Auroch Minerals Ltd (ASX:AOU) offers a great way to play the nickel thematic with Western Australian sulphide explorers at the forefront of this growing industry, as per capital market provider PAC Partners.
PAC noted that Auroch screens well against its peer group with an existing resource base across three nickel sulphide projects, all of which are being actively explored and yet to be fully defined.
The capital market provider has initiated coverage on Auroch with a speculative buy recommendation and a price target of 32 cents per share based on assumed exploration success.
The following is an extract from PAC’s initiation report:
KEY POINTS
Auroch Minerals (AOU) is a WA nickel sulphide explorer with an existing resource base and actively exploring three nickel projects. The Company has a JORC resource of 21.4kt of Ni @ 2.0% Ni with an additional 18.7kt @ ~1.8% Ni in historical JORC (2004) resource which could be brought up to JORC (2012) standards with limited work.
The historic Nepean project the flagship. Nepean produced ~32kt of nickel metal at a recovered grade of 2.99% before closing in 1987 with limited exploration activities since. The mineralisation remains untested below a pegmatite intrusion, drawing analogies to WSA’s Flying Fox mine which has so far produced +100kt of Nickel metal.
Nepean deep drilling underway. Drilling below the pegmatite intrusion is underway to test for extensions to mineralisation. Similar intrusions in the upper levels of the mine all had mineralisation continue below the intrusion. It is likely this trend continues at depth.
Cost effective development options available. All three WA projects are within trucking distance to BHP Nickel West process facilities and the Leinster project has an offtake agreement with BHP already in place. Nepean has a shallow remnant resource which could be extracted with little in the way of capex and be processed at existing Kambalda/Kalgoorlie plants which have spare capacity in a similar strategy to that of Mincor (MCR).
Management team has the experience. Board and management have nickel exploration/development experience particularly in the WA nickel sulphide sector.
A growing demand for nickel sulphide resources. Supply demand fundamentals look supportive of nickel price in the medium-long term. Nickel sulphides are the cleanest source of nickel metals to meet EV demand with a premium expected to be placed on economic deposits.
INVESTMENT VIEW – SPECULATIVE BUY
We believe AOU offers a great way to play the nickel thematic with Western Australian sulphide explorers at the forefront of this growing industry. The majors are hungry for nickel with BHP particularly on the hunt for nickel sulphide feed in the WA to meet the expected growing demand and existing offtake agreements. The rumoured consolidation of WSA & IGO only strengthens our conviction that WA nickel explorers are set for an exciting few years and upside remains elevated on exploration success. AOU stands out for us with a wellregarded management team and demonstrated nickel sulphide exploration experience. We believe Nepean offers a small readymade development option but more importantly, exposure to nickel exploration via the drill bit with mineralisation likely to continue at depth having never been tested previously. The Company screens well against its peer group with an existing resource base across three nickel sulphide projects, all of which are being actively explored and yet to be fully defined. We initiate coverage on AOU with a speculative buy recommendation and a price target of $0.32/sh based on assumed exploration success.
NEAR TERM CATALYSTS
Nepean Deep Drilling – Q3/4 2021
Deep drilling below the existing resource at Nepean is underway.
Exploration Drilling – Ongoing
Ongoing exploration drilling at all three nickel projects with a drill rig secured until at least Q2 of CY22.
Scoping Studies – 2022
A scoping study is likely on the existing mineral resource at Nepean which could generate early cashflows and fund deeper underground development.