by Travis Johnson, Stock Gumshoe | February 4, 2019 5:28 pm
The promise in Dave Forest’s ad for Casey’s International Speculator ($1,995, no refunds) is pretty monumental — he implies that one little company is on the verge of cornering the supply for a critical battery metal, and that this is keeping Elon Musk up at night.
Here’s a little piece of the spiel:
“Is Elon Musk’s worst nightmare coming true… 3.1 Million Electric Vehicles: Now Obsolete?
“One tiny company may be responsible.
“Early investors could turn a small stake into $55,000—fast.”
Who knows what “a small stake” might be (for some it would be $50,000, which would make $55,000 seem less impressive), but let’s see if we can ID this “one tiny company” for you.
Some more from the ad:
“This presents car companies with a unique opportunity:
“If one of them can get their hands on the entire nickel sulfate supply, they will essentially have a monopoly on 1-1-8 tech for quite some time…
“And, as a result, dominate the electric vehicle market, which I expect could soon generate $407 billion in revenue every year. (That’s more than the yearly revenue of Nissan, BMW, and Honda… combined.)
“It looks like one company has already caught on to this strategy.
“According to my research, Tesla is already trying to lock in long-term supplies of nickel sulfate.
“To avoid losing to Tesla, competitors must act fast.”
So what is this 1-1-8 deal? In Forest’s words:
“It is not a new battery.
“Instead, it’s a new chemical composition of a critical piece inside the battery itself:
“It’s responsible for storing and unleashing the built-up energy within each battery….
“The result of 1-1-8 tech is the most advanced, stable, and powerful battery in existence….
“It makes even the most advanced electric cars today look like they were built in the Stone Ages.
“The Tesla Model S—widely known as the best electric car today—can only last 335 miles on a single charge.
“A car integrated with 1-1-8 tech is expected to drive 100 miles further.
“And actually costs less to build!”
So apparently this technology is already in most new electric cars…
“Within a year, most of the 400,000 electric cars made each quarter will use this tech. And it’ll only increase exponentially from there.”
And then we get to the crux of the pitch — how do you make money off this “1-1-8” business?
“… if history repeats, then a few suppliers of 1-1-8 tech materials will soon see explosive growth.
“One of These Elements Could Hand Early Investors an Absolute Fortune!
“It’s the “8” in 1-1-8.
“The 1-1-8 ratio, as you may have guessed, stands for a specific percentage of a certain element.
“10% is cobalt. It’s used to improve the battery’s cycle. Meaning, it extends the life of a battery.
“10% is manganese. It’s used to stabilize the battery.”
OK, so what’s that “8?”
“It’s a rare, highly conductive material found in meteorites.
“Its scientific name is NiSO4(H2O)6.
“It’s the purest form of nickel mined from magmatic deposits deep inside the Earth.
“It’s called ‘nickel sulfate’—and it’s pretty rare.”
And despite that rarity, we’re told, it’s not all that expensive just yet…
“These days, a pound of cobalt—another battery material—costs $28.
“Today, a pound of nickel sulfate still sells for just $1.78. Pretty cheap.”
He pulls out examples of past “battery metals” that spiked in price, including cobalt, lithium and vanadium, in predicting a big surge for nickel sulfate…
“I wouldn’t be surprised if nickel sulfate surged 200, 300, even 500% from here.
“The few companies who mine nickel sulfate are about to see their value shoot through the roof!”
So, naturally, this is when we get to the “one tiny company” bit about your future riches:
“But one tiny company in particular may see far greater growth than any other.
“Insiders seem to know this…
“They’ve been snatching up shares at an unusually rapid pace. It’s obvious they’re getting ready for a big payday.”
OK, so insider buying is good… and extremely rare in mining stocks, in my experience. So that’s interesting. What other clues do we get?
“On June 11 of this year, a $341 billion conglomerate acquired a 19.9% stake in this company. They paid a 43% premium.”
(That’s 2018, the ad has been running for at least a couple months)
And then we get more detail on that transaction…
“Less than 60 days after Citic’s investment, the founder of this company—a gentleman we’ll refer to as ‘RF’—more than tripled his affiliate’s holdings. He now owns 21.3% of all shares.”
That’s probably enough clues, but let’s get into this valuable asset that “RF’s” company owns, just to be sure:
“Owns a massive 3.8-million-ton deposit of nickel sulfate—nearly half of all estimated nickel sulfate reserves on earth!
“At today’s prices, it’s worth $13.5 billion.
“But, as you know, with 1-1-8 tech right around the corner, prices of nickel sulfate are set to spike.
“If the price only triples, this company’s deposit is worth $139.6 billion.
“If it soars 13x to the same price of cobalt, it’d be worth $175 billion—14,441% more than its current market cap!
“No matter how you look at it…
“Clocking in at just $2 per share, this company is severely undervalued—for now.”
And then this…
“The nickel sulfate company I’ve been telling you about needs $1 billion in financing to complete the project.
“It already has non-binding contracts totaling $900 million.
