Andrew Forrest blazes a nickel trail
Nickel’s dismal performance so far this year has hurt investors but there are three reasons to believe that it will bounce back, all connected to Australia’s richest man, Andrew Forrest.
The most obvious Forrest/nickel link is the completion last week of his takeover of Mincor Resources (ASX: MCR), one of the small but successful miners of the battery and stainless-steel metal at Kambalda in Western Australia, home of the Australian nickel industry.
A less obvious reason is that the technology which first attracted Forrest to nickel, and almost caused his premature exit from mining, looks like making a return close to where he built the once-troubled Murrin Murrin high-pressure, acid-leach (HPAL) project in the 1990s.
The third reason is criticism by Forrest and others of rival sources of nickel which are increasingly seen as environmentally unacceptable.
The battle for nickel supremacy
Battery and vehicle makers keen to promote the credentials are growing wary of Indonesian nickel which is mined after felling rainforests while a new potential source of the metal “mined” from the floor of the Pacific Ocean could be even less acceptable.
Mincor, which originally promoted itself as heir to the nickel business of the once-great Western Mining Corporation, owns a major portion of a geological feature called the Kambalda Dome, around which are found ancient nickel-rich lava flows known as komatiites.
The mining and process route for komatiite nickel is less polluting than other sources of the metal which has a well-established market as a key component in making stainless steel and a fast-growing market in lithium-ion batteries which actually use more nickel than lithium.
Forrest’s interest in low-pollution nickel fits his aim of becoming a major supplier of raw material to the battery industry, and perhaps even a battery maker via the Williams Advanced Engineering business, which has been folded into Fortescue Future Industries, an arm of the iron ore miner, Fortescue Metals (ASX: FMG).
HPAL, a technology which cost investors billions of dollars in the 1990s and even proved too difficult for BHP (ASX: BHP) to master at its Ravensthorpe project near WA’s south coast, is making a low-profile but significant return.
Canadian-based First Quantum Minerals acquired Ravensthorpe at a bargain basement price from BHP and despite setbacks has kept the project operating to the point where it attracted a 30% partner in the big Korean steel maker, and emerging battery metals player, Posco
Japanese involvement
Last month, the HPAL revival took another step up when Ardea Resources (ASX: ARL) unveiled a plan to revitalise its Kalgoorlie Nickel Project (KNP) with the backing of three big Japanese trading houses, Sumitomo, Mitsubishi and Mitsui.
Ardea’s KNP project dates back to the time when Forrest was running Anaconda Nickel and struggling to master the HPAL technology at Murrin Murrin.
Signing up the Japanese to participate in a KNP prefeasibility study is a significant move which appears to demonstrate that there is concern at the highest level of Japanese industry (and perhaps within government) that nickel should be treated as a critical metal.
What might have alarmed the Japanese is that China has gained effective control of the world-class and fast-growing Indonesia nickel industry which already accounts for 55% of global output and could rise to 85% by the end of the decade.
The aggressive banning by China of exports of two niche metals (germanium and gallium) last week will have sent an unwelcome reminder to Japan that it needs to shore up metal supplies, in the same way Korea is doing.
Market response and future trends
Japanese participation in the KNP has put Ardea back on the investment map after years on the sidelines with the stock doubling over the last four weeks from 34c to 68c.
Most other small nickel stocks have been weighed down by a 30% fall in the nickel price since January, a drop to US$20,800 a tonne which is closely linked to a slowdown in the Chinese economy and concern that its steel industry is in decline.
But the setback in Chinese nickel demand does not diminish the long-term case for nickel which leads to the challenge of finding and developing environmentally acceptable sources of the metal such as those being produced Mincor and other Australian miners and in demand from makers of electric vehicles (EVs).
Environmental concerns
The EV makers’ dilemma, which is playing into the hands of Forrest as he develops a “clean nickel” business in Australia and Canada, is that the major source of nickel today is Indonesia and that’s produced by first clearing rain forest, then using coal-fired furnaces to extract the metal, and finally dumping waste rock in the ocean.
But the Indonesian industry has become so dominant that it’s almost impossible to not have some of its rain forest nickel in an EV battery, or to try and ignore the possibility that subsea “mining” will not be a future source of the metal with trial production expected to start soon.
Long dismissed as fanciful the reality of subsea nickel edged closer last month when a deadline for a United Nations agency, the International Seabed Authority, to publish a set of regulations passed without the rules being agreed – effectively providing de facto approval under the terms laid down by the UN.
Forrest, Posco, and Japanese trading houses teaming up with Ardea recognise that the need for nickel is highly promising thanks to growing demand and a shortage of environmentally acceptance supply.
BHP also remains a fan through its WA nickel business, a stake in an emerging project in Tanzania and attempts to develop a Canadian operation.
The price of nickel might be down today but it has a well-earned reputation for explosive moves which means it’s a hard-to-ignore battery metal with stainless-steel roots.