By Dr. Michael Green

As the nickel price flirts with the US$20,000 per tonne level, there was tremendous news this morning in that Corcel has completed the acquisition of the Wo Wo Gap Nickel-Cobalt Project in Papua New Guinea. This is a move which pretty well serves to double Corcel’s nickel and cobalt business.

Wo Wo Gap is located 200km from the Papua New Guinea capital of Port Moresby and just 150km southeast of the company’s existing Mambare nickel/cobalt asset. Obvious synergies exist between the two projects and management reckon that this acquisition marks a big step in the company’s ambitions of building a leading regional battery metal and nickel /cobalt business with material scale. These projects both missed out 10 years ago and were not developed in 2010 due to pricing issues. However, the demand for nickel by EVs and batteries is rapidly changing nickel’s dynamics.

Exploration at Wow Wo Gap dates back to the 1950s. Over time, something like £8 million has been spent here, which includes multiple drilling programmes, diamond drilling, wacker holes and ground penetrating radar activities. Recent work has largely been to maintain commitments for the exploration licence, which has apparently included the maintenance of the existing infrastructure and equipment.

Wo Wo Gap is held through one tenement in Papua New Guinea, EL 1165, which expired on 28th February 2020 and is currently under reapplication for a further 2-year period. Corcel reached an agreement with Australian-registered Resource Mining Corporation Limited (ASX: RMI) to acquire a 100% interest in Australian-registered Niugini Nickel Pty Ltd, which owns 100% of the Wo Wo Gap nickel-cobalt project. As far as the consideration goes, the company gained the project by releasing all liabilities and obligations in connection with its A$4.76 million senior debt position in RMI, which Corcel acquired for a song.

At the time Chairman James Parsons commented that “I am delighted we have secured the Wo Wo Gap project, which effectively doubles the scale of our nickel and cobalt business.  Securing nickel supply remains a critical enabler for the major players in global electrification and our nickel business is perfectly positioned for the inevitable supercycle. Near term priorities at Wo Wo gap will include resource updates, exploring synergies with our Mambare project, and the early securing of long term shipping and offtake arrangements.”

Wo Wo Gap is located at the south-eastern end of the Papuan Ultramafic Belt, a complex of peridotite, pyroxenite and gabbro that forms the prominent east-west trending Didana Range. The project hosts 125Mt @ 1.06% nickel and 0.07% cobalt Indicated Resource Estimate (JORC 2004) within the laterite profile based on drilling along the 12-kilometre strike length. The acquisition of Wo Wo Gap sees the prospect of Corcel becoming a sizeable leading PNG exploration company.

The plan is to treat Wo Wo Gap in much the same manner as Mambare and so move to update the JORC resource and plan to put in an application for a mining lease. As with Mambare, the future exploration and development looks likely to be focused on a potential direct shipping ore (DSO) operation which is a very effective way to start production and gain cash flow. Established relationships with the buyers and getting into the system may help provide the funding for the company to develop its own production plant.

The recent GPR work at Mambare was designed to determine the location for the DSO operation for the Mining Lease. This development is likely to require US$25 – 30 million of capex and at that stage,Corcel would either be looking to bring in larger players for a JV or consider a complete disposal. Currently, the company owns 41% of the project, but given a perceived inability of BMA to fund the asset through to production, it would seem logical that the entire asset is vended into Corcel to allow for meaningful development. Chinese investor Sinom has been happy to accept Corcel’s pape,r as demonstrated by the 2020 debt deal and has now emerged as a highly supportive 12% plus shareholder. In our view, such backing speaks volumes for being a potential source of both offtake agreements and future funding.

There is an obvious plan in progress to explore synergies with Wo Wo Gap and Mambare. The degree to which Wo Wo Gap and Mambare are combined depends on a host of factors. However, putting them together as a combined PNG project would make Corcel a big player in PNG and likely ease relations with the government.  With these large synergies comes the opportunity to cherry pick the best bits for DSO at each deposit, potentially exporting using the same logistical streams and applying revenues from one to further develop the other

It has to be pointed out that Corcel is executing its strategic plan. This morning’s news does show further clear progress as the company continues to develop its portfolio of high upside battery metal exploration projects alongside low-risk energy generation and storage projects in the UK. Last week the trade press leaked news about the funding of the gas peaker plants. It is little surprise that the infrastructure funds are interested in Corcel’s projects, and in our view all this seem to heighten the chances of a financing deal being closed by the year-end.

By any yardstick, we continue to believe that Corcel is highly undervalued. With the shares sitting at 1.575p, our stance remains at Conviction Buy with a target price of 20.03p.

Read our recently updated research report on Corcel HERE

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