Last week I had the opportunity to speak with Canada Nickel Chairman and CEO Mark Selby. Canada Nickel (TSX-V:CNC) is a relatively new story which only began trading on the TSX-Venture at the end of February. In a short period of time the company has managed to publish a maiden resource estimate, acquired additional property option agreements, and announce positive mineralogy results. Impressive progress in such a short period of time, especially when one considers the current global backdrop of a major pandemic and economic crisis.
After speaking with Mark I am as positive as ever on the Canada Nickel story and investors should continue to expect steady news flow from the company over the coming weeks and months. A drill is still turning at Crawford as the company steps out from its existing resource in an effort to expand what is already one the top 12 largest nickel sulphide projects worldwide.
I have bought shares on the open market and look forward to watching this story evolve over the coming months. The conversation was transcribed word for word, so please excuse any imperfect grammar or punctuation. Without further ado my conversation with Mark Selby from the afternoon of March 25th, 2020:
Goldfinger: Great to talk to you today Mark, you’re one of my favorite CEOs in the sector because you are sharp and extremely knowledgeable. Let's start talking about the Crawford Project, which is obviously what Canada Nickel is all about. How did this project come about and get to the point where it's at now, with roughly a billion tonne resource that contains more than 2 million tonnes of nickel?
Mark Selby: The project was initially discovered in late '18 with four drill holes put into it. I was approached in late July of last year by those backers of the joint venture who drilled the first four holes. I looked at it, saw the similarities to Dumont, and got in place to be able to raise more than $6.5 million. We started drilling in September. Because of the knowledge base I've got from Dumont, we're able to really target and really focus the drilling. So we were able to deliver a 900 million tonne resource, which contained over 2 million tonnes of nickel by the end of February.
You're looking at a discovery cost of just over a dollar per tonne US in a lot of other jurisdictions to drill off a nickel sulfide resource. Obviously, these are smaller, higher-grade ones, but you're looking at $500 to $1,000 a tonne. So in terms of the ability to add value very quickly and very productively using that capital, we were able to do that because of the experience I had with Dumont and being able to really zero in on what we thought was the highest potential part of the ore body. Again, we've only drilled off less than 20%. I think the thing that's exciting is we're already one of the 12th largest nickel sulfide resources, and that's just on less than 20% of one of the targets. Then we just recently acquired additional options on another five targets on the larger land package owned by Noble Mineral Exploration.
Goldfinger: Let's put this into context. Let's say we have a normal market environment, a normal market for base metals, and the price of nickel is around $7 or $8 a pound, which seems to be fairly normal over the last decade. How much is all of that worth? You said two million tonnes of nickel at about what? A .28% grade. What's that worth in the grand scheme of things?
Mark Selby: There's two ways I think investors should look at it. First off, these large nickel sulfide discoveries are pretty rare. So the best benchmarks I would have, if you want to try and look at a more "normal" market evaluation. In the early 2010s, you had a half a dozen or so large-scale, low-grade copped assets owned by mid-tiers, companies like Far West which owned Santo Domingo, Terrane which owned Mount Milligan, and Norsemont that owned Constantia, and Augusta that owned Rosemont. Crawford, I would argue is comparable in scale to those cost-per-assets. They all exited for a value of more than $400 to $700 million at anywhere from a scoping to feasibility study stage asset. In a more "normal" market, that's what a large base metal asset can trade out at just on a copper metric.
I think the more relevant metric, and you can see it in our investor presentation, large nickel sulfide discoveries are rare. You basically get one or two per decade. In the '90s, we had Voisey's Bay and Kabanga, which is now owned by Glencore. Voisey's Bay, obviously, traded out at a multi-billion dollar price tag. You had Jubilee Mines and LionOre make some smaller-scale discoveries, which they were able to roll up into a couple other assets to become, again, nickel production of this scale or lower-scale than we would contemplate looking at for Crawford. And those went out at $4 to $5 billion. Then the most recent example, and I think the most helpful comparison, is Sirius Resources who discovered the Nova-Bollinger deposit in 2012. They were acquired at feasibility study stage for $1.8 billion dollars Australian just three years later in 2015. That was not during a strong market by any stretch of the imagination, and that's the kind of evaluation that it went out for because, again, there's a real scarcity premium of high-quality nickel sulfide opportunities in a lower risk jurisdiction with the potential to meaningfully move the dial in terms of EBITDA and revenue for a mid-tier or major company.
