Should MGX buy MCR and PAN?

Reckon MGX may have a close look at both MCR and PAN at current prices.

Savanah North in particular is a very nice asset with the deposit likely to be much bigger than the 6mt identified to date. It could be a nice long life, lower cost nickel mine with the scoping study identifying a possible C1 cost of $2.20 USD per pound (vs $3.88 USD per pound nickel price now) and that is without properly drilling out the resource fully which could open up other development alternatives in terms of throughputs etc.

If MGX were to combine both MCR and PAN, there could also be some efficiencies to be gained for the overall nickel business, plus a reduction in overall head office costs by combining the three entities.

Exploration potential at both is very good.

Savanah looks to have had only 30% of the deposit tested if the large EM conductors and nickel intersections outside the resource model are any indication. PAN are taking a short term view of doing a feasibility study on the 6mt resource rather than drilling it out, simply because they do not have the cash. The targeted C1 cost above may not be the optimised outcome if we know what the full picture is with that resource (size and grades).

MCR´s issue is that they always only had a few years of reserves and relied on a large exploration program to continue to grow resources, paid out of operating revenues. Again, not an optimal thing to do but one done out of necessity. Their resources have nice grades, but it would be nice to know where all the ore is in advance so that proper optimised studies can be done to mine, rather than mining in front of your nose. Durkin, Cassini etc all look to have v-good upside.

If MGX were to acquire MCR and PAN they could fund a large drill out to rapidly expand resources at both Savanah and

By growing the resource base FIRST they could look at a number of different development optimised scenarios for all deposits to lower overall production costs going forward ready to quickly go back into production when the nickel price recovers. Best of all MGX have the cash to also fund the necessary drilling, feas/optimisation studies and capex required.

If MGX could grow Savanah to say 15mt @ 1.5% Nieq (225kt Ni) and grow the MCR resource base (currently 117kt contained Ni but only 15kt reserves) to say 150kt and 40kt to 50kt reserves, they could target resuming production in the next upturn targeting 15kt+ Ni per annum ($150mt+ revenues) on a lower C1/AISC base.

With the implosion in nickel, the turnaround for nickel is going to be much, much sooner than iron ore. Almost all commodity forecasts show iron ore remaining in oversupply for several years, whereas nickel is forecast to come back at the earliest sometime this year. Even the bears at Macquarie who put out that doom report early this month for resources, had nickel as being the commodity most likely to see price appreciations the soonest given the necessary supply cuts are already being made.

Its probably the most compelling opportunity for MGX that I can see on the market and offers good synergies given MGX´s own base in Perth and operations up north. I don´t see many other opportunities for MGX in gold, copper or other base metals, especially in Australia and not opportunities with such synergies. Gold Road perhaps if they want to go down the Au route, although GOR are valued quite high so it would probably be a merger, even then GOR are very unlikely to go for it.


MCR and PAN are both around $25m to $30m market cap with both likely to have $15m cash in bank after redundancy and wind down/clean up costs. PAN also have some MLX shares and Gidgee so both companies resources plus plant and equipment are worth basically nothing.