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Tesla inks Nickel deal with BHP - AOU Drilling for Nickel near BHP smelter

Published 23-JUL-2021 15:11 P.M.


3 minute read

It is official, BHP has signed a deal to supply nickel to Tesla ... and that could be great news for our nearby nickel exploration investment Auroch Minerals (ASX: AOU).

We invested in AOU at 20c back in March because it has a number of nickel projects within trucking distance to BHP’s nickel smelter.

Including the former nickel mine that once supplied BHP’s mill

Two weeks ago AOU announced it has uncovered a very high priority drill target that it intends to drill test immediately. We also think the long awaited Nepean Deeps drilling programme is due to start any day now.

BHP has already stated it will also be looking for third party supply to meet its nickel demand.

Nickel packs more energy into batteries and allows producers to reduce the use of cobalt, which is more expensive and has a less transparent supply chain.

However, out of all the battery metals, nickel is causing the most headaches for Tesla to scale up its battery production.

The BHP deal goes a long way to fixing Tesla’s problem at a time when nickel demand is set to increase exponentially on the back of demand for EV batteries.

BHP chief commercial officer Vandita Pant who said "Demand for nickel in batteries is estimated to grow by over 500 per cent over the next decade, in large part to support the world’s rising demand for electric vehicles."

BHP will provide Tesla with nickel from its Nickel West operation in Western Australia in a bid to make the battery supply chain more sustainable.

This major move has had significant media coverage:

Bloomberg ArticlesFinancial Review ArticleFinancial Times

In Western Australia, BHP is busy increasing its nickel ore reserves, acquiring projects, and is seeking to restart its Kambalda nickel mill with ore fed from third parties...

AOU owns 80% of a historical high grade nickel mine that used to supply BHP but was shut down after the nickel price plummeted a few decades ago.

AOU is now hoping to discover a giant nickel body underneath the historical nickel mine’s original ore body.

The nickel mine stopped producing back in 1987 when the nickel price dropped to below US$4,000/tonne - this is not the case now.

Nickel is currently trading at around US$18,500 per tonne, almost doubling since March 2020.

AOU is currently drilling AROUND the historical mine and the next phase is to drill UNDER it, which is the exciting part for us...

Investors love high grade nickel intercepts - we have invested in the hope that AOU hits the next one.

ASX investors have had a long history of reacting positively to thick, high grade nickel intercepts:

Nickel Intercept Table

Recently, AOU announced it has uncovered a very high priority drill target.

This decision to instantly drill this new target was based on the target’s size, strength and location.

This drilling will lead into the Nepean Deeps drill programme, which is scheduled to begin very soon - this is a major catalyst for AOU.

Here is why we like AOU:

  • WA nickel will be highly sought after now that BHP and Tesla have agreed to work together.
  • Nickel is going to play a key part in EV batteries for the coming decades - we are bullish on the long term nickel price.
  • AOU is aiming to unlock a much larger nickel resource below/along strike to an old nickel mine. This has happened before in WA – Western Areas is the case study here, and shareholders were hugely rewarded.
  • AOU continues to deliver impressive drill results, confirming thick, high grade nickel at shallow depths at its historical nickel mine.
  • AOU has a number of options that exercise at 10c that have been converting into shares over recent months. This is good in that it brings funds into the company without having to tap the broader market, however it is worth noting that this can also soften upward momentum in the share price.
  • End of Financial year tax loss selling pressure has been lifted
  • AOU is aiming to build over 100kt of nickel resources, and has multiple nickel exploration projects - we like the scale of the company’s goal.

What to expect next

  • Drilling of new high priority target: RC drilling started? We are not sure but assume we would have seen an announcement... expecting any day now
  • Assay and DHEM results from regional RC drilling campaign: Coming weeks
  • Nepean Deeps drill programme: Scheduled to begin later this month.
  • Results for the recent RC programme: Results from the Leinster Nickel Project are likely imminent.

Quarterly report: We will also see the AOU quarterly report in a few days so we will get an idea of their cash balance.

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