Goldfinger: That's a really important point you make there. An acquisition for what was it? A$1.8 billion in 2015. I mean that was basically at the bottom of a brutal bear market. So to get that sort of valuation is incredibly impressive. Yeah, this deposit is pretty rare due to its size and its location. As you said, you've only touched less than a fourth of the footprint. So why don't you tell us a little bit about how you can make this thing even bigger?
Mark Selby: Sure. There's two paths that we're going to pursue to unlock valuable here. One is with the resource we have already, it already can support a multi-decade, multi-expansion type operation. So we're going to very quickly work on putting a scoping study together and advance that through the feasibility. Scoping study will be done by the end of this year and feasibility by the end of 2021. That'll allow us to really talk about and demonstrate what we think the economics of what we've already found can look like. At the same time, again, the main target, we already... main Crawford target we have. We have less than 20% that's there. There's a number of other parts in that area that have the same geophysical signature, which delivered the best part of what we had in the main anomaly. We're drilling those as we speak.
Again, in the very near term here, we're going to have results out on some of those other targets on the property, which will be... We're not going to be stepping out 50 meters or 10 meters or 100-meter short step-out. These are going to be a kilometer away, two kilometers away from existing drill holes. There's faulted off different structures, particularly the east anomaly, which is 1.7 kilometers long. We're drilling a couple holes that are more than 1.2 kilometers apart, which would effectively double the strike length of what we found already. So, again, I think for investors getting in here, the next set of activities will, one, demonstrate what the economics of this project could look like and, two, really give people a sense of what the scale of this thing could ultimately look like. Both are going to be very exciting.
Goldfinger: I think that's an excellent point. Let's talk about the location. Not only is the resource large and of good grade, the location. You have road access right to site. You're near a major town in Ontario. Can you tell us a little bit more about the location and the infrastructure in the area?
Mark Selby: Sure, yeah. We're just outside the town of Timmins, which is a 100-year gold mining camp. We're literally up one of the main highways out of town. We drive out that highway 15 minutes. You go past the world-class Kidd Creek Mine, which has been operating since the late '60s, and another 15 minutes up that same highway, what we drilled off to date is sitting right next to the highway. We have three high-voltage lines nearby the property, which are tied to hydroelectric generating facilities. I'll come back to that in terms of why that is significant. We have a rail line nearby and then two sizable communities, which can more than deliver all the workforce that we would need to not only build it, but then also operate it going forward. It's not going to be a remote fly-in, fly-out operation with all the additional costs that are required. That allows us, again, in terms of why we've been able to deliver a resource very quickly and at very low cost is that infrastructure.
Then in terms of what the economics of this project are going to be going forward, we have all that infrastructure in place. To support a large-scale operation, if you're building something up in the Andes in Chile for a large copper mine, you're looking to put the water, and the power, and everything else in. Companies are spending a billion dollars plus just getting the site ready before you can start building the project. Where we have the advantage of having all of that in place allows us to just put the mine and mill in place and away we go. That's a big, big plus. Again, for the majors in the world who are going to be looking at the Crawford now because they all like nickel and battery metals, that's going to put a big checkmark next to it.
The other big piece is the Timmins area, the mayor of the town is an ex-mining CEO, so it's a very mining-friendly jurisdiction and mining-friendly community. The local First Nations group, we have a very, very good relationship with them as well. They've signed impact benefit agreements with a number of the mining operations in the area. So on that front, which in some areas of Canada and globally is a massive issue, we're very fortunate to have very supportive communities that we can work with to advance the project.
Goldfinger: I got a few questions from some investors on CEO.ca. I'm going to toss them to you. Name the top 10 ways that this project is better than the previous one that you worked with at RNC, Dumont.
