CA - Talon Metals: A U.S. Nickel Mining Industry

2023-06-27 03:10:40 ET

Summary

• Talon has moved into the lead in bringing nickel mining to Minnesota and indeed the United States.
• On top of substantive progress, the company’s recent filing has now triggered the environmental review and permitting process.
• Talon’s stock price is poised to move higher in line with analyst expectations, and perhaps, eventually, well beyond.

Over a year ago, I authored an article for SA entitled, “Talon (TLO:CA)(TLOFF) Metals And The Defense Production Act”. The piece attempted to balance my passion for the environment with that of US efforts to build our supply chain for nickel, essential to the production of EV and other batteries needed to reduce our dependency on fossil fuels. Before zeroing in the Talon, I touched on two other nickel miners in my home state of Minnesota that have been benched:

• Twin Metals, owned by Antofagasta and the Luksic family, one of Chile’s wealthiest. This site’s waters drain north into the primeval Boundary Waters Canoe Area Wilderness where, armed with a geological survey map and compass, I camped and fished with my son before the days of GPS. Because it is an incredibly unique place, interests far-and-wide have lined up against the company’s proposed nickel mine and I doubt it will ever proceed. The Biden Administration had earlier canceled its leases and recently declared a 20-year moratorium on mining in the area.
• NorthMet / PolyMet ( PLM ) – majority owned by Glencore (GLNCY) and in a joint venture with Teck Resources ( TECK ) as NewRange – is adjacent to the Superior National Forest whose waters drain into the Great Lake bearing that name. No less than seventeen years after it entered the environmental review and permitting process, the company was recently dealt a serious blow when the US Army Corp of Engineers revoked its permits due to water quality concerns raised by the Fond du Lac Band of Lake Superior Chippewa. Native Americans have a lot of say-so in such matters.

Talon Metals

This leaves Talon Metals, farther south in Aiken County of North Central Minnesota near the headwaters of the Mississippi. The public company is 6% owned by global mining giant Rio Tinto ( RIO ) that also owns 49% of the mining site itself in Tamarack. Following the publication of my April 2022 article, Talon connected with me via SA’s messaging system. They invited me, and two environmental engineer guests of mine – with whom I continue to fact-check – to tour the site including their “shed” where hundreds of sample bores are analyzed, and a drilling platform where bores are taken up before Talon moves it to another location on the property.

Progress to Report

In the year or so that has passed, Talon has made considerable progress . The list below reflects that the company is actively soliciting and addressing input from advocates and adversaries alike on how best to proceed. Their posture is to help the United States build its nickel industry while “de-risking” their mine operations to the extent possible knowing that no venture is risk free.

1. Talon’s further finds around their Tamarack site, PLUS major acquisitions for expansion in the Upper Peninsula of Michigan.
2. Talon Minnesota’s limiting total project acreage to under 500 acres with an above-ground footprint (land disturbance) of less than 100 acres . By way of context, the Bingham Canyon Mine, more commonly known as the Kennecott Copper Mine, in Utah is an open pit covering 1,900 acres.
3. Talon’s arrangements to transport their ore through a controlled environment into sealed railcars for – the Burlington Northern Santa Fe runs by Tamarack – for crushing and processing at a brownfield site in Mercer County, North Dakota with the support of that State’s governor AND funding from The Department of Energy. This approach has the significant benefit of mitigating pollution resulting from prolonged exposure of ore to air and water.
4. Talon’s intentions to innovate sustainable mining practices through ideas like using its mine(s) for carbon sequestration, and its tailings , in partnership with EnviCore, for value-added products such as construction materials.
5. Talon’s purification of affected waters through treatment technologies to remove the salts and minerals akin to the techniques that many cities use to process water for human use.
6. Talon’s mining through twin “portals” / “adits” using a “boring machine” to create a concrete-lined tunnel, in a spiral-type configuration, allowing dual access to the underground operations.
7. Talon’s raise of additional equity (with consequential dilution) through a collection of formidable underwriters and investors.
8. Talon’s continued outreach to numerous stakeholders – conservationists / Minnesota Environmental Partnership ((MEP)) members, engineers, media, locals, Native Americans / the Mille Lacs Band of Ojibwe, politicians / state & federal, regulators, unions / United Steelworkers , et al.

Environmentalists & Misperceptions

Its progress and outreach notwithstanding, Talon Metals remains under the watchful eyes of environmentalists that fall into two general categories. Stemming from my own environmental work as well as from my interest in Talon, I have interacted with members of some of these groups and know others by reputation. As one would expect, both groups are strongly biased to protect our environment. However, the first group is open-minded as they continue to gather and weigh facts against their broader appreciation that we need metals to help resolve our fossil fuel predicament.

