First Quantum Minerals (TSX: FM) is promoting a 30% stake in its Ravensthorpe nickel operation in Western Australia to South Korean metal large POSCO for US$240 million.
The funds might be used to assist pay down debt.
Below the deal, POSCO, South Korea’s largest metal maker and the world’s fourth-largest, can be securing 7,500 tonnes of nickel in blended nickel-cobalt hydroxide precipitate (MHP) a 12 months beginning in 2024 underneath an offtake settlement.
The 2 firms have additionally signed an MOU to discover a strategic partnership to provide battery cathode precursor supplies — probably within the type of nickel sulphate — by utilizing Ravensthorpe’s MHP.
First Quantum will retain the remaining 70% of Ravensthorpe and proceed to be the operator.
Jackie Przybylowski of BMO Capital Markets says the deal was accomplished at a “vital premium to the worth that we ascribe to the asset.”
“Our earlier NAV (10%) for Ravensthorpe was US$257 million (100% foundation), so the POSCO transaction (which might indicate a US$800M worth on a 100% foundation) is a 233% premium to our estimate,” she commented in a analysis word.
However she additionally identified that “minority stakes by strategic buyers, together with smelters looking for safe provide, are usually not new and traditionally accomplished at a premium.”
“These embrace Sumitomo/Sumitomo Metallic Mining’s 30% stake in Teck’s QB2 venture for US$1.2B, ~3x consensus NAV; Freeport-McMoRan’s sale of a 13% stake within the Morenci mine to Sumitomo Metallic Mining for US$1B, deemed ‘an excellent deal for Freeport’ then; and Sumitomo Company and Korea Assets’ investments in (subsequent possession of) the Ambatovy nickel venture/mine in Madagascar. Anecdotally, we have now seen fewer such investments lately, possible attributable to poor efficiency of some previous investments (particularly early-stage greenfields investments) and weaker commodities markets, which possible made securing strategic provides much less crucial then.”
The analyst additionally forecast that “future strategic investments might be centred on battery uncooked supplies, renewable power, and different ‘inexperienced economic system’ initiatives, relatively than previous investments which had been targeted on securing smelter feed. Nickel, cobalt, and copper are anticipated to be particularly strategic metals.”
Farooq Hamed, an analyst at Raymond James, mentioned in a analysis word to purchasers that he was carrying Ravensthorpe “at an NPV of $716 mln implying a worth of ~215 mln for a 30% stake.”
First Quantum acquired Ravensthorpe in 2010. At the moment, the large-scale open-pit nickel and cobalt mine, about 550 km southeast of Perth, was decommissioned. First Quantum restarted the operation and shipped its first concentrates in November 2011. The mine was then placed on care and upkeep in 2017 attributable to low nickel costs, however was restarted and resumed exporting in early 2020.
Mining at Ravensthorpe is from three open pits and the nickel laterite ore is than scrubbed and screened at a beneficiation plant.
A mixture of strain acid leach and atmospheric leach makes use of all ore varieties, and precipitation and filtration recuperate the blended hydroxide (MHO) precipitate product, which accommodates about 40% nickel and 1.4% cobalt, which is appropriate feedstock for battery manufacturing. Ravensthorpe makes use of seawater, which is pumped by way of a 46-km pipeline.
Final 12 months the mine produced 12,695 tonnes of nickel and First Quantum began a mine growth with the event of the Shoemaker-Levy deposit, a brand new orebody that the corporate says will lengthen the lifetime of the mine by 20 years. In its 2020 annual report, the corporate mentioned it expects Shoemaker-Levy to return on stream this 12 months and is concentrating on manufacturing at a fee of two,500 tonnes per 30 days.