Mark Selby: Okay. I'm not sure I can come up with 10 meaningful ones, but let me try. First off, the key thing with both the projects is we have the great infrastructure, which I think we just highlighted. We're in great jurisdiction, which again is increasingly important. Three, we both have a resource at a very large scale that would allow multi-decade, multi-expansion type potential.
Factually, what's different about Crawford, what's better with Crawford than Dumont, one, is this higher-grade core. There's a few slides in the presentation that I point investors to, and this is really, really critical. We've got 260 million tons of M&I that's a .31% nickel, which is about 15% higher grade than Dumont. Within that, we have a 96 million ton core that's at .34% nickel and within that, a 26 million ton core that comes to surface that grades .38% nickel . When you can put 25%, 30%, 40% better ore through the mill for the first few years, that's a massive benefit for potential cash flow. That's what we're hoping that our scoping study is going to show.
We have 20% to 25% higher cobalt content than Dumont, which again will help on the byproduct front. The PGE in that higher-grade core are also higher than the average grade at Dumont. Our Magnetite content, based on the mineralogy samples we've done to date, also looks better. Again, this is going to be an important byproduct for these types of deposits. Our initial mineralogy shows that we have a higher percentage of nickel that are in potentially recoverable minerals than Dumont.
I think most importantly, and I think we've clearly demonstrated this in this first resource is that because I and some of the people who are helping me with the project have been through Dumont, we can take all the learning and the experience of advancing that project and be able to take that to Crawford to do it faster and much more cheaply than we would be able at Dumont because we're not figuring it out for the first time. Again, that's why we were able to deliver 2 million tonnes of resource at just over US$1 per tonne.
Goldfinger: That's a good answer. They had another question, actually kind of two questions, and I'll roll them into one. Which major would make the best owner and operator of the Crawford project? Have you been approached by any majors?
Mark Selby: Yeah. First question is I am not sure if one is better than the other, but I would say two things. One, I would say the single biggest difference between what I've experienced to date already with Canada Nickel versus my nine years advancing Dumont at RNC is we knew when we started Dumont that we were going to be in a nickel market for a few years that was out of favor. That was why we were advancing the nickel project because we knew we were going to need one once nickel came back into favour. And so we went through that time period without necessarily a lot of interest from the majors because they didn't have a positive view on nickel.
Over the last 24 months, that's changed 180 degrees. BHP, in their latest call about three weeks ago for their annual results, the CEO of BHP said, "We need more nickel, and we need more copper. We need more future-facing metals." This is from the CEO of a company that spent most of the 2010s trying to sell their nickel division. So if BHP is thinking that way, you can be sure that Rio Tinto, Anglo American, and all the other majors are trying to figure out a way that they can get exposure to the high-growth battery metal sector. I've already had initial meetings with several of these companies. Again, that's the fundamental difference. I think we're going to get interest as we continue to advance it from multiple players of that scale because the reality is there's very few projects outside of Indonesia that can offer the majors the kind of scale asset that they need for their business.
In terms of the one in the area, Glencore, obviously, they had a former metallurgical facility there. They have Kidd Creek. With the infrastructure in place, they have a leg up on some of the other competition, and they obviously play in the nickel space, so we'll see how things go going forward.
Goldfinger: This is a funny question. I don't know if the guy was serious, but I'm going to throw it at you anyway. How long until Canada Nickel is acquired by a major? Is it going to be one year, two years or three years?
Mark Selby: Those are tough questions for CEOs of public companies to answer, but let me again point to other real-world benchmarks. Again, pointing to those copper examples of the early 2010, again companies like Far West, Terrane, Norsemont, Augusta Resources, and then the Sirius Resources example for Nova-Bollinger. Generally, those things were all acquired from scoping study through pre-feasibility study or feasibility study stage. If you look at when majors step in, they like to see that the asset is somewhat de-risked before they step in, and they're willing to pay the higher price rather than spend time and dollars on something that hasn't been de-risked.
