By Dr. Michael Green

Corcel has just unveiled the biggest deal that the company has ever done, which could serve to unlock the value in its two largest assets. This morning 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 in Papua New Guinea (PNG).

This announcement does read really well. 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.

Moving ahead, 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.

Just look at the quality of these partners. Sentient is a private equity group with US$2.7 billion under management with assets in the metals, minerals, and energy space. Doguide Group is the third largest titanium pigment producer in China with 200ktpa and some US$300 million of annual revenues.

Meanwhile, $1.3 billion market cap COSMO is a publicly listed Korean company and the country’s fourth largest lithium battery cathode producer. COSMO has a capacity of 12,000tpa and an enviable customer base which includes the likes of Samsung, LG, Sony and Umicore. It has to be said that they are ideal partners for PNG with a real need for materials.

The NPC joint venture was formed in 2017 and has already successfully introduced advanced cathode technology and equipment from Korea and Japan into China. Here NPC is focusing on the R&D and production of LCO, NCM523, NCM622, NCM811, and NCA li-ion battery ternary cathode materials, which are used in electronics, EVs and energy storage applications.

The nickel price continues to fly high at US$20,700 a tonne and Corcel is indeed blessed to a 41% interest in the Mambare Nickel Project and a 100% stake in the WoWo Gap Nickel Project in PNG.

As we mentioned in our NY 2022 tip, 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 in this morning’s announcement investors have 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.

The MOU that is being negotiated importantly covers DSO production from both Mambare and WoWo Gap. Obvious synergies exist between WoWo Gap and Mambare which are planned to be explored in detail. The degree to which WoWo Gap and Mambare are combined depends on a host of factors. Putting the two of them together as a combined PNG project does make Corcel a big player in PNG and will make dealings with the government a lot easier.

The synergies are pretty big here, with 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.

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 Mambare 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 view.

In one fell swoop, the perception of Corcel should have 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 than be advancing its projects to cash flow or an exit.

By any yardstick, Corcel looks well undervalued in our view. We initiated coverage on Corcel 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 1.50p, our Conviction Buy stance remains unchanged.

Read our recently updated research report on Corcel HERE

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