Indonesia’s export ban has seen the nickel price surge by about 30% in just three months with China’s nickel pig iron and ferro-nickel smelters desperate to find new sources of direct shipped nickel ore (DSO). This is of great significance to Axiom Mining, which is engaged in a long running court battle with Japanese giant Sumitomo Metal Mining over ownership of potentially one of the world’s major nickel laterite deposits in the Solomon Islands.

In an equity research report on Axiom Mining, Resource Capital Research (RCR) says that if, as it expects, Axiom wins the court case in the next few months and cements its ownership of the Isabel project, it could open up a fast-track low-capex path to production within 15-18 months, which at current prices could generate gross annual cashflow of about Aus$50 million.

RCR investment points:

  • The three-year court battle for ownership of the large-scale Isabel Nickel Laterite Project should be finally resolved early in the third quarter of 2014.
  • Sumitomo Metal Mining is spending millions challenging Axiom's 80% ownership of the project, which is a clear indication that the project is of great significance to a major company.
  • Axiom has spent more than Aus$10 million on its court action, largely bankrolled by a New York-based private hedge fund.
  • Axiom, which has been on the ground since 2007, has strategically aligned itself with the local landowners, who have the right of veto over project development.
  • Extensive exploration and evaluation, including feasibility studies, has been undertaken on Isabel by nickel major INCO and Kaiser Engineers, as much as 50 years ago, and has clearly shown that this is a large-scale nickel laterite deposit.
  • The previous work led to the establishment of a non JORC-compliant estimate of mineralization of 159 million tonnes @1.05% nickel and 0.06% cobalt, which is equivalent to 1.6 million tonnes of contained nickel, to a depth of only about 6 metres – meaning that this deposit, if confirmed as a resource, ranks with some of the world's major laterite resources.
  • The past work indicated mineralization down to about 12 metres in depth and increasing grade with depth, giving a high probability of expansion of the potential resource size and grade with further drilling.
  • The recent banning of the export of unprocessed direct shipping ores (DSO) from Indonesia has resulted in a 30% surge in the nickel price and major concerns over shortage of nickel DSO.
  • Prices for DSO have also surged and a number of nickel pig iron smelters have already approached Axiom seeking supply sources.
  • Axiom’s West Guadalcanal gold exploration project, also in the Solomons, is throwing up some exciting results and drilling of potential large-scale high-grade targets is expected in the second half of this year.