Again, in terms of our timeline, when we're going to reach those stages, my goal is to have scoping study in place, pre-COVID was for October. We should still be able to get that done by the end of the year. And so that'll be a major milestone in terms of demonstrating the economics for the project. Then we're going to roll right into a feasibility study and with an intent to deliver that by the end of 2021. That's very, very fast for a project. The reason we can do it is geologically and mineralogically, everything we've seen so far at Crawford shows that it's very similar to Dumont. Again, there will be a few surprises along the way, but so far, so good.
Secondly, terrain-wise, both Dumont and our project were sitting underneath the same glacial lake for 10,000 or 15,000 years, and so we have the same sort of terrain, and the same silt and clay sitting on top of it that we need to deal with initially. Then in terms of the infrastructure package, it's very similar. Because of that, we can really leverage the engineering that was done before. I have the engineering firm, Ausenco, that did the work at Dumont lined up to do the work here for us on the scoping study and then, hopefully, the feasibility study. So we can move very, very quickly. In terms of the range of when projects get acquired, we expect to have that first study done by the end of this year and then the second one by the end of 2021. Hopefully, that gives investors some guideposts in terms of when a potential acquisition might happen.
Goldfinger: Okay. Now, turning to current events, how you're managing through this crisis, this COVID-19 crisis. Obviously, it's affected literally everything in the world at this point. How has it affected you guys? How much do you think this could set you back in terms of timelines?
Mark Selby: First question, in terms of COVID, obviously, our employee safety is always job one. We're fortunate in terms of the work that's done in Timmins, in our core shack. It's a large space, so everybody is able to work at a safe distance relative to each other. That's allowed us to continue those activities on site. With the few office people we have, we're all working from home right now. There's been no issues on that front. Obviously, everything's work-wise when working with suppliers, and contractors, and so forth, everything's taking a little longer than it otherwise would be, so far, we're able to keep the one drill that we've got going right now.
In terms of cash flow going forward, the initial C$6 million raise was about delivering the initial resource, which we did at the end of February. So we're looking now to get the capital in place to get to a PEA. Again, we expect to be able to deliver that in a very cost-effective manner going forward. In terms of timing for that, pre-COVID, I was confident we'd be able to get it done by October. I think it'll take us an extra month or two here before we're able to get that done just given the disruption to work environments here, but again I'm not sure. Don't think that will hurt our ultimate delivery date in terms of the feasibility study by the end of 2021.
Goldfinger: Let's talk about the share structure. This project, this resource was a spin-out from Spruce Ridge and Noble Minerals, right?
Mark Selby: Yes, Spruce Ridge and Noble Minerals. It was a joint venture of a joint venture between three entities. That's why, in terms of working through the exchange, it took a little longer than normal just because it was a complicated structure in which the asset was held. The key thing is we own 100% of it. We've got 57 million shares outstanding. Most of those shares are held by a number of key shareholder groups. The first round of financing was done with friends and family with myself and the key backers. I personally own 4%. My extended family owns just under 10%. One of the things that's exciting for me is that we have a really exciting asset with Crawford, and then we have a very well set-up corporate structure with just the 57 million shares outstanding with no warrants at this point.
As we move forward here, we'll be looking to do a raise at some point for the PEA. Then we'll do one more raise for the feasibility study. And so we'll be able to keep a very tight share structure through the next phases as we advance this project, which, again, is ultimately I want to realize value on my shares, and I know that's what shareholders are... is primarily focused on. Unfortunately, I think a lot of mining companies, CEOs, junior mining companies don't always focus on that. And so we'll work to try and keep the share structure as tight as possible as we move forward here. We're starting from a very, very strong point. Only 10 of the 57 million shares right now are free trading. The rest are either escrowed or subject to four-month hold as part of a private placement.
Goldfinger: Okay. When does that private placement unlock?
Mark Selby: They would come trading at the end of June, so there's a four-month hold. Some were issued prior until they go public, but the go-public date sets the time for the four-month hold period.
