Robust PEA Confirms Viability of High-Grade Nickel Deposit

Highlights

• A Preliminary Economic Assessment (PEA) on the Kenbridge nickel project in the Kenora mining district, northwestern Ontario, returned attractive economics, with an After Tax-NPV5% of $109M, and a high AT-IRR of 20%, using US$10/lb nickel. TN is trading at just 20% of AT-NPV5%. For comparison, shares of Talon Metals (TSX: TLO/MCAP: $311M), a comparable advanced-stage nickel junior, are trading at 61% of AT-NPV7%.

• Unlike the historic PEA, which was based on an open-pit/underground operation, the latest PEA was based on a smaller-scale underground operation, targeting the project’s deeper/higher-grade resource. This scenario is more attractive as higher-grade ore can be accessed in the initial years of operation, through an existing shaft infrastructure on site. We believe very few nickel juniors in North America have high-grades and low CAPEX/OPEX as TN does.

• 2021 drill campaign resulted in a 25% increase in contained nickel (146 Mlbs), and an 18% increase in contained copper (78 Mlbs). Approximately 70% of the resource estimate is classified as underground resources.

• We believe the PEA was conservative as it did not account for the remaining 30% of open-pittable resources.

• Nickel grades of the underground resource increased 16% to 1.08%, and copper grades increased 10% to 0.55%. We note that nickel grades of over 1% are considered high.

• Management is planning to conduct a resource expansion drill program to test the deposit at depth.

• Nickel prices are down 23% in the past two months. We are expecting prices to be under pressure amid rising rates, and slower global GDP growth. In addition, the nickel market is expected to move to a supply surplus this year. That said, we are expecting long-term prices of US$8/lb or higher (current price: US$9/lb) as most of the large undeveloped nickel projects cannot generate attractive economics if prices fall below US$8/lb.

• Upcoming catalysts include a resource expansion drill program, and positive sentiment towards juniors focused on EV metals. The discrepancy between TN and Talon’s EV/AT-NPV indicates that the market has yet to realize TN’s potential.

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Disclaimers and Disclosure

The opinions expressed in this report are the true opinions of the analyst about this company and industry. Any “forward looking statements” are our best estimates and opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our forecasts will materialize.