“And the fact the founder just gobbled up $242 million worth of shares through one of his controlled affiliates—nearly a fourth of his $1 billion net worth…
“Combined with the unusual rate at which the ‘smart money’ is piling in, grabbing half of its total shares…
Is a telltale sign they’re about to make a major announcement…”
OK, enough suspense — what’s the stock? This must Robert Friedland’s Ivanhoe Mines (IVN.TO in Canada, IVPAF OTC in the US), which does have one meaningful nickel project.
And yes, it’s Ivanhoe’s South African project that’s being touted here, the Platreefs platinum (and nickel and copper) mine that is under construction now. It’s not primarily a nickel mine, but does have a lot of nickel and Ivanhoe says they are investigating the possibility of adding a nickel sulfate processing facility to the mine to increase the value of their output.
Why Ivanhoe? Here’s how it matches the clues…
The ad says there is $900 million in “non-binding” financing… which matches up with this update from Ivanhoe last year:
“Ivanhoe has appointed five leading mine-financing institutions as Initial Mandated Lead Arrangers to arrange debt financing for the Platreef Mine’s development. They are: KfW IPEX-Bank, a 100% subsidiary of the German promotional bank KfW; Swedish Export Credit Corporation; Export Development Canada; Nedbank Limited (acting through its Corporate and Investment Banking division); and Societe Generale Corporate & Investment Banking. Expressions of interest have been received for approximately $900 million of the targeted $1 billion project financing.”
And yes, the general trend has been to use more nickel in lithium-ion battery designs — both because they’re trying to limit the use of cobalt, which is much rarer and more expensive and hard to source, and because nickel provides better range. Though the 1-1-8 battery is nothing new, and many current electric vehicle battery designs (including Tesla’s) already are reported to have nickel at 80% of the cathode, though they tend not to talk publicly about the specific formulas used.
And the ownership details are exactly as teased, particularly the 19% buy-in by Chinese giant CITIC last year. CITIC is technically a $340 billion company, though that’s only in Hong Kong dollars (more like $40 billion in US$), and they did make the deal on June 11 (it closed in September)… though the deal was really at more like a 14% premium to the pre-deal stock price, not 43%.
This gets a little odd, too, because my quick read on the situation indicates that RF (Robert Friedland) did not increase his holdings in Ivanhoe Mines — in fact, the agreement with the Chinese state-owned CITIC to help fund development of Ivanhoe’s projects in the Democratic Republic of Congo and South Africa is reducing Friedland’s ownership — more shares added, so his stake falls from that 21.3% immediately before the deal to about 17%. That announcement in August was not about Friedland buying more shares, it was about his affiliate backstopping what was effectively a $100 million bridge loan from CITIC, and the equity sale is now closed so that backstop is no longer required (Friesland and CITIC have agreed to each keep their holdings below 20% for the next several years).
And, finally, the stock is indeed trading right around US$2 (though it’s not particularly tiny, the market cap is around $2.2 billion).
The nickel market seems pretty interesting, mostly because the primary driver of demand in recent years, steel production (particularly stainless steel), has also helped bring on a lot of low-quality nickel supply that’s adequate for steel (you’ll see this referred to as NPI, “nickel pig iron”), whereas the growing demand from batteries, if it works out as prognosticators expect, will be for a much higher purity nickel that can be converted to nickel sulfate.
That’s not so much a requirement that the nickel hast to come from nickel sulphide deposits, though that’s probably the easier way to produce it, but it does add costs — converting nickel to nickel sulfate requires expensive chemical processing plants, so it doesn’t get done when nickel prices are low… and, likewise, big new nickel sulphide mines aren’t financed and developed when nickel prices are low.
So it seems to be a little bit of a “chicken and egg” problem, since everyone thinks the demand for battery-grade nickel sulfate will be huge but no one wants to pay a premium price if they don’t have to, and the slack demand for steel in recent years has kept nickel prices low (they’ve been in the $4-5 range for much of the past five years, well above the pre-China years of the 1990s when it bounced around from $2-4, but also well off of the China resource highs in 2007 when nickel hit $20 (or 2011, when it got back to $12 again).
There’s a good column on this from Reuters last spring, “Why electric vehicles could fracture the nickel market.” (There’s also an interesting and longer McKinsey report on nickel here from 2017 if you want to dig deeper.)
There are a lot of nickel discoveries out there, and it seems there’s also lot of shuttered nickel capacity as some mines have been put on care and maintenance or seen production slow with lower nickel prices in recent years… and not a lot of big new nickel mines are predicated on $4-5 nickel prices (much nickel is also produced in copper-nickel mines, so copper prices also matter).
So to some degree it seems like they’re just waiting for this long-expected surge of demand for electric vehicle batteries, and that 1-1-8 battery chemistry that’s relative nickel-heavy will certainly increase the demand, though that’s absolutely already known and already the direction batteries have been headed for years — though I don’t know what it will take to drive up prices so they can more profitably finance and build these mines. Or maybe they’re hoping for industry partners to jump in, since battery makers certainly know the long-term forecasts and might be encouraged to plan ahead.