Then we have a second category of “NIMBY / Not in My Backyard” (not my terminology) environmentalists. These groups are also comprised of local interests including land and cabin owners, Native Americans, and miscellaneous activists often ‘tied together’ by attorneys who derive fees from suing mining companies and regulators with the goal of stopping projects. These folks prioritize their local interests over broader issues such as our shared "ownership" of hydrocarbon pollution. Accordingly, they tend to dismiss or minimize input, including from accomplished experts, that doesn’t align with their views.

I have chosen here not to call out these groups by name because I don’t want to disrespect either group by presuming that they have reached a conclusion to support Talon, or not. Those interested in where they stand can find out on their websites via MEP's membership list and/or by searching op-eds about nickel mining in out-state Minnesota newspapers. Be forewarned that, as some environmentalists appear to be working toward win:win solutions, others are short-circuiting the process including with specious arguments such as:

• Incremental demand for nickel simply doesn’t exist … never mind the projections of the International Energy Agency.
• We don’t need nickel because LFP (lithium ferro phosphate) and other batteries will come to dominate; one technology will suit all … never mind that different consumers demand different technologies with different performance characteristics including those of lithium-ion / nickel.
• We can meet the demand for EV nickel with recycling … never mind that global scrap metal recycling experts, indeed EV manufacturers and mining companies with funds at risk, say that we also need primary metal.
• Sulfide mining of nickel ore is instantly, significantly, and/or uncontrollably polluting … never mind that ‘contained’ ore – i.e., not exposed to air or water for prolonged periods of time – need not be beyond de minimis levels.
• The amount of nickel involved here is immaterial relative to our needs … never mind that the U.S. Geological Survey believes that Minnesota and Michigan may contain deposits of nickel larger than Russia or Canada.
• We must protect the “rare freshwater jellyfish”, Craspedacusta sowerbii … never mind that, like Asian carp and zebra mussels, it is considered an invasive species (how it arrived and spread in Minnesota and Wisconsin, I haven't a clue).

Regulatory Review

Just this past Wednesday, Talon filed their “EAW” / Environmental Assessment Worksheet with Minnesota’s Department of Natural Resources, triggering review and, potentially, leading to permitting. The requirements are rigorous. As opposed to covering all that territory here, I’m attaching links to: a) an overview of the DNR’s process, b) the website that the DNR has set up specifically for Talon’s project , and c) a PDF of the company’s submission . All transparent.

Typical Early-Stage

Talon’s numbers are typical of a development / early-stage organization that is financially ahead of itself. The company has yet to produce any revenue as it continues to lose money and drain cash as it invests in its future business. As noted above, the company has been able to attract new funding and, as a result, it continues to run with good liquidity and negligible debt. That said, there is little reason to report more than Talon’s last annuals because, until there is movement on permitting, progress payments, and production revenue, their story is unlikely to change much (but once there is movement, it could be dramatic):

MarketWatch reports that five analysts currently cover the stock with all of them having it as a “Buy” with a median price target of $1.00 giving it a potential 280% return over Friday’s close of 26 cents. Two points: a) Penny stocks are NO PLACE for investors who can’t afford those extraordinary risks up to “losing it all” and b) Until licenses and permits are in place, it is futile, IMO, to forecast financials that will continue 'as is' while relying on additional (and potentially dilutive) funding.

A US Nickel Industry

With Twin Metals and NorthMet / PolyMet on the bench, and consistent with statewide goals , I believe Minnesotans will step up and ‘get behind’ Talon Metals whose plans are well-conceived. That said, plans can always be improved and, when the time comes, three ways to do so would be via: a) performance agreements, b) community oversight (i.e., independent water monitoring), and c) the replacement of Talon’s head-scratching brass plate in the British Virgin Islands with a USA-domiciled corporation.

I also assume that the federal government will push things along remembering that President Biden invoked the Defense Production Act and signed related bipartisan legislation and a presidential waiver to reduce our reliance on China, Russia, and other countries for critical metals while relieving supply-chain pressures. This includes those used in electric vehicles enabling our transition away from fossil fuels and toward cleaner, less environmentally harmful, renewable energies.

Ultimately, though, the proof will be in the permitting and mining. In the press release words of Talon CEO Henri van Rooyen, reflected in the actions of the company:

“We do not believe that addressing climate change should come at the expense of the natural environment. We can move to a clean energy system, protect the environment, respect tribal culture resources and self-determination, involve front line communities and working people in project approvals and create good paying union jobs. It doesn’t have to be a choice. We are looking forward to participating in the rigorous, science based public consultation and review embodied in Minnesota’s Environmental Review process.”

This is the stuff of a much-needed U.S. nickel mining industry. It may take more time. Then again, it may transpire quickly. I'm bullish, we're long.

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