The ‘Fortescue of Nickel’

I’ve made some big claims in my life. But none bigger than what I told readers of my advisory service, Resource Speculator, last week.

It was the biggest call of my career. But, sometimes, you just have to risk it all.

I said that one of Resource Speculator’s stock recommendations would become the Fortescue Metals Group Ltd [ASX:FMG] of nickel. Fortescue, as you’ll probably know, is the fourth largest iron ore producer in the world.

It’s a big statement. But I’m willing to put it all on the line. That’s what billionaire and former Fortescue CEO Andrew ‘Twiggy’ Forrest did back in 2005.

Winding back the clock

When working for top-tier accounting firm PricewaterhouseCoopers in 2007, I was told that Forrest came to present in 2005. He tried to sell FMG as a world-class investment opportunity.

The partners laughed him out of the room…

As you probably know, Forrest lost almost everything when he was the CEO of Anaconda Nickel in 2001. Anaconda Nickel was trying to produce and process dry nickel laterites. But it borrowed heavily and shareholders lost a fortune. Forrest lost millions, and even faced the prospect of losing his house.

The Australian reported on 23 October 2013:

Mr Forrest was in Mr Heffernan’s hotel suite on the night of September 11, 2001, watching television as planes slammed into the World Trade Centre in New York.

“I called the guy at the bank to make sure it was real — and he said he was going to take possession of the house and his credit cards were going to be cut off,” Mr Heffernan recalls.

The former Labor premier tells how he and his fellow lobbyist, Julian Grill, used their network of contacts to win government support for Mr Forrest — who was then an outcast in the business world — between 2004 and 2007.

The bottom line: Almost no one thought Andrew Forrest would turn Fortescue Metals Group into a powerhouse in 2004. That’s when he acquired Allied Mining and Processing Ltd. The company owned tenement sites at Mt Nicholas in the Pilbara. The plan was to ship iron ore from the Chichester Ranges to China, which many thought was impossible. The iron ore tenements were in the middle of nowhere.

In 2005, FMG raised $70 million through a convertible note issue to build a railway line. Many people — including the partners at PricewaterhouseCoopers — said it would become the next Anaconda Nickel.

History shows that the doubters were wrong.

Today, FMG is worth $17.9 billion dollars. And Forrest is worth a staggering $6.84 billion, according to the 2017 Financial Review Rich List.

Sounds good, right? It gets better…

I’ve found what could be the next FMG; albeit the nickel version. Many people laughed at me for recommending this stock to readers. But that’s their loss. The stock is up nearly 100% from a few weeks ago. The company’s project on offer is world-class. And that comes at a great time…

You should back the low-cost miners

Radio New Zealand reported on 10 August:

The nickel price on world markets has dived over the past two years after slumping in the aftermath of the global financial crisis from its 2007 top of $US50,000 a tonne.

It is now just above $US10000 a tonne and the territory’s three nickel producers — Vale, SLN and Koniambo — have struggled as it dropped below production costs.

While waiting for the nickel price to rise, Vale is said to have lost $US1.3 billion in the past three years.

The other nickel companies are also hurting, with SLN in Noumea, a subsidiary of France’s Eramet, reportedly losing more than $US20 million a month.

Unfortunately for the big miners, they tend to make large investments at the top of the mining cycle. Their decisions, like many others, are influenced by rosy forecasts put out by investment banks. So, when prices crash over a few years, they struggle to make money. It’s an extremely poor investment model.

I prefer looking for businesses that can be profitable in this environment. And I’m not talking about making a few bucks. The business needs to be able to make enough money to put a rocket under the share price.

Independence Group NL’s [ASX:IGO] Nova project is one of the most famous nickel discoveries of the 21st century. It’s a nickel sulphide discovery. That’s good news. High-grade nickel sulphides tend to attract a higher selling price. But the discovery won’t be as profitable as the one I have found for readers.

The economic comparison is shown in the chart below:

economic camparison

Source: Resource Speculator
[Click to enlarge]

The company is an absolute no-brainer. Its operation involves merely shovelling, shipping and selling dirt.

It’s that simple…

If you haven’t bought any shares in the ‘Fortescue of nickel’, you are running out of time.

Find out more here.


Jason Stevenson,
Editor, Resource Speculator

Jason Stevenson is Markets & Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options. He originally studied accounting and finance at Curtin University, where he was awarded a first-class honours degree. His professional background stems across high-net-worth, top tier accounting (corporate finance, tax and auditing), and sell-side equities research. Before joining the team at Markets and Money, Jason worked at boutique firms which advised fund managers and high-net-worth clients on where to invest. Whether it’s gold, crude oil, copper or an obscure metal like vanadium, you can rely on an in-depth analysis in Markets and Money. Jason also brings you extensive macro, political and geopolitical analysis from around the world. He leaves no stone unturned when it comes to telling the truth. Jason is also the lead analyst of Gold Stock Trader, a premium service for investors serious about precious metal stocks. Websites and financial e-letters Jason writes for:

Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money