Broker Stifel GMP is upbeat on Talon Metals Corp following the updated resource estimate for the company's Tamarack project in Minnesota and news that it will receive a US$114 million infrastructure grant from US President Joe Biden's administration.
On October 19 this year, the company reported that its planned processing facility had been selected by the US department of Energy for the funding to expand domestic manufacturing of batteries for electric vehicles (EVs). The $114 million is estimated to be 27% of the total project cost.
Stifel analysts said the endorsement from the Federal government showed a "commitment to build a domestic supply of nickel and battery metals" but noted that the relocation of the process plant to North Dakota, as stipulated in the grant, would require a "re-assessment" of project economic and operating metrics.
READ: Talon Metals announces surge in mineral resource estimate for Tamarack Nickel Project
On the updated resource for Tamarack, Stifel analysts said it confirmed the broker's forecast that the deposit has "substantial room to grow".
The report showed a 98% surge in contained nickel in the indicated category compared to the company's previous estimate and 40% growth in contained metal in the global resource, namely measured and indicated (M&I) category plus the inferred.
"Given the substantial growth observed owing to drilling done last year, and the company's plans to continue its aggressive drilling outside the currently updated mineral resource area, with full winter drilling expected, we have strong confidence that the deposit has the potential to grow further and our modeled resource base should be met," wrote the Stifel analysts.
"Importantly, grades of 1.95% nickel equivalent (NiEq) came in line with our estimates, which also was in line with the 2021 preliminary economic assessment, re-iterating the continuity of the orebody, ultimately showing potential for favourable economics," they added.
"Talon has consistently achieved success using its proprietary Advanced Exploration System (AES), a combination of equipment and methods specifically designed by its in-house geological team, to explore the 11-mile Tamarack Intrusive Complex.
"These tools, which are presently deployed to the north of the current resource area, supported the discovery of CGO East and West, the new deposits included in the current resource, contributing to its massive growth, and are planned to be deployed to the south of the resource and additionally in Michigan, lending support to more potential discoveries," they added.
Tesla supply agreement adds upside
Notably, Talon has an agreement with EV giant Tesla to supply it with 75,000 metric tonnes of nickel in concentrate (and certain by-products, including cobalt and iron) from the Tamarack project.
Analysts noted that this supply agreement envisages iron as a payable by-product credit and that all credits from iron are currently excluded from the broker's model and also from Talon's nickel-equivalent (NiEq) grade calculation.
This could be a possible upside, said the analysts, if Tesla is able to successfully extract iron from the ore, ultimately resulting in a net asset value (NAV) upside.
Talon is advancing Tamarack to potentially supply the rapidly growing EV battery materials market. It owns a 51% interest in the project and upon completion of the feasibility study and a $10 million payment to Rio Tinto, its stake is anticipated to increase to 60%.
The property comprises a large land position (18km of strike length) with high-grade intercepts outside the current resource area.
Stifel rates Talon shares a 'Buy'.
Contact the writer at giles@proactiveinvestors.com