Royal Nickel game changing event: Stockhouse Ticke
Royal Nickel (TSX: T.RNX, Stock Forum; 37 cents)
www.royalnickel.com
Shares outstanding: 94 million/Market cap: $35 million
Net cash & receivables: Approx. $16 million
RNX is sitting on one of the world's largest undeveloped nickel deposits. Senior management and directors are former executives of Inco and Vale - serious power players in the nickel industry.
Prefeasibility studies show a net present value of $1.4 billion. However, in this market no one gives big deposits any credit because they feel they will never be developed.
This changed on March 13th when Royal Nickel announced a partnership with the second largest stainless steel producer in China. Of particular interest, note the last paragraph below. In my opinion, this partnership dramatically "de-risks" this project and given the massive size of the resource, this is critically important to valuation.
Mid-year RNX is expected to release a "Bankable Feasibility Study" (BFS). History of many resource companies shows that if a takeover or major financing (or partnership) occurs, it will be within three to six months of the BFS. The primary reason for this... it removes a huge amount of risk and liability from the board of directors of the company attempting the takeover.
The news March 13th indicates that Tsingshan will push ahead with "something" very serious if the BFS is positive. This means we need to wait until summer for the report, and then anytime within 3 to 6 months of that, we could see a large financing or takeover.
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NEWS EXCERPT
Royal Nickel Corp. has signed a memorandum of understanding with Tsingshan Holding Group Co. Ltd. The MOU sets out the objectives of the parties to work together in relation to downstream concentrate processing and the potential to enter into an offtake and/or partnership arrangement. Tsingshan is the second-largest Chinese stainless steel company and one of the leading innovators in the development of vertically integrated nickel pig iron and stainless steel production operations.
"Tsingshan is one of the largest, fastest-growing and most innovative stainless steel companies in the world. Since the emergence of NPI, Tsingshan has been a leader in the development of vertically integrated NPI/stainless steel operations, and its endorsement of the RNC approach to processing sulphide concentrates is a significant vote of confidence in our company. We look forward to continuing to work with Tsingshan while we complete the bankable feasibility study for the Dumont nickel project," said Tyler Mitchelson, president and chief executive officer of Royal Nickel.
"Royal Nickel has a highly experienced nickel industry management team and we are very pleased to have the opportunity to integrate this downstream concentrate process for nickel concentrate into our stainless steel business," said Xiang Guang Da, chairman of Tsingshan Group. "We see great potential for the Dumont project to become a premier large-scale and low-cost nickel mine and a great source of feed for our operations for many decades to come. Dumont's high-grade, clean nickel concentrate is one of the ideal concentrates for use in our process."
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Reuters had the following excerpt out the following day:
The news is "a positive first step" towards Royal Nickel securing a senior partner for development of the Dumont project, John Hughes, a Toronto-based analyst at Desjardins Securities Inc. said in a note today. Hughes rates the company a buy with a price target of C$1.95.
Also of particular importance - in their November corporate presentation, note on page 11 the valuation averages from five different analysts. Target price $1.59, Corporate NAV per share $2.95, and Project NAV per share $6.24.
https://www.royalnickel.com/_admin/_media/RNC-Presentation-November-2012-Web.pdf
This commodity outlook prepared by RNX that same month presents a very interesting outlook for nickel. Important to keep in mind these forecasts are not coming from inexperienced managers running a junior exploration company. These are former senior executives of Vale, Inco and Xstrata (Falconbridge).
https://www.royalnickel.com/_admin/_media/RNC-Nickel-Market-Outlook---TM-AEMQ-20-Nov-12-FINALprint.pdf
The wild card - and the reason even in this market we still have a stock priced in the thirties, is because we still need to see the final Bankable Feasibility Study (expected in the summer), and then... will Tsingshan finance and partner with RNX.
Across Canada we are seeing major investment by Chinese firms in everything resource related. It makes sense they would have a serious interest in this project given the large resource size. If they do partner to build a stainless steel plant and finance mine development, the upside from this level could be quite significant.
This market might be rotten - but for high quality projects there is a LOT of money around. The difference right now is that this money is looking for high quality (or advanced) projects. Pure Grass Roots exploration will continue to struggle this year.
Read more at https://www.stockhouse.com/opinion/ticker-trax/march/28/royal-nickel-game-changing-event--stockhouse-ticke.aspx#PWAEIHPRBY5pgWHj.99