Goldfinger: Right now, the market cap at around, let's say, C$.49 per share is about a C$28 million market cap, which is about US$20 million at current exchange rates. That's pretty cheap when you consider the size of this project and the very attractive location. It's easy to get negative here. It's easy to say, "Oh, everything's going to be shut down for the rest of the year," and get really negative, and people are never going to need base metals again. But let's try a more positive spin on it I guess. If the market does normalize again even later this year, even in August or September or October, the electric vehicle boom is not going anywhere. It's still coming, and it's just at the very early stages now. We also have rumblings of major infrastructure programs in China and the US, I imagine nickel would be in high demand if these do indeed materialize. This decade that we're starting, forecasts are calling for a lot more nickel that has to be supplied to the market. The only way that amount of nickel is going to be available is at higher prices. At $5 a pound or even $6 a pound it’s just not enough to invest the capex that is required for some of these larger projects. What would you say the price has to be to meet the surging forecast for how much nickel the market's going to need in 2025 and 2030?
Mark Selby: Wood Mackenzie is sort of the leading consultancy for supply for a range of commodities, and they have a $9 to $10 a pound incentive price. When they look at the economics of the pool of projects that are available to come to market, that's the kind of incentive price that they've had during the past while in terms of what's going to be required going forward. So that's where prices need to be to be able to raise the capital that's required to advance a lot of projects. I'd say again, I think Crawford's going to compare very favorably to a number of those projects. Again, that's part of the reason we're keen to get a scoping study done so we can demonstrate what the economics of this project can look like and just how robust it's going to be in a range of nickel prices going forward.
Goldfinger: The way I see it as an investor, you're not buying the CNC shares here for a trade in the next week or the next month. You're buying here because the upside, longer-term, 12 months or more is substantial. If the nickel bull market comes back, this is one of the top five junior plays out there. At about a $20 million market valuation and a tight share structure, I think 10-bagger is sort of being on the conservative side in terms of potential. It could be more than that. A 10-bagger is great. That's fantastic, but the upside is substantial. The worst case, I guess, would be if the nickel price stays low for longer and you're sitting at $5 a pound for years. Then this project might be a lot harder to advance. Is that fair?
Mark Selby: Yeah. Let me just talk to two points. One is in terms of sitting at $5 a pound, the reality is there's a large amount of nickel production today that's not profitable at those levels. So we would end up back in a deficit market position pretty quickly if prices stayed at those levels. Because we've been in a deficit market for the prior four years, we would... Yeah, the price is not sustainable at these levels for any period of time. Then, two, in terms of the relative valuation, again, at $20 million today, again, I would encourage people to look at those copper benchmarks from the first half of the 2010s where you did see these assets exit for anywhere from $450-$750 million, which is a large multiple of our current market cap. Then, again, that Sirius Resources example where in a down market, you had an asset exit for $1.8 billion.
I put my money where my mouth is. You can see my SEDI filings from the last two weeks. So even though I subscribed to the initial private placements that we did to get the company going at 25 cents, I've been an active buyer of our stock between 40 and 50 cents because, again, those are the benchmarks that I'm using personally to think about what this thing could be worth. I would encourage investors to do their own work, but that's the kind of upside that I think the stock offers today.
Goldfinger: I think that's a great place to leave the conversation. Your SEDI filings have encouraged me a lot as a shareholder. I own over 50,000 shares now, because I say to myself, "If a CEO is putting literally hundreds of thousands of dollars of his own money into this company, and he knows he can't sell anytime soon". You're clearly betting on a long term gain. Can you tell us how many shares that you own personally and how much your family owns in total?
Mark Selby: Yeah. I own, with the additional shares now, I think just over 2.2 million shares. Then there's additional options and RSUs that I have exposure to. Then my extended family, that total is up over 4 million shares in total. We believe in the value of this company. We think we can unlock that value relatively quickly here given our experience with Dumont, so I think it's going to be a pretty exciting 18 months here and encourage everybody to buy some shares sooner than later because we're going to have some pretty exciting news flow coming over the next few months here.
Goldfinger: Alright, Mark. Thanks a lot for your time and sharing the Canada Nickel story with us today.
Disclosure: The author has been compensated for marketing services by Canada Nickel Resources Ltd. and the author also owns CNC.V shares and may choose to buy or sell at any time without notice.
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