BSX, MC – A$34m, Cash – A$6.8m
I have changed the way I invest/trade quite a lot over the last 18 months and have been in and out of BSX a lot of times during the past year but it is one stock I keep coming back to as I think it offers compelling value that the market just doesn’t seem to appreciate (yet).
Let’s first look at one of the most obvious complaints that people seem to have about BSX – it’s located in Vietnam. I personally have learnt from watching ASX companies try to make the transition from explorer to miner over the last few years that execution risk will kill you as much if not more than sovereign risk but let’s address this anyway.
BSX owns 90% of their Ta Khoa with 10% being held by a local partner which in my opinion reduces risk somewhat as it provides a link between country and company.
Secondly having EcoPro as a partner is a significant de-risking event on a number of fronts. Firstly Vietnam has quite a strong relationship with South Korea and see them as a model they would like to follow in the move towards economic prosperity. South Korea is one of Vietnam’s biggest partners in terms of investment and bilateral trade.
In addition to this Vietnam has some very high quality mineral deposits and they are trying to open up their mining economy. The way they are protecting their interests is clearly visible from the history of Ta Khoa and the tariff charged on the export of Ni concentrate. This can be avoided by investing in down stream processing and reinvestment into the Vietnamese economy which is entirely fair. This can be embraced and doesn’t have to be an impediment.
So with that out of the way let’s talk about the Ta Khoa asset. This is the reason I like BSX, it is obviously at the core of everything and taking out (even some) the sovereign risk discount BSX valuation vs peers seems compelling for what I think is a quality asset.
This image of Ban Phuc is one of my favourites from BSX as a pure visual representation of how good their asset really is. I have seen gold explorers often refer to gram metres but I hadn’t seen a base metals explorer use a %m depiction before and the contour lines make it so easy to read. Obviously the purple lines are the best but they are quite small and form a subsection of KCZ (King Cobra Zone).
So let’s discuss the KCZ. It is about 200m long and 100m wide. And at a minimum has 30%m red contour with some pink concentrated in the wider region. This tells us that so far KCZ is something like 200x100x40m at 1% Ni + PGE’s. Those dimensions and a specific gravity of 2.5 gives us 2.0Mt at 1% Ni + PGE’s. This is a pretty handy high grade core especially given it is almost at surface.
We can see however that the central corridor of Ban Phuc is mostly contoured orange which is 20%m. The bulk of Ban Phuc is likely to be 30-40m intervals at 0.6-0.7% Ni + PGE’s which gives us that 20%m contour. So what does this mean for the overall size of Ban Phuc? Well it gives us a central corridor of approximately 500m x 250m x 35m average interval at 0.6-0.7% Ni + PGE’s. Again assuming a 2.5 specific gravity this gives us an 11Mt zone at Ban Phuc of solidly graded DSS at or near surface.
This is made more exciting by considering the recent MSV that has been delineated over a 1km strike from the last 3 drill holes announced. This MSV had an average thickness of 1.3m and is very similar in nature to the original MSV mined by the previous owners. They mined almost 1Mt at 2.4% Ni and 1% Cu.
This ore would be a perfect blend for the DSS from Ban Phuc. The blended ore could end up something like 0.8% Ni + 0.1-0.2% Cu + 0.2g/t PGE which I think would be highly profitable if they ramp up production to 1.5-2Mtpa. This would give an initial LOM of 6-8 years.
Ta Khoa sits in it’s own little zone vs peers in my opinion. You have contrasting deposit styles of Nova and possibly Mawson ($LEG) which are much smaller, higher grade (2-3% Ni) deposits which will be mined underground. Or on the opposite end of the spectrum you have Nebo-Babel ($CZI) which is a large scale project looking at processing 10Mtpa at 0.5% NiEq.
To me Ta Khoa is a nice medium, it has the advantages of open pit mining on a reasonable scale, higher NiEq grade (particularly including PGE’s) and cheap labour inputs of Vietnam. By using downstream processing to eliminate tarriff’s and producing closer to an end product this project has every chance of success in my opinion
The beauty of Ta Khoa is that there are still 20+ other targets that are yet to be explored, with regional non-ground disturbing exploration suggesting these will also provide further mineralisation. The upside of these district style plays can be significant.
This is all cornerstoned by EcoPro, the second largest Cathode producer globally and has a strong relationship with Blackstone. Their recent equity investment at 17c when the stock was trading at 10-11c shows how committed they are to this project and making it work. For those with a longer term view this should not be surprising.
Battery metals have been through a very clear boom/bust cycle over the last few years but I think latent interest is still very strong. The sentiment shift that was visible in ASX stocks over early June before the recent market pullback on news of fresh subsidies in Europe for buying Electric Vehicles was incredible. Lithium and graphite stocks were going up 30-50% in a week on no company news. Fundamentally Li and graphite prices are still weak and these moves were purely sentiment based.
There will be a time within the next couple of years IMO when fundamentals and sentiment re-align for the sector. And in my opinion class 1 Ni sulphides will be the number one way to play this. There are not many quality Nickel Sulphide projects globally that offer scale and in my opinion BSX is one of the best.
Disclaimer: I was not paid or commissioned by Blackstone to write this report. I do own some shares in the company. This is not and should not be taken as investment advice. I am providing no target prices for the company.