Giant nickel numbers underpin Ardea share price hike

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By Andrew Duffy

There were several serious share price spikes from individual ASX-listed companies in calendar year 2023.

Some were based on big mineral discoveries, others came after transformational deals were inked. There were medical breakthroughs that sent stock flying and others simply came courtesy of the good old rumour mill.

Ardea Resources drilling at its Goongarrie Hub.
Ardea Resources drilling at its Goongarrie Hub.

All, however, provided lucrative returns for the army of Australian investors that are addicted to the rollercoaster ride around the ASX small cap sector. So, in a look back at the investing year that was, Bulls N’ Bears breaks down a few of the momentous events that led to wild share price rides in 2023, starting with nickel developer Ardea Resources.

Things were initially looking a little stagnant for Ardea in late June last year when its share price had slumped to a year-low 29.5 cents.

Just a week later, however, the company’s stock jumped 171 per cent in a crazy few days of trading at the start of the new financial year. The renewed market interest came courtesy of a big mineral resource upgrade and the tabling of a prefeasibility study (PFS) that contained almost biblical-scale financial estimates for Ardea’s proposed Goongarrie Hub nickel-cobalt deposits in Western Australia’s Goldfields region.

After sneaking up to a close of 30.5c on June 30, Ardea would soon go bang, touching 80c a share by July 5.

Suddenly, the Goongarrie Hub, a subset of six deposits within the company’s wider Kalgoorlie Nickel project, was gaining serious momentum – particularly after management revealed a new mineral resource estimate for the broader Kalgoorlie Nickel Project of 854 million tonnes at a grade of 0.71 per cent nickel and 0.045 per cent cobalt for a massive metal endowment of 6.1 million tonnes of contained nickel laterite. It is possibly the biggest, or at least one of the biggest accumulations of nickel in Australia.

Throw in another 386,000 tonnes of contained cobalt and the market was more than just interested.

Having reached 44.5c before a trading halt on July 4, the company’s big PFS reveal on reopening on July 5 led immediately to the spike to 80c a share. The brief tease for investors on just how much cash the Goongarrie beast could generate clearly now had the market’s attention.

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The eye-watering PFS outlined a reserve just at the Goongarrie Hub leases of 194.1 million tonnes at 0.7 per cent nickel and 0.05 per cent cobalt for 1.36 million tonnes of contained nickel and 99,000 tonnes of contained cobalt. The PFS stated the project would cost a touch more than $3.1 billion to build, but remarkably, it would take just 3.1 years to pay down.

Projected production was about 30,000 tonnes of nickel and 2000 tonnes of cobalt a year from the open-cut mine and the initial mine-life estimate was a difficult to fathom 40 years.

In terms of profitability, Ardea estimates the annual EBITDA from the mine will be $800 million a year, a number that would likely make many a tier-one miner blush.

The shallow and flat-lying nickel-laterite ore body at Goongarrie allowed Ardea to plan the mine with a low strip ratio of just 1.5 to 1, which means the amount of expensive waste dirt required to be moved to get to the payable ore is minimal. It contributed in part to the PFS estimate of direct cash costs after cobalt by-products of just US$3763 (AU$5652) per tonne of nickel in mixed hydroxide product (MHP) during the first five years of operation, moving to US$5763 (AU$8657) per tonne nickel in MHP over the life of the mine.

With nickel currently trading at more than US$16,000 (AU$23,900) a tonne, the project enjoys a reasonable margin for error.

Ardea says it is now focussed on producing a definitive feasibility study (DFS) for its Goongarrie Hub project that should be the last stage before it looks for funding support and makes a decision to mine.

Traditionally, downstream processing complexities associated with nickel laterite deposits (as opposed to the better-known nickel sulphide deposits) have been a source of frustration for the industry, with 70 per cent of the world’s nickel resources locked away in laterite deposits. While the near-surface and flat-lying ores are attractive from a mining perspective, they generally have lower nickel and cobalt grades – although the sheer scale of nickel laterites can often overcome issues associated with lower grades.

Importantly, processing technology for nickel laterites is also advancing, with high-pressure acid leach (HPAL) facilities able to separate the nickel and cobalt from the ore using elevated temperatures and pressures. The choice of processing flow sheets varies from site to site, with production of intermediate products such as mixed hydroxides or sulphides favoured over a solvent-extracted metal end product.

When Twiggy Forrest’s Anaconda Nickel laterite project fell over a couple of decades ago – largely due to processing issues – it left a bad taste in the industry’s mouth around laterites. However, nickel laterites are fast becoming recognised as major contributors to the clean-energy transition as the demand for nickel grows and the processing tech improves.

In the past 60 years, sulphide nickel deposits have accounted for 60 per cent of the world’s nickel, but the frequency and size of discoveries are dwindling.

It is often said that there is more nickel in a lithium battery than lithium and the reality is that if the world is going to continue its obsession with electric vehicles, it will need to embrace nickel laterites as the next major source of nickel – and when it does, Ardea will have plenty of it to sell.

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Source: Thanks smh.com