EU nickel solution in Norway? KNI releases Maiden Resource Estimate - more drilling this month

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 2,879,550 KNI shares at the time of publishing this article. The Company has been engaged by KNI to share our commentary on the progress of our Investment in KNI over time.

KNI just announced its maiden resource estimate.

KNI now has inferred resources of 49.7 kt of nickel, 37.3 kt of copper and 3.3 kt of cobalt.

The key thing is that these are strategic, critical metals... located INSIDE Europe - which is severely lacking in local supplies.

And there are plans to try and expand KNI’s resource further...

... drilling could start any day now.

24% of European Union nickel imports came from Russia in the last quarter of 2023.

It’s less than it was previously... but still - 24% is a lot.

Unless something dramatically changes soon, billions of dollars of nickel will continue to flow into the EU from a country that is actively waging war on the continent.

Nickel powers the clean energy push, as a major component of batteries - and the EU is buying it from the heavily sanctioned Russia. Not an ideal situation.

Meanwhile, the other major nickel supplier in the world, Indonesia, is a long way away and doesn’t have the high ESG credentials that EU governments and EV makers are seeking.

Nickel therefore remains a major problem for the EU.

So much so that the EU has nickel listed as both a “critical” and “strategic” raw material - meaning it will be subject to domestic production requirements in the recently passed EU Critical Raw Materials Act.

Our European critical minerals Investment, Kuniko (ASX:KNI) is aiming to address the shortage of EU based critical minerals, seeking to deliver a green premium product to local battery makers.

The strategy appears to be working - last year KNI took a $7.8M cornerstone investment from one of the world’s biggest automakers, the EU headquartered Stellantis.

Stellantis makes a whole host of prominent car brands - Citroen, Jeep and Maserati to name a few - and Stellantis currently owns ~19.4% of KNI:

Stellantis has also committed to future offtakes of nickel / cobalt production from KNI.

Given the stage of development KNI is at, this is extremely early - and it indicates the desperation of EU automakers to get their hands on local, ESG friendly metals.

Backed by Stellantis, KNI is focussed on defining and proving up a large economic nickel resource in the EU.

The company has just released a maiden JORC mineral resource estimate at its nickel project in Norway.

The resource, which also has substantial amounts of copper and cobalt, is as follows:

• 23.3 Mt of Inferred resources @ 0.31% NiEq (0.21% Ni, 0.16% Cu and 0.014% Co) containing 49.7 kt of nickel, 37.3 kt of copper and 3.3 kt of cobalt.

The resource has a high grade sulphide component of 4.59 Mt @ 0.64% NiEq and disseminated sulphide resources of 18.68 Mt of @ 0.22% NiEq.

And a large amount of the resource is at an open pittable depth - an easier form of mining.

It’s a solid sized resource - but hopefully just the start - with diamond drilling slated to begin “imminently” to “substantially” grow the resource.

KNI has also flagged a resource upgrade by Q4 of 2024 - so they clearly want to move fast on this asset.

Today KNI said that the project's geological setting shares several similarities with the Tier 1 Ni-Cu deposits of Vosiey’s Bay in Canada.

Voisey’s Bay has a number of large deposits, including one of the top 10 nickel producing mines in the world owned by mining major Vale.

It's early days for KNI on its project though. To substantially grow the current asset (which is the upside in KNI), we think KNI will need to:

• Find big EM conductors to drill to the north where it will be looking for targets
• Continued methodical drilling at the existing JORC resource, with good hits
• Eventually, pending (hopefully) big EM conductors, great hits to the north of today’s JORC resource (blue area) below.

And we hope this is what will give the KNI share price the kick back up we have been waiting for.

KNI is working with a large plot of land in Norway, which is 360 square km:

We’re now waiting for new drill targets to be announced in the red area.

To be drilled this month.

Importantly, the interesting thing about Ertelien (red area) is that mineralisation remains open at depth, meaning that there could be more good nickel hits to be found down there.

And KNI will be doing an EM survey at the blue area shortly - so the scale up of the exploration potential could be revealed in just a couple months.

We’re hoping for some big colourful blobs to emerge from the EM worthy of an accelerated drill program to deliver some big hits.

