By Willem Middelkoop
For more than 20 years I have been investing in the metals & mining sector. And although I have visited many projects in all that time, I had never been deep underground. After the annual Mining Indaba conference in early February in Cape Town, entirely focused on mining in Africa, the time had finally come. I was invited to visit Premium Nickel Resources' (PRNL) project in northeastern Botswana, the Selebi mine. A great opportunity to finally descend a kilometer underground.
The Botswana Selebi MinePRNL's copper-nickel mine is a special one. In production since the 1970s, but due to various reasons, it was placed in "care & maintenance" in 2016. That is, the mine is being maintained to restart later, but therefore is no longer producing now. Production was stopped after state-owned BCL turned down a deal with Russia's Norilsk. Major problems arose around the smelter, which is needed to release copper and nickel from the ore deposits.
International mining companies concluded that there were still enough ore reserves left to successfully operate this mine, but not without an additional investment of half a billion. One of the interested parties was the famous Canadian investor Sheldon Inwentash. His Pinetree resource fund (focused on exploration) was nearly $1 billion in size around 2011. But a combination of borrowed money and collapsing stock prices caused the fund to implode in 2014.
After licking his wounds for several years, it was time for another adventure. When he heard about the possibility of getting his hands on this project, he decided to activate his network. He devised a plan to win over the government by betting on local employment and the green nature of the new mine. It worked, and he was given priority status in the sales process. Now he faces the difficult task of conjuring $500 million from somewhere, which is needed to fully restart the mine.
With the smelter no longer working (an Indian company has since begun demolition), at a minimum a "concentrator" needs to be built. This would allow the nickel and copper to be shipped in a high-quality and concentrated form to Asia, for example. Indeed, the Chinese have already expressed interest in becoming a partner in this project. However, given the growing geopolitical tensions, America has decided to put a stop to this. The American ambassador to Botswana made an official visit to the mine late last year. There he told management that they should make sure that this project does not fall into Chinese hands. In fact, the US would like to help the new owner get rich from this investment.
On a field visit in BotswanaA mine visit is always a great opportunity not only to see the project itself and look the management in the eye locally as well, but also to get to know other investors better. Again, I was not disappointed and encountered a motley crew. In addition to Sheldon, Warren Irwin was also present on this trip. He runs Rousseau Asset Management out of Toronto and throws a big party every year during the PDAC conference in Toronto, helping dozens of "models-at-work" get a nice side income. His claim-to-fame is that during the Bre-X scandal in 1996, he made a huge amount of money by first making the huge run up and then building up a short position, before the market figured out that the gold discovery of the century turned out to be a 'scam' after the chief geologist turned out to have 'fallen' out of a helicopter. You can read his entire adventure here. The luster of his company has faded as the bear market of the past 15 years has shriveled his portfolio to just a handful of investments. Another traveling investor was an analyst from London-based Sprott Resources, who confided to me that he had recently had to analyze a billionaire's entire mining portfolio. He seemed startled by that.
The future of the Selebi mineOur involvement in this story began early on. In fact, we were shareholders in a small Canadian publicly traded company (North American Nickel) that merged to make the purchase of the mine possible. But since a lot of money is still needed to successfully complete this project and restart production, we have only taken a small position in PNRL so far. Despite that, we did decide to follow this situation closely. For example, we have now been able to see with our own eyes that the mineralization extends well over a kilometer underground, and that the mine has a perfectly maintained infrastructure. Moreover, the mine is located on the outskirts of a medium-sized town of Selebi-Phikwe. This town is anxiously awaiting the restart of the operation, so important to the economy of this poor region, more than five hours' drive from the capital. The quality of life of thousands of families is at stake. So the support from the government and the population is the main reason, along with new discoveries near the old ore deposits, that this mine has a future for decades to come. But for now, the local airport lies abandoned.
Geophysical research suggests that this may well be one of the most valuable nickel-copper projects worldwide. In particular, the fact that the copper value is about half of the total metal value could well be crucial, as nickel prices are currently very low, causing many older nickel mines, in Australia for example, to close now. But these very closures mean that nickel prices will be significantly higher in a few years, as this metal is one of the core components of the battery for electric cars. With Western countries accelerating for political reasons to further reduce their dependence on China, there is much reason for the West to accelerate this project.
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