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FPX Nickel: fully funded project advances with strategic investor on board

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Vancouver-based junior nickel miner FPX Nickel [TSXV: FPX] is developing a large-scale nickel project in Canada’s mining-rich province of British Columbia. What sets the company apart from the crowd is that the metal at its flagship Baptiste Nickel Deposit occurs in a form that resembles stainless steel, a nickel-iron alloy called awaruite.

Potentially more importantly, at the time when ESG issues are rising up on the agenda is that its ore has little or no sulphide content which means there is unlikely to be much acid mine drainage, thus reducing the overall environmental impact of the project.

FPX Nickel has built constructive relations with First Nations and has an Exploration Memorandum of Understanding in place with the Tl’azt’en Nation and a Development Memorandum of Agreement with the Binche Whut’en First Nation.

The numbers so far have been very supportive: the Preliminary Economic Assessment for the Baptiste Deposit demonstrated its potential economic viability, with projected costs and carbon footprint of nickel production among the lowest for nickel operations anywhere on the planet.

Why nickel?

Ambitious emissions reduction targets in the US and Europe have dramatically transformed the electric vehicle markets over the last few years and have created a demand for metals and materials that can support not only large-scale EV production but also a broader green transition.

A further step came in the summer of 2022 with the US Inflation Reduction Act which stipulates that to be eligible for tax cuts, EVs have to use materials produced either in the US or in US-friendly countries. The legislation is in the process of creating a perfect storm in the mining and minerals industry as it is creating demand after several years of under-investment exacerbated by a decline in demand during Covid and an appetite for increased production in specific regions.

The amount of financing currently flowing into mining and metal production is woefully below what will be needed to supply EV manufacturers and makers of other green technologies including large battery devices and energy storage units. Major car makers have already pointed out that with the current situation in the supply chain, the US will not be able to meet its green targets, including making sure that half of all the new vehicles in 2030 are electric.

The average time it takes from discovering a deposit to producing the metal is usually between 15 and 20 years and those explorers and developers who are not already well on the way in terms of preparatory work will not be ready to produce metal in what is expected to be an oncoming onslaught of demand.

Projections for nickel prices over the coming years are indicating a significant increase, in a similar fashion as we have witnessed with lithium. For car makers and other large nickel consumers, one way of sidestepping those risks is to own a stake in mine production.

FPX Nickel has already had discussions with bigger players not only in the mining industry but also with a variety of downstream participants. Given the financial demands of developing a deposit, ensuring permitting, building a mine and starting production, projects like FPX Nickel’s will most likely be developed in collaboration with multiple different parties within the supply chain.

Strategic investor on board

FPX Nickel entered 2023 fully funded (and will remain so throughout 2023 and 2024) after selling a 9.9% stake to a strategic investor. The stake fetched $12 million, and in a sign of the investor’s serious conviction that this was a good deal, the closing price at which the two parties settled was at a 27% premium to the market price at the time of discussion. The investment will make it possible for FPX Nickel to focus on the groundwork it needs to carry out in terms of further deposit investigations and permitting and to avoid capital markets at a time when they are experiencing a lot of volatility.

This latest round of funding is the result of a fulsome process of discussions with several counterparties which included due diligence and commercial terms discussions. The conclusions from the different investors have been uniformly very positive, a strong validation of the company’s project and the way in which it is being developed.

The structure of the deal is a plain vanilla equity investment which, on a project level, keeps all the decision-making rights within the company.

Most of the financing will go towards the completion of a preliminary feasibility study for the firm’s flagship project Baptiste Nickel and to continue all the baseline environmental studies in preparation for the permitting processes expected over the coming years.

What is interesting about this particular project is that the work on the deposit progresses with the mindset of a major mining company or a large strategic counterparty that would ultimately have an interest in buying nickel from a robust project. The Baptiste Nickel project is being developed to meet the standards of multiple very large sophisticated counterparties. This could be an EV car producer, a major battery maker or a chemical company involved in the production of EV car batteries.

FPX Nickel plans for 2023/24

At the time of writing the work on the pre-feasibility stage of the Baptiste Nickel Deposit is expected to be completed towards the end of the third quarter of 2023. This will set the stage towards a full-scale feasibility study expected in the months after. In January 2023, drill results from the Van target at the company’s Decar Nickel District expanded nickel mineralization approximately 1 km to the west of previous drilling, bringing the mineralized footprint at Van to approximately 2 km in strike length by 1 km in width.

Based on the first two drilling campaigns completed to date, the scale of nickel mineralization at Van is trending toward being comparable to the Baptiste Deposit, which has a strike length of approximately 3 km with an average width of approximately 1 km.

In terms of finances, the CAD 18 million available in the company’s treasury will cover the miner through to the completion of the pre-feasibility study and all the metallurgical and engineering work that goes into that, including additional field investigations.

FPX Nickel’s expected moderate environmental impact will work strongly in favour of the miner, particularly as in the course of 2021 and 2022 two mining projects in the US have been brought to a halt for failing to meet ESG expectations.

In all, it will be an exciting few years for FPX Nickel as it continues to work towards nickel production at a time when demand for nickel, and even more so demand for low-impact nickel from specific geographies, continues to build.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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