Independent Nickel Corp.: A Pure Nickel Play
by John Lee
http://www.goldmau.com/ini.php
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02/07/2008
Symbol: INI.TO, INIFF.PK
Recent Price: C$0.220
Shares O/S: 60 M
Market Cap.: C$13.8 M
52 Week Range:
$0.200 - $1.200
Cash: $7 M
Independent Nickel is the most pure Nickel play that I know in the exploration league. It has 2 great Nickel assets in Canada: Lynn Lake and Minago.
Lynn Lake mine property:
In February 2005, the company acquired the Lynn Lake Mine from Black Hawk Mining for 1 million shares. CEO Richard Murphay studied the Lynn Lake property before as he grew up in the region and and got a great deal as no one wanted anything with nickel back in early 2005 when it was trading at $6 a pound.
The Lynn Lake nickel mine was operated by Sherritt-Gordon from 1953 to 1976. During its 23 years of operation, the mine produced over 20 million tonnes of nickel-copper ore at a grade of 1.02% Ni and 0.54% Cu, making the Lynn Lake mine, historically, the third largest nickel producer in North America after only the Sudbury and Thompson mining camps. The mine was closed in 1976 due to a period of stagnant growth in the nickel market and not because the ore was mined out. An estimate of un-mined mineralization includes 5.76 million tons of 0.80% nickel, and 0.32% copper, including a higher grade portion of 2.32 million tons grading 0.92% nickel, and 0.34% copper, within the ‘N’ and ‘O’ ore bodies occurring between depths of 2,000 and 4,000 feet. The Company is uniquely positioned to employ new exploration technologies in an underexplored nickel mine setting.
http://independentnickel.com/images/MineMap.lg.jpg
Picture: Red is mined out, blue is high grade remaining.
In November 2007, INI announced a pre-feasibility study on its Lynn Lake deposit. Highlights include the following:
* A pretax internal rate of return (IRR) of 29 per cent;
* A pretax net present value (NPV) of $179-million using a 5-per-cent discount rate;
* A payback on mine costs of three years;
* Preproduction capital cost of $148-million;
* Production rate of 3,000 tonnes per day;
* Average annual nickel production of 11.2 million pounds; and
* Average annual copper production of 6.2 million pounds
http://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00007781
This is based on $7 nickel and $1.75 copper. If we take today’s price for nickel ($12/pound) and copper ($3.2/pound), the IRR and NPV are expected to improve quite dramatically from already favorable numbers.
The company is presently drilling at Lynn Lake and results will roll out in the coming weeks. Lynn Lake is in Manitoba, which is the best place to mine in Canada. The company has plans for feasibility and environmental studies, permitting, and production in 3 years.
Minago:
Minago plan view of the open pit.
Minago Nickel Royalty:
In April 2007, INI signed a binding letter agreement with subsidiaries of Glencairn Gold Corporation (“Glencairn”) to acquire their Net Smelter Return Royalty (“NSR”) of up to 3% (when nickel prices exceed US$6/lb) on Victory Nickel Inc.’s Minago nickel deposit, as well as the 2% NSR on the Company’s Lynn Lake mine property, both located in Northern Manitoba (http://independentnickel.com/News/070417NR.htm).
Under the terms of the purchase agreement, the Company paid $5 million in cash and issued 2,500,000 shares of the Company to Glencairn (http://independentnickel.com/News/070417NR.htm).
Victory Nickel is advancing its 100% owned Minago Project, located 225 km south of Thompson, Manitoba in the Thompson Nickel Belt, toward production.
With a NI 43-101-compliant measured and indicated resource of 49.1 million tonnes grading 0.516% nickel (558 pounds of in-situ nickel) and an additional inferred resource of 44.1 million tonnes grading 0.528% nickel (513 million pounds of in-situ nickel), Minago is one of Canada’s largest undeveloped sulphide nickel deposits.
Highlights of the scoping study prepared in November 2005 by Wardrop Engineering Inc. include:
* An IRR of 23.1% using the three-year trailing average nickel price of US$7.43/ lb;
* Net present value of $334 million calculated using an 8% discount rate;
* Total cash flow of $953 million;
* Conventional mining and processing combining a 10,000 tonne per day open pit and 3,000 tonne per day underground operation;
* Initial capital of $286 million and sustaining capital of $155 million for total capital costs of $441 million
* 16-year mine life producing approximately 314 million pounds of nickel, 15 million pounds of copper, 4 million pounds of cobalt.
http://www.victorynickel.ca/minago.html
This means Minago could churn out 20 million pounds of Nickel per year for 16 years. 3% NSR on 20 million pounds of Nickel at $10/pound is $6 million cash flow per year. Net cash flow from the 3% royalty is $96 million over life of mine. Victory Nickel owns Minago, and is managed by the Nuinsco folks, who are experienced mining operators.
Now you ask, why did Glencarin sell the royalty to INI for $5 million? Richard had connection with Glencarin, and Glencarin had been running into difficulty with its mine in Costa Rica (eventually they shut it, stock down from year high of 72 cents to now 20 cents) and was looking for cash. As soon as Richard knew the Minago royalty was on the block, he quickly arranged a meeting and a deal was consummated. Victory Nickel contacted Glencarin and INI after the fact but it was too late.
Fundamental Research Group recently initiated coverage on INI and put out a price target of $1.73. The report can be accessed at the company’s report section at http://www.goldmau.com/ini.php.
Conclusion:
Both Lynn Lake and Minago are in Manitoba, which has been ranked as THE MOST mining friendly district by the Fraser Institute.
Nickel had a great run in 2007 and when INI announced the Minago Royalty acquisition, the in May 07, the stock rocketed to $1.2. Both Lynn Lane and Minago royalties have real, tangible values that are worth more than the current INI market capitalization of $15 million. Not to mention the $7 million INI has in its treasury to fund the 2008 program.
Technically at 22 cents, the stock is trading close to historic low point, before the Lynn Lake and Minago acquisition. $13 million financing was done in May 2007 at 85 cents and this creates selling pressure. These impatient sellers’ loss is your gain. Any slight interest returns to Nickel and we can see INI back to 50 DMA (blue) of 32cents. It’s very hard to find fault in buying INI at current prices with Nickel comfortably sitting above $10/pound both fundamentally and technically.
John Lee
johnlee@goldmau.com
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