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Nickel mine development could return handsome profits in long run

Ron Walter looks at a promising new venture, FPX Nickel
Bizworld by Ron Walter

Investors often yearn for the opportunity to get in on the ground floor of a new promising venture.

FPX Nickel represents one of those rare opportunities. Beware that getting on in the ground floor requires patience.

Great profitable companies are not built overnight.

FPX has a nickel deposit with reserves for a mine with 29 years life in British Columbia’s north near Fort St. John.

The company has outlined the Baptiste deposit and found three significant partners to fund development and final building of the mine.

The partners have solid operations. Japanese metals company Sumomito has a 9.9 per cent stake in FPX with promise to buy some of the high-grade nickel from the mine. Finnish company Outukumpu has a 9.9 per cent stake and promises to buy some nickel.

And JOGMEC, a Japanese organization with a mandate to ensure Japanese security of metal supply, is financing exploration for the next two years.               These partners will help overcome the obstacle of raising $2.18 billion to build the mine.

Building the mine will require at least $450 million cash up front. FPX has $31 million.

The directors and management seem to have good experiences finding, building and funding new mines. Insiders own 13 per cent of the company.

An unnamed corporation owns 9.95 per cent and high net worth investors own 18 per cent leaving 39 per cent of shares for other investors.

Found in Awaruite rock the nickel will be easier to process, bypassing two of the five stages most nickel mines use.

The open pit mine has an extremely low percentage of overburden to remove to get at the ore. The strip ratio of overburden to ore is .56-1. Often it is 3-1 or higher.

The result: operating costs are a low $3.70 per pound of nickel produced. Current price is $7.25 a pound.

The nickel produced will have a low carbon intensity, which is preferred by buyers across the globe.

Besides the Baptiste deposit FPX has discovered the nearby Van deposit with excellent potential for a nickel mine.

FPX also has the option of refining nickel on site some day and likely will pursue that once the mine is operating and pulling in cash.

The chief downside of an investment in FPX today is the time line until investors unlock the value by bidding up the share price.

Trading around 38 cents a share FPX is in the bargain bin IF the project succeeds in getting built. Reduced nickel prices or partner financial difficulties could delay the mine for years.

Risk of failure is still high.

The kicker is the time until an operating mine is up and running. The company estimates up to three years until the mine is built once the decision to build is made and funding is in place.

It could take another year until the mine is fully in operation.

CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.

Ron Walter can be reached at   

 The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication. 


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