SGQ 0.00% 12.0¢ st george mining limited

Hi SandyA good question and one i have pondered on earlier in...

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    Hi Sandy

    A good question and one i have pondered on earlier in the peace but I have to admit I only take a cursory interest in the LME stockpile these days.

    Firstly these markets are not really an indicator of long term trends. Markets in metals are really short term trading instruments that act as an accumulator to buffer the bumps that occur in supply chains. No different to the CME/Comex etc. I have watched the warrant trading on the LME and it is hard to make sense of it. Shanghai is also a significant player and it is hard to get hard data on the true extent of nickel supply there. Who knows what the chinese are hiding?? the current trade war is not helping either.

    Stockpiles on exchanges dont seem to be inversely proportional to price. We have had prices much higher when we have had larger stockpiles - you would think that, with the EV battery boom coming, that this would be reflected in the current pricing but we have the price exhibiting significant downward pressure. I think this is due to the boom in class 2 for the stainless steel demand which has been seen a boom since 2011 (Ni was 29,000 USD in 2011) The chinese have been chasing the least expensive option of class 2 deposits to satiate the demand hence the awakening of the Indonesian/PNG laterite deposits which, in turn, has damaged the Class one project developments. The other issue is that current Class one production is satisfying the battery demand atm and this will continue as long as these new laterite deposits can compensate the removal of class one metal into the EV space. I read somewhere that we are producing 400kt of class one currently and this more than enough for the current battery demand.

    My summation is that we have seen hoarding occuring since 2015 when the LME stockpile was nearly half a million ounces. I believe there are plenty of off market warehouses for storage and the amount of metal away from the official exchanges is the great unknown. If you believe the future projections for the demand of battery metals it would make sense to buy and hold now when the prices are low given there will be deficits for the forseeable future until new supply comes online.

    I have also concluded that consumers of the metals like stable prices to balance their metrics and to manage risk. Until the deficit really comes into play I dont see Ni price appreciating that much in the next year. You could argue that the current pricing will hamper class one production and expansion and this is the paradox. You need higher prices to stimulate investment in new projects and to entice metal to come out of hoarding. Once the EV phenomenon attracts mainstream adoption and has reliable support infrastructure the exponential effect will really take hold. IMO after 2020 which should align perfectly for SGQ to develop to a miner.
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