NickelX Ltd (ASX:NKL) CEO Matt Gauci has a refreshingly positive take on an industry that has seemed beset by politically charged supply chain issues in the last five years.
At the heart of it, he believes strong partnerships across the divide will keep the nickel industry doing what it has done since the industrial revolution.
In this article:
- A solid mining pedigree
- A bellwether to match copper
- Exposure to energy and steel
- A close-knit industry
- What's the appeal?
Gauci is from a third-generation Broken Hill mining family that moved to the other iconic centre of Australian mining – Western Australia – when he was very young.
His mining pedigree is unimpeachable. His father built Rio Tinto’s Argyle diamond mine, the world’s largest diamond mining company, while his uncle built Pilbara Iron, the world's largest iron ore mining company.
“It’s definitely a part of the family history and there's a well-worn path, with three generations in the industry.
“I think that sort of background paves the way for you to understand the industry over a long period of time, through various cycles. It's pretty much in the blood.
“Over the last decade, I've built in the order of 10 exploration companies through the IPO path across a range of commodities, including nickel, gold, zinc, lithium and uranium.
“It provided me with insight into how exciting exploration and mining can be but also how systematic and scientific it needs to be to achieve the goals.
Understanding the market realities helped too: “Studying economics really gave me a great view of what that means to your community, what it means to the industry, what it means to the state and the country in terms of discovering, developing and mining various commodities.”
“Supply-demand dynamics dictate that commodity prices are always going to go up, then they're going to go down, then they’re going to go up again,” he says.
“It’s important to stick to your strategy – stick to the path that you're on with a pragmatic and disciplined approach.”
A bellwether to match copper
For Gauci, that path pointed to nickel exploration in WA, “the traditional home of nickel mining”.
Nickel prices tend to follow other base metals, such as copper, and, similar to copper, function as a barometer of the health of the economy.
The health of nickel stocks often mirrors the relationship between global income growth and consumer sentiment because of the metal’s presence in a range of consumer goods and as a key component of a thriving economy.
In the post-war boom of the twentieth century, nickel consumption increased and slumped again as Western economies slumped in the late 1970s.
Prices bounced back in the early to mid-2000s to a peak of US$50,000 per tonne with the rise of China and the development of nickel pig iron for use in stainless steel but dropped as low as US$7,700 per tonne in 2016 following the GFC.
Exposure to energy and steel
Gauci says he quickly cottoned on to the fact that nickel is exposed to two of the biggest industries in the world – the more traditional stainless steel market and the emerging battery industry.
“There's an enormous demand in commodities for anything related to the clean energy revolution and in particular the electric vehicle market and the energy storage market,” Gauci says.
“Clearly, that's going to be lithium, graphite, nickel, copper – the main commodities used in batteries.
“The market also has China coming back online after a couple of years of flat GDP growth and steel consumption and nickel demand appear to be increasing in our traditional market.
“It's one of the few commodities that has exposure to both those markets.”
Gauci points to a team – including chair Jonathan Downes and non-executive director Richard Monti – which has significant experience in the nickel industry. “We have all worked at various stages in the nickel space for 20-odd years in both majors and juniors,” he says.
“We've got a firm understanding not only of the nickel market but nickel exploration, development and mining value chain.
“We're building up opportunities not only with our core project in the West Yilgarn, the Dalwallinu Nickel-Copper-Platinum Group Elements (PGE) Project, but other opportunities we've been generating and exploring in the Wiluna Greenstone Belt and the Albany Fraser Belt, both world-class nickel districts.
“The emerging West Yilgarn is a relatively new nickel district with the discovery of the Julimar nickel-copper-PGE deposit, while the established East Yilgarn has been explored and mined for more than 100 years and hosts some of the biggest nickel mines and gold mines in the world.
“The West Yilgarn is completely underexplored and yet it has very similar geology.”
Gauci sees this as a new era where exploration companies are striking sensible access and compensation agreements with landowners so that there's mutual benefit.
It all makes the West Yilgarn even more appealing.
A close-knit industry
For mining, the geopolitical challenges have come thick and fast over the last five years. COVID led the charge and just as we emerged in its wake, the war in Ukraine brought a new but similar set of circumstances.
“That hits the nail on the head,” says Gauci. “There are macroeconomic challenges, particularly in Europe, and then clearly with relationships with Asian partners, but the metals and mining market industry generally lasts through those economic headwinds.”
Refreshingly for these divided times, Gauci paints a picture of a close-knit industry with partnerships across all divides.
“Having close relationships with partners in China and South Korea and Japan, which are our traditional buyers of commodities, always assisted the exploration and development of any opportunity we came across,” he says.
“We know quite a few participants in the Russian nickel market, in the Russian uranium market, and the ultimate goal is just to have a clean, balanced market with security of supply.
“Effectively, if the West further sanctions Russia with a ban on importing Russian nickel, then while that may be a boost for the commodity price – it is not necessarily a positive for the industry as a whole.
“It would present opportunities for non-Russian exploration and mining of nickel, but by the same token, irrespective of various macro-economic and geopolitical issues, we still operate in a global market. And that effectively means that we're all still partners.”
The same goes for Australia’s largest trading partner, China. “Sure, there is the potential of stricter conditions from the foreign investment review board for Chinese state-owned enterprises to invest in Australia.
“But again, it appears to be just white noise really. The mining metal markets have been operating for hundreds of years and our relationships with Asia, North America and Europe for trading in nickel are as strong as ever.
“The purported strained relations with China, in my opinion, will not disrupt trade relations in the nickel market.
“China is on our doorstep and the industry relationships are very strong – there are teams I know really well in the nickel sector in Beijing. It's a very close-knit industry, particularly in nickel.
“At the end of the day, governments, economies, industries and people need mining and metals to live effectively.”
What's the appeal?
Gauci enthuses about the thrill of discovery and achieving the team’s goals.
“There are just legendary stories such as the discovery of Nova by Sirius, Cosmos by Jubilee and Julimar by Chalice, arguably the three greatest nickel discoveries in the last 20 years,” he says.
“We believe NickelX is on that pathway with our projects in the West Yilgarn, Wiluna Greenstone Belt, the Albany Fraser Belt and our in-house prospectivity model.
“That’s what inspires the team – to systematically explore our projects and scientifically generate new projects with motivated and innovative colleagues.
“And that's as good as you can get.”
As for the ingredients for small-cap success in the sector, Gauci says there are three key things to track – people, project and proposition.
He says the intellectual property at NickelX at the board level in nickel exploration, mining and marketing is exceptional.
“As I've ALWAYS been told by my family and industry colleagues: start with good people, and then you'll build the rest as you go.”
Then there are projects: “With our intellectual property in the sector we believe we understand the unexplored, under-explored and under-developed projects in Western Australia, and at this point in the company’s growth it is particularly the unexplored West Yilgarn.”
Thirdly there’s the proposition.
“We're a small cap company with reasonable cash in the bank, yet with a diligent and frugal approach in terms of exploring or acquiring projects; We believe we know what we’re doing and why it will work.”