How to play BAR?
If you are into BAR for quick hit – forget it. It will not happen. If you are willing to stick around and wait for a few years – yep, you might do well. Why is this? Well, the price of Nickel, the general worldwide economic decline, and the possibility of the Tsingshan Holding Groups HPAL processing plant seem to cast a shadow over the Nickel market.
Does BAR have a nice Nickel deposit in works – Yes, but they also at this point have limited funds and no prospects appearing yet to assist in the further development. As far as Tsingshan is concerned they propose the below.
“Tsingshan, however, has indicated capital costs of $700 million, which CRU calculates translates into $14,000 per ton of new capacity.”
While they did an excellent job at their previous development in converting nickel pig iron for stainless steel , the conversion proposed above is many times more difficult to achieve. I have not seen one article that supports their ability to deliver the plant within the timeframe proposed or at the operating cost required. A successful implementation would have the ability to produce a lot of Class 1 nickel from substandard Nickel ore. Actually, I have wondered if this is not just a ploy by China to keep the Nickel price down so they can stockpile more nickel over the next few years while everyone worries about a project that may go nowhere.
Given the current global slowdown and China’s fading glimmer, commodities will probably take a hit as well in the near term. Thus, placing stress on the Nickel market as well. Nickel inventories have temporarily flat lined at around the 200,000 ton level for the last week or so. This may have been caused by the private inventories off of the LME being pump full in anticipation of a possible shortage. So, perhaps there is no immediate need to replenish the supplies at this point in time. This may reverse in the future, but of course no one knows? If the market corrects into a full blown out recession that will certainly put a damper on base metals commodities as well. Since we are in the longest ever correction cycle (10+ years up), correction (down), will come eventually.
The EV market is in its infancy and will take many years to reach full potential (5-10 years). I look for slow but steady growth over the next decade (not next year). Nickel will be major player during this timeframe.
The question becomes, who wants to invest in New Nickel projects now? The project would need to a whopper to suck in any of the majors. They have ability and funds to simply invest in expanding their existing land packages when time requires they do so. There is no apparent demand or need at this point in time to go out on the limb for a new resource that needs to be developed from scratch. Plus, how many of the Nickel Sulfide mines that have been mothballed/placed on maintenance will eventually come back on line if demand increases in the future? Mining companies are notorious for buying new assets at the market peak, and not when assets may be obtained at a lower cost before the boom ensues. So once again, everyone just sits on their hands doing nothing.
So, yah – there are a lot of headwinds blowing in our face, all of which can change direction at any point in time. All I know is that BAR is undervalued and has proven resources and is selling for chump change at this point in time. So – even given the current circumstances, I may just buy a few more of the shares that seem to be willing given away on the exchanges at the bargain basement price.
The batteries in my crystal ball have long since gone dead – so believe what you will.