion as the power source for their slated line up of EVs.
What is especially interesting is that while the LME price of nickel has remained essentially flat on a year-on-year basis, nickel intermediates such as mixed hydroxide (MHP) or mixed sulphide (MSP) are realizing better pricing as lithium-ion battery manufacturers turn to this raw material. MHP which sold for less than 80% of the LME metal price in early 2020 is now being contracted at 80-85% of metal value according to independent authorities such as Benchmark and Macquarie. Similar circumstances are dictating terms for MSP and other nickel bearing materials.
As we move into 2021, we anticipate that with a successful retreat of the pandemic and a return to normality in global economies the demand for EV’s will continue to accelerate. Conic is uniquely positioned to give investors exposure to that move through its interest in a producing nickel mine and its royalty portfolio.
Sincerely,
Anthony Milewski & the Conic Team