That would help move KNI closer to achieving our ultimate goal for our Investment:

Our KNI ‘Big Bet’

“To develop a sustainable battery metals mine within European borders that is of strategic importance - and hence highly valuable as an acquisition target.”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved, and it will require a significant amount of luck. There is no guarantee that it will ever come true. Some of these risks we list in our KNI Investment Memo.

EU still importing Russian nickel, and Indonesia doesn’t appeal...

The latest data on EU imports of Russian nickel place the figure at 24% - down from 49% just two years ago.

But Indonesia’s nickel isn’t exactly the clean, green material that both EV makers and EU governments want.

There was also a World Trade Organisation case brought by the EU against Indonesia due to its nickel export ban - so it’s hard to see the EU getting much of its nickel from Indonesia while tensions remain high.

And we know EU EV makers are hungry for nickel supplies - it’s a big part of the reason $131BN capped Stellantis holds ~19.4% of KNI.

Stellantis is the world’s fourth largest carmaker - and invested A$7.8M at 46.7c per share - well above KNI’s current share price of ~26c.

Stellantis specifically invested for KNI to hunt for and ultimately deliver nickel from their projects in Norway.

The EV maker is likely well aware that nickel is a major pain point for the EU at the moment.

As one commentator recently put it regarding the bind the EU is in:

(Source)

Some EU nickel purchasers are simply refusing to buy Russian nickel:

(Source)

Meanwhile a mooted ban on Russian nickel could backfire:

(Source)

The elegant solution here is for the EU to actually produce its own nickel - something which KNI is aiming to help with.

And Norway is aiming to help companies like KNI supply a critical raw materials hungry EU with more streamlined permitting.

KNI has the ESG credentials, the defined mineral resource estimate - and EM surveys and further drilling to prove out what we hope is a major nickel discovery in Norway.

What we think: if there is going to be a new nickel mine in the EU, it will likely be in Norway, and will hopefully come from KNI’s projects.

More on today’s KNI mineral resource estimate

The resource could be called a nickel resource - we’ve previously discussed how the mineralisation at KNI’s project appears to be open at depth:

Quick Take: Read more about KNI’s nickel project’s potential here

But the important thing to note with today’s JORC mineral resource estimate is that there is a sizeable copper component:

The copper will help KNI here - as copper has become a hot commodity once more:

(Source)

We’re bullish on copper, and KNI’s existing cobalt deposit - nickel, copper and cobalt are all deemed critical raw materials by the EU.

What’s next for KNI?

• 🔃 Geophysical surveys across its nickel-copper project (results in Q2 2024)
• 🔃 New drilling in (starting in Q2 2024)
• 🔲 Metwork
• 🔲 Upgrade nickel-copper resource (expected by Q4-2024)

Risks

All small cap stocks carry investment risks. Whilst there are lots of risks in any investment, today we want to point out three risks we see in KNI now:

Exploration risk

There is potential for KNI’s drilling to show up results that disappoint - if this is the case or the drilling needs to go deeper, the economics of the project could be affected.

If KNI is unable to successfully prove up a resource of commercial scale, or it takes too long or costs too much money, the company’s valuation will be impacted.

Market risk

Current market appetite for nickel projects is relatively low, particularly on the ASX, so the market may not ascribe a high value on KNI.

While the set of commodities that KNI are targeting are at elevated prices, there is the possibility that the prices of these commodities fall, impacting the economics of the project and the ability to access financing.

Funding risk

While KNI is in a pretty good spot for an explorer, and had $6.3M in cash as of 31 December 2023, it's not generating any revenue. Once the current cash pile is used, KNI will need to tap other sources of funding, which could be dilutive to current shareholders.

We are long term Investors and more interested in KNI progressing the asset then we are the market reaction - in the long run we expect sentiment for nickel to turn and the market to start reward progress like KNI’s.

See our KNI Investment Memo for more risks we listed as part of our KNI Investment Thesis.

Our KNI Investment Memo

Below is our KNI Investment Memo, where you can find a short, high level summary of our reasons for Investing including the following:

• Key objectives for KNI for the coming year
• Our KNI Big Bet
• Why we are Invested in KNI
• The key risks to our Investment thesis
• Our Investment plan