By Dr. Michael Green

Investors awoke to compelling news from Corcel, the natural resource exploration and development company with interests in battery metals and flexible energy generation and storage. The latest announcement concerns the completion of a JORC mineral resource estimate at the company’s recently acquired 100%-owned Wowo Gap nickel/cobalt project in Papua New Guinea (PNG).

This is a really important step for Corcel as it begins the process of moving Wowo Gap smartly up the valuation curve for everyone to see. The establishment of a JORC resource is a highly critical technical step, not only in preparing the Mining Lease application, but also to validate Corcel’s underlying strategy in acquiring this asset. At the same time the JORC resource shows Wowo Gap to be of a similar size and grade to the company’s sister project at Mambare, also in PNG.

The headline figure is that a JORC 2012 code mineral resource estimate (MRE) of 110Mt with 0.81% Ni and 0.06% Co (891,000t contained nickel and 66,000t contained cobalt) has been announced. It was also highlighted that the mineralisation is continuous and laterally extensive along with the shallow nature of deposit and limited overburden which would make the resource amenable to low-cost open pit mining.

JORC-compliant MRE for 100%-owned Wowo Gap Nickel/Cobalt Project May 2022. Source: Company

Apparently, there is a robust geological model with mineralisation well constrained within the host saprolite and limonite layers. Regarding the tonnage and grade reported in the JORC resource above the 0.7% nickel cut-off grade – well have no worries there as these compare favourably with similar projects that have gone into production.

This announcement provides a really good summary of where Corcel is and pretty well replaces all the work that has been done before. The new JORC resource under the JORC 2012 code is lower grade and smaller than the historical one under the JORC 2004 code, but the board is pleased with the result. At this stage it has to be pointed out that the JORC 2012 code is a big step forward from the JORC 2004 code as consultants have to focus on whether a resource is economic and could be actually turned into a mine. In the past. under the JORC 2004 code. there were some JORC-complaint resources being determined for projects where you could never design a mine. So, the updated JORC resource is a far better one in our book.

Next stage at Wowo Gap is Gap Analysis, which is the final piece where consultants get their arm around the project and work out what is required for the Bankable Feasibility Study (BFS) and the Mining Lease application. The word is that the Gap Analysis could be completed in a matter of weeks with the BFS completed and Mining Lease application in Q3/Q4 2022. Corcel’s partners must be very happy that Wowo Gap now has a JORC 2012 resource and is heading towards a Mining Lease. Certainly, it will make life a lot easier for the North America investment bank that is currently looking for finance and marketing the project – the idea here is of bringing a minority partner into Wowo Gap at the asset level to spend on developing this project and creating lots of value.

Well, 2022 kicked off with Corcel unveiling the biggest deal that the company has ever done, which could serve to unlock the company’s two largest assets. In January 2022, the market learnt that Corcel had entered into a non-binding Memorandum of Understanding with Shandong New Powder COSMO AM&T (NPC) for the supply of nickel from Corcel’s Mambare and Wowo Gap Nickel Projects.

That announcement revealed that NPC is looking to buy up to 0.5Mt per annum of nickel Direct Shipping Ore (DSO) products from Corcel’s two nickel projects. This deal is being negotiated with a powerful Chinese based group NPC, a joint venture between Sentient Global Resources Funds, Dougide Group and COSMO AM&T Co. Ltd which focuses on producing lithium battery cathode materials. NPC owns and operates a 5,000tpa cathode plant in China and has plans to invest US$60 million expanding to 16 production lines which will quadruple production capacity to 20,000tpa this year.

As far as the agreement is concerned, being negotiated is a binding offtake agreement for the purchase of nickel by NPC with an initial term of 3 – 5 years. The price paid for the nickel DSO products will based on the underlying commodity prices on the LME or similar, of course as well as reflecting the purity and specification. The MOU has a 12-month term which can be extended by mutual consent.

It does seem that NPC and Corcel will be working on establishing product specifications to be used in the offtake agreement. Such work may require additional work to be conducted on the existing feasibility studies along with technical analysis. Importantly, the two partners will also be working together on sourcing the finance to take Corcel’s two nickel projects into production.

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 we have already begun to see the first moves towards bringing this nickel mine into production with a financially strong partner. Currently, the company owns 41% of the project, but given a perceived inability of its partner 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.

For a variety of reasons, both these large assets have not attracted much value in the market. Going forward, a good case could probably be made for Wowo Gap being worth roughly the same as Mambare (which alone was valued at something like £40 million back in 2011-12) or at least some reasonable discount to that. With nickel prices strong and Chinese producers looking to have diverse sources of ore (outside Philippines and Indonesia), Corcel looks mighty well-placed in our opinion.

Over recent months the perception of Corcel must surely be clearly changed for all to see as now the company’s two largest assets have a much clearer pathway to production that might include, offtake/funding support/partnerships. Given that production is now clearly in sight, investors should now be able to place more value on the nickel and cobalt in the ground. As matters develop, other potential transactions involving the company and NPC are possible as things develop. There is no doubt that this move significantly advances the company’s battery led strategy and critically demonstrates Corcel has the ability to take its projects to the next level – whether that be advancing its projects to cash flow or an exit.

In our view, Corcel is undervalued by any yardstick. We initiated coverage on the company in July 2021 with a Conviction Buy stance when the shares were trading at 1.625p and have since upped our target price a touch to 20.03p. At the current price of 1.325p, our recommendation of Conviction Buy remains unchanged.

Read our full research report on Corcel HERE

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