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Hard Creek: Leverage to Nickel

Bob Moriarty
August 10, 2006

My recent jaunt to Alaska and the Yukon included a short but interesting visit to Northern BC to visit one of the largest and most highly leveraged nickel projects in North America, the Turnagain Project of Hard Creek Nickel. [
website] The project is located about 15 air miles east of the tiny, beautiful town of Dease Lake.

I drove down from Whitehorse in about six hours dodging foxes and tiny chipmunks all the way. I've driven down from Fairbanks to Vancouver a couple of times and for anyone interested in some wonderful scenery, I highly suggest the drive as a vacation in itself.

click images to enlarge
The Base Camp One of the camp cooks Logging the core Samples prepared for
air lift

When I buy a stock, I want to understand just what it is that I am buying. Sometimes you want to rent a stock or lease it or buy it for the long term. But above all, know just what it is that you are buying.

Hard Creek Nickel is a nickel play with a platinum/palladium potential kicker. It is very highly leveraged to the price of nickel. Which means the grade is low, the cost of production is high and should nickel prices stay as high as they are, it could be a 50 bagger. It's a sulfide nickel deposit which is very desirable, and has a cobalt and some copper potential.

If you use the 15 year average for nickel, cobalt and copper, with a 5.0% discount rate, the NPV is negative $24 million Canadian. Using the more optimistic 5 year average price and the same 5.0% discount rate, the NPV moves up to $461 million and using a 3 year trailing average price for nickel, cobalt and copper, the NPV soars to an incredible $1196 million Canadian. With a stock having a $30 million market cap, I think you can see what I mean.

There are some issues. Power is a bit of a problem but the BC government is waking up to the potential of mining in the province and is actually starting to show signs of helping mining companies move projects forward. Hard Creek has had discussions with BC Hydro and the power company assures them that when the project gets into production, there will be power.

On of the things that would make mine planning and mine finance lots easier would be to fine a high grade core so the project could pay off the Capex sooner. Hard Creek has located a 1.5 by 1 kilometer soil geochemical anomaly showing high potential for platinum and palladium. Tests indicate a high percentage (1-1) of platinum to palladium which is very good considering a US price of $1,240 for platinum. Even a gram or so PGMs would make for a nice high value core.

click images to enlarge
Ted & the core Ted sitting on high-grade nickel  Special closeup of Ted for bear loving ladies Chipmunk in paper bag

Hard Creek has only drilled 10-15% of the Turnagain ultramafic intrusive, yet shows a 43-101 of 833 million pounds of nickel, 57 million pounds of cobalt and 85 million pounds of copper. There is substantial potential for increasing the resource, naturally making the project more attractive to a major.

If you don't like political risk, you don't get much safer than Canada. And if you buy into the Chinese demand story as I do, HNC makes an easy decision in a nickel stock. I think you could easily see a 50% variation in price every year and they are pretty much limited to a 6 month season for drilling for now so I would certainly be happy buying near the yearly lows and selling past any new highs. This would make a wonderful trading stock but at some price you could buy and put it away for your grand kiddies.

Hard Creek has not paid for this piece but they are an advertiser. We are very impressed with management and while we haven't bought any shares yet, there is a price where we would be buying with both hands. We are biased.

Hard Creek Nickel Corporation
HNC-V $.68 Canadian (August 5, 2006)
40.8 million shares outstanding
Hard Creek Nickel

Bob Moriarty
President: 321gold

321gold Inc