>Nickel beats the gold and silver picks
By: Tim Wood
Posted: 2003/08/22 Fri 15:26 EDT / © Mineweb 1997-2003
NEW YORK -- We have mentioned several stocks this year as attractive to investors, most of them gold and silver plays. But none has been better than the one we flagged as a potential ten-bagger – Vancouver based Canico [CNI].
The company recently announced that its Onca-Puma nickel laterite deposit in Brazil surpassed the 100 million tonne mark, beating our expected figure by 20 million tonnes. The new resource estimates have tripled previous figures and maintained a remarkable grade of 2.15% nickel after a season of intensive drilling.
Canico is due to complete a scoping study this Fall and has scheduled a full feasibility study for completion in late 2004.
Steady reporting from the project has raised the stock price from C$2.67 when it came to our attention, to C$12, a gain of 349%. If you invested with American dollars, the gain has been an even sweeter - 406% thanks to the strong Canadian currency.
In May we pegged fair value for Canico at C$12-14 on a fully diluted basis. which it is now approaching. It has had a lot of lift from resurgent nickel prices which have topped $4.30 per pound. Nickel has gained on higher imports to Japan, the strike at Inco [N], a market deficit not yet threatened by Voisey's Bay and Goro, and good stainless steel offtake.
Having hit the new tonnage marks, we see Canico as having value up to C$19 assuming a nickel price of $3 per pound, a metal recovery rate of just 70%, a half billion dollar capital cost to bring the mine to production requiring a discounted share placement and maintaining Inco’s stake at the required 18%. At current nickel prices and a recovery rate of 80%, the rule-of-thumb price rises to C$31.
There is some overhang in the market from early warrant holders who are handsomely in the money and that would trigger warrant conversion by Inco in order for it to maintain its stake. The exercise dates loom in late September and October, but hopefully they will be easily mopped up.
Canico still has C$31 million in cash so it is unlikely to need another financing before its feasibility study is completed.
