EXCLUSIVE: Battery Companies Back Small Miners For Long Term, Provide Bright Spot As Funding Market Crashes

TORONTO – When it comes to raising money, Canada-based FPX Nickel Corp. FPOCF is a bright spot among exploration-stage miners.

Even as capital markets crater for junior mining companies, FPX has been able to tap another mining industry trend — the appetite for metals used in electric vehicles. 

After landing the backing of a major battery materials company this year, FPX is fully funded for through 2025, CEO Martin Turenne told Benzinga this month at the yearly gathering of the Prospectors & Developers Association of Canada in Toronto.

That's an enviable position for a company that is not yet selling nickel, especially as the funding market for industrial metals companies is at its lowest point in years. 

FPX is exploring the battery metal at its Baptiste project in British Columbia, and the mine won't be in production until at least 2030. Without cash flow from selling mined products, exploration companies have to fund their exploratory drilling programs in other ways such as issuing new shares or taking on debt.

Industrials Metals Financing At Lowest Point In 4 Years

In January, money raised by junior and intermediate miners plunged 75% year over year to $263 million, according to S&P Global Market Intelligence. That month, financings for industrial metals including nickel dropped to their lowest point since March 2020.

It was also in January that FPX Nickel closed a deal where battery materials producer Sumitomo Metal Mining SMMYY bought just under 10% of company for CAD 14.4 million ($10.6 million) in a private placement.

Notably, Sumitomo was willing to do the deal even as nickel prices had fallen sharply on oversupply from Indonesia and a tempered outlook for short-term growth in electric vehicle sales. 

See Also: Nickel Industry Cutbacks To Support Prices As Miners Brace For Long Slump: ‘2030s Will Likely Be More Attractive’

For Sumitomo, unlike a financial institution like a bank or pension fund, the deal is not just about a good stock investment. Indeed, FPX's stock has dropped more than 30% from what Sumitomo paid per share. 

As part of the deal the Japanese company gets rights to production if FPX can get its mine to an operational stage. That gives Sumitomo a supply of nickel for the cathodes it makes for electric vehicles while also giving FPX a potential buyer and source of operational cash flow.

"Our entire sector is about future cash flow," Turenne said.

EV Materials Makers Offer Key Funding Option

While the outlook for EV growth has been disappointing for miners recently, the long-term forecast is more bullish. Against that backdrop, battery materials companies and even EV manufacturers themselves are willing to invest in miners to secure the metals they need.

"In addition to government funding, the trend of original equipment manufacturers and large cap producers of electric vehicle materials continue to make strategic investments in exploration and development stage critical mineral issuers," according to mining industry attorneys at business law firm Osler, Hoskin & Harcourt LLP. "This has provided a number of issuers with a strong and stable source of financing in an otherwise continuing challenging financing market."

The law firm provided legal advice for another recent battery metal deal. This month, Mitsubishi Corp. MSBHF acquired a 7.5% interest in a joint venture with Frontier Lithium Inc. LITOF for CAD 25 million ($18.4 million).

"The equity markets remain mostly frozen for mining issuers," the Osler lawyers wrote. "Something will need to change. Either equity markets will rebound and new investment will return, or the long-awaited culling of junior companies will start to happen."

That fate doesn't seem likely for FPX Nickel. In addition to its deal with Sumitomo, it has partnerships with major stainless steel company, Finland-based Outokumpu Oyj OUTKY, and an unidentified "corporate strategic investor." Investors Outokumpu and Sumitomo own just under 10% each of FPX Nickel.

Additionally, FPX has signed a non-binding memorandum of understanding with a Japanese state-owned investor and a joint venture between Toyota Motor Corp. TM and battery manufacturer Panasonic Holdings Corp. (OTC: PCRFY).

‘FPX has done well'

Mining companies in northern latitudes with harsh winters have to make the most of exploration work in the summer, and will often tap capital markets for funding each year to pay for that exploration, said Greg Beischer, CEO of Alaska Energy Metals Corp. AKEMF, which is exploring for nickel in Alaska.

So, for FPX to have funding set up for 2024 and 2025 gives it a leg up compared to many other junior mining companies.

"It absolutely is a good position, enviable," Beischer told Benzinga in a telephone interview. "FPX has done well to bring in strategic partners."

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