Blackstone Minerals offers exposure to nickel consumption backed by electric vehicle growth: PAC Partners

Blackstone Minerals Ltd (ASX:BSX) recently doubled exploration capacity as it accelerates the quest for new nickel sulphide targets at Ta Khoa Nickel-Copper-Platinum Group Elements (PGE) Project in Vietnam. The company has added a second geophysics crew and three additional drill rigs to its fleet in recognition that geophysics have been highly effective at identifying new targets. Australia-based PAC Partners initiated coverage on Blackstone last month with a Buy recommendation and a price target of 45 cents per share. The following is an extract from PAC Partners’ initiation report: Good Morning Vietnam KEY POINTS Blackstone Minerals (BSX) offers direct exposure to the projected considerable growth in nickel consumption on the back of the increase in EV penetration. BSX will likely be the first ASX company to build a dedicated downstream nickel processing facility to produce a nickel sulphate for direct transfer into nickel cathode applications. A forgotten nickel asset. Until now. BSX own 90% of the Ta Khoa nickel project, located in Vietnam. Originally in production during the mid2010’s through Asian Mineral Resources, the high-grade underground project (~2.4%Ni) was closed due to a low nickel price and onerous Government tariffs (20%) on export concentrate. With a smart approach to the project and extensive exploration, BSX believes the opportunity exists for a high tonnage (~4mtpa) low grade (~0.5%Ni) nickel disseminated open pit as well as a narrow high grade underground mine which is then processed downstream in-country to produce a premium nickel sulphate product. The right partner on board. In April 2020, BSX welcomed EcoPro onto the register via a $6.8m investment to become BSX largest shareholder at 15.9%. EcoPro is the world’s second largest nickel-rich cathode materials manufacturer. In addition to the investment, EcoPro and BSX have agreed to investigate and potentially joint own the downstream processing facility in Vietnam. We pre-empt an attractive scoping study. We estimate a standalone DSS open pit operation (not too dissimilar to BHP’s Mt Keith) would come in at an NPV10 of AUD$326m, IRR of 31% and a pre-tax free cashflow of ~AUD$90mpa based on a ten-year mine life. BSX is currently trading at an EV/NPV of 21%. INVESTMENT VIEW – BUY We like the story BSX are building at Ta Khoa. Downstream processing of nickel is a smart option and likely to provide a further revenue stream beyond processing their own nickel. We do not see Vietnam as being a jurisdiction risk, in fact it is likely if this project were located in Australia, it would not get off the ground. The proximity to Chinese markets, cheap power and labour, and investment from battery manufacturers to build facilities in Vietnam look to ensure BSX will be at the forefront of the growing battery technology industry in South East Asia. We see upside beyond our Ban Phuc valuation coming from high grade nickel discoveries from the 25+ advanced targets all located close enough to the central Ban Phuc plant as well as further clarity on the including of a high-grade underground operation. Our valuation of $0.45/sh represents an upside of 51% on the current share price. We initiate coverage on BSX with a Buy recommendation and a price target of $0.45sh. NEAR TERM CATALYSTS Scoping study and maiden resource – The maiden resource for Ta Khoa will be released in Q3 of 2020. The resource will be accompanied by a scoping study offering an initial estimate of the value of the project and the development pathways available. Ongoing drilling and exploration results – With three drill rigs continually spinning, expect assays results to maintain a steady news flow. A major highgrade discovery would be sure to excite the market. Feasibility studies – Following a successful scoping study, the company will look to commence a more detailed and thorough feasibility study with results likely mid-late 2021.