Nickel has comeback whiff as EVs fuel demand forecasts
Despite its recent run, the nickel price remains some way from the “excitement levels” of yesteryear. But as this week’s BHP-Mincor deal shows, there is a buzz about what could be around the corner, with inventories falling and demand forecast to soar thanks to nickel’s key role in lithium batteries.
The swagger of the nickel companies at a battery metals conference in Perth during the week was palpable.
Nickel’s price performance of late does not explain the swagger.
After a heroic run to $US7/lb in the middle of last year, the price got beaten up something shocking in the second half with just about everything else on US-China trade war fears.
The price has since climbed off the December lows of under $US5/lb to get back to just under $US6/lb in recent days, leaving it well short of the $US9/lb pricing that historically starts to get everyone excited about the metal.
But the nickel brigade is confident that excitement-inducing prices are on the way, hence their swagger.
They point to the ongoing drawdown in LME/SHFE stocks needed to meet demand from the stainless steel sector in the here-and-now, let alone the demand tsunami coming from the electric vehicle/battery storage revolution.
Nickel – particularly the almost boutique, in terms of supply, nickel sulphide type - is not ready for the revolution, unlike some of the other key battery materials such as lithium and graphite.
Under-investment has led to a dearth of new discoveries and new developments, leaving forecasters wondering where the new supply is going to come from to meet the expected growth in demand from the EV/battery revolution.
That assumes there is no breakthrough anytime time soon in making the world’s more abundant laterite nickel ores more competitive in the supply of high-grade nickel product suitable for use in battery manufacturing.
There was no fear at the conference of that happening anytime soon.
In broad terms, the nickel boys and girls reckon nickel demand from the EV/battery sectors could well match that of the (also growing) stainless sector (73% of the current 2.2mtpa market compared with 5% for batteries) sometime in the 2020s/early 2030s.
All that explains the renaissance of Australia’s Western Australian-centric nickel industry.
BHP (ASX:BHP) is spending up big on its pivot to the supply of nickel sulphate to battery makers and it is again investing in sustaining production at its Nickel West unit out to at least 2040.
Other miners that eventually shut down when the nickel price got ugly post-2008/2009 are plotting their return, and nickel-focussed explorers are again getting a good hearing.
Then there are the private equity groups sniffing around the WA scene for exposure to the nickel thematic before the potentially-manic rush to secure supplies by end-users – as already witnessed in the lithium sector – takes hold of the metal.
Some of that was reflected in the move by US private equity group Black Mountain on to the Poseidon Nickel (ASX:POS) register in a big way last year and its acquisition of the mothballed Lanfranchi mine from Panoramic (ASX:PAN).
Now it has to be said that there is no boom in nickel equities just yet.
But stand back if the EV/battery thematic unfolds, as most suspect it will. Nickel can be the most volatile of metals (small market and slow response times) and a sharp and lasting price spike could be upon us before we know it.
Mincor’s (ASX:MCR) new managing director of six weeks David Southam looks sharp in a cuff-linked suit but he is not one to swagger.
Nevertheless, he is set to be as upbeat as they come on the nickel market and his production revitalisation plans for the group’s Kambalda operations when he hits the Eastern States next week on an investor roadshow.
Southam called time on eight years as an executive director at the $615m nickel producer Western Areas (ASX:WSA) to take on the role at Mincor. And why wouldn’t he? Western Areas stands to benefit from the suggested nickel upturn more than most, but there is greater leverage to the upside at the $90m Mincor.
That is reflected in the fact that back in 2007/2008 when nickel shot to more than $US20/lb, Mincor was a $1 billion company sitting comfortably inside the ASX 200, with peak production of 16,500t of nickel-in-concentrates.
Then the nickel price rot set in (due to the rise of Chinese NPI production and the absence of the EV/battery thematic), forcing Mincor to first curtail its nickel operations and then shut them altogether by early 2016, pending the now unfolding upturn for the metal.
The mines were put on care and maintenance and in the meantime, Mincor got a handy little gold open-cut gold mining operation going which continues to help pay the bills.
But the main game has always been plotting a return to nickel production from existing mines (Ken/McMahon and Durkin North), and a development of the Cassini discovery.
For that to happen four things are needed. The first is a supportive nickel price. Thanks to the lower US exchange rate, the Australian dollar nickel price is just about there to mount an economic case for a restart.
The second requirement is to avoid the capex slug of having to build its own nickel concentrator by securing a new agreement to replace the 20-year-old one that recently expired with BHP’s Nickel West.
That was ticked off earlier this week when Southam’s experience with offtake negotiations at Western Areas came to the fore, with Mincor securing a “modern” agreement on “substantially” better terms, again with the logical offtake partner, BHP.
The third requirement is to ensure enough mining inventory to underpin an initial five-year mine life. Mincor is getting close to those numbers already but will nevertheless be ramping up its resource extension drilling.
With one, two and three locked in, attention will turn to funding the return to production, expected to cost about $50-$60m.
That looks to be very do-able, given a re-start pitched towards achieving annual production of 12,000-14,000t of nickel-in-concentrate (not far off what used to support a $1bn market cap in the heady days of 2008) is the plan.
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One of Australia’s leading business journalists, Barry FitzGerald, highlights the issues, opportunities and challenges for small and mid-cap resources stocks, and most recently penned his column for The Australian newspaper.
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