Or perhaps the nickel forecasts and the battery demand forecasts are wrong. They’re forecasts, after all, and are heavily reliant on extrapolation and the assumption that more electric vehicle requirements will create (and subsidize) more electric vehicle demand, and perhaps that battery technology will not evolve meaningfully in the next decade or two to use less nickel or otherwise fundamentally change (that’s probably a relatively safe bet, given the slow pace of battery evolution and the time it takes to go from the lab to commercial production, but it’s not guaranteed… and some cathode companies that first looked to cut their reliance on cobalt are now thinking about how to cut nickel use).
Either way, I guess I’ve buried the lead here because Ivanhoe’s Platreef mine seems unlikely to be a major part of the nickel market in the near future — yes, it will be a meaningful producer, they aim to produce 19 million pounds of nickel a year for 30+ years, but that’s still small in the global context. The world’s largest nickel producer, Norilsk Nickel, produced about 350 million pounds of nickel in 2017, a down year for them. And Ivanhoe’s other projects, the massive copper mines they’re building in the DRC, will not produce any meaningful nickel — though they are indeed phenomenal and wildly undervalued projects if the DRC turns out to be a reasonable place to do business for the next 40 years (investors are wary of that notion, which is a main reason Ivanhoe is priced so low).
Which gets to the great uncertainty of this teaser — the pitch is clearly about Ivanhoe, including those specific references to the CITIC/Friedland financing arrangements, but Ivanhoe’s Platreef mine isn’t going to produce anything like 3.8 million tonnes of nickel… production for the life of the mine is likely to total more like 600 million pounds, about a quarter of a ton.
Here’s the wording from the ad again:
“RF’s company…. Owns a massive 3.8-million-ton deposit of nickel sulfate—nearly half of all estimated nickel sulfate reserves on earth!”
Nickel resources are more often cited in pounds, and there’s 2,200 pounds in a metric ton (assuming they’re using metric, as is typical in mining), so unless I’m mixing up my math 3.8 million tonnes would be 8.3 billion pounds. The total measured and indicated and inferred resource of nickel at Platreef does tally up to something in that neighborhood, depending on which cutoff grades you use, though it’s not a number you should attach the word “reserves” to, and they are not aiming, at least in preliminary reports, to actually produce even half that much nickel during the life of the mine.
Saying that this is half of the “nickel sulfate reserves on earth” doesn’t make any sense at all. After all, just one possible mine currently proposed, the Dumont mine controlled by RNC Minerals, has twice as large a “measured and indicated and inferred” nickel resource (like Platreef, no actual reserves yet — “reserves” means geologists have not only determined that the mineral is there, but that it can also be mined profitably at something like current prices), and that’s also a nickel sulfide deposit. As are most of the massive reserves of Norilsk Nickel in Russia.
Maybe there’s some distinction in these types of deposits and how easy they are to process into nickel sulfate versus Platreef’s planned production, I don’t know, but there’s no way that Platreef has a double digit share of global nickel reserves that could be called upon for battery cathode manufacturing (and that’s assuming they upgrade their resources to reserves someday)… let alone 50%. And, of course, huge producers are ramping up nickel sulfate production from existing nickel operations, so “sulfate reserves” is not something that has any meaning, as far as I can tell (BHP Billiton, for example, is converting a lot of their nickel metal production to nickel sulfate in Australia right now).
Which doesn’t mean that nickel is a bad investment, or that Platreef is a bad mine or Ivanhoe a bad investment… just that the hype in the ad is silly and misleading, so don’t buy into Ivanhoe thinking that you’ve somehow cornered the market in nickel sulfate.
For what it’s worth, I’ve invested some (unsuccessfully, at least so far) in another Robert Friedland project, Clean TeQ (CLQ in Australia, CTEQF OTC in the US), and that’s much more of a targeted battery metal investment (their Sunrise project in Australia will, if financed and built, produce both nickel and cobalt sulfate — and about twice as much nickel as Platreef on an annual basis… their stock price is suffering in part because of low cobalt and, to a lesser extent, nickel prices during this “trying to get mine financing” phase).
But if I were to buy Ivanhoe, it would be because they have one of the world’s largest, highest-grade copper deposits at the massive Kamoa-Kakula mine being developed in the Democratic Republic of Congo, and, to a lesser extent, because it looks like Platreef will be an unusually low-cost platinum and palladium mine… with, yes, a bit of nickel that they will use to offset the cost of platinum production. You can see Ivanhoe’s latest investor presentation here if you like. I’d agree that the company is objectively cheap and the projects have huge and obvious value, the risk is all in the location, execution, and future commodity price. If you think about it from that perspective, you can decide how much risk you want to take and make your own call… please share your thinking with a comment below.
P.S. Forest also teases a second stock as a beneficiary of this 1-1-8 battery, here’s the brief hint:
“… the only company in America with a new cobalt deposit coming online.
“Weighing in at an estimated 25.8 million pounds, this deposit is MASSIVE.
“It accounts for more than half of all cobalt reserves on U.S. soil. With this deposit alone, you can create 4.6 million 1-1-8 tech batteries.”
And that’s yet another tease for eCobalt (ECS.TO, ECSIF), which we’ve covered a few times during the cobalt run of the past couple years. Dave Forest had a teaser pitch circulating that referred to cobalt as “Brandt Oil” and teased eCobalt for much of last year, too.
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