Research Capital Reiterates Spec Buy Target $2.70 Reid Property Continues to Improve and Debt Deadline Extended
Drill Results and Managing Debt Timing
On January 18, 2023, Canada Nickel Company Inc. (CNC), announced drill results from its
Reid Property (Reid) and changes to its short-term debt arrangement with Auramet. The
Reid drill results were mixed, however, it appears that the Central Core Area (CCA) of
Reid could be very large and with grades similar to Crawford. On the debt side, CNC has
announced that it has extended the repayment of the US$10 million to March 3, 2023. The
extension was available under the debt contract and appears to be necessary to finalize a
(strategic?) financing that will provide funds to repay the debt.
Reid Could Develop Into a Very Large Deposit
The drill results from Reid indicate that the deposit comprises two somewhat
distinct zones: the Central Core Area, and the North Limb Area. The CCA measures
approximately 1.8km by 0.9km and has returned assay results that are more-or-less in
line with those from Crawford. The North Limb Area is lower grade than the CCA and
appears to lack the deeper, higher-grade intercepts that are more common in the CCA.
Therefore, unless future drilling indicates otherwise, we think CNC’s focus at Reid will
be on the CCA.
The CCA is a very large area that has produced relatively consistent results (see Figure
1). Given the size of the CCA and assuming it is mostly mineralized, we think the Reid
deposit has the potential to be a 1.5 billion to 2 billion tonnes which is large enough to be a
stand-alone project, in our view. While CNC has already advanced Crawford significantly,
we think that CNC has the ability to demonstrate that nickel mining (and the associated
production of iron and chrome) could be carried out for many decades with multiple
deposits or allow for a larger-scale project. This could be a very attractive feature for a
senior materials company looking to make a significant and long-term investment.
CNC also announced that it has extended the deadline for the repayment of the US$10
million Auramet loan to March 3, 2023 – a 43-day extension which is almost half of the 3-
month extension period that was available to CNC under the terms of the loan agreement
– we think this reflects confidence on the part of CNC that it will be able to secure funds
(possibly through a strategic investment) to repay the loan. To extend the loan, CNC will
issue 200,000 1-year warrants with a $1.94 strike price and an extension fee of US$150,000.
The loan will carry a 1.25% per month interest rate starting January 19, 2023.
Debt Risk May Loom Until Repayment
Overall, we think the Reid results are promising, but will not likely gain the attention
with investors that Crawford does. The loan extension may be viewed negatively as it
highlights the risk of repayment should the company be unable to secure funding without
issuing equity; however, the company is acting as though it has comfort that it will be
able to raise funds in the next ~40 days. We reiterate our SPECULATIVE BUY rating and
$2.70/sh target price.