The nickel express has left the station, but it could travel much further as demand rises and supply lines are crimped – giving ASX-listed nickel miners and explorers a lift particularly if their product is of a superior quality.
Those first two factors, supply and demand, are well understood and have been the key to the near doubling of the nickel price over the past 18-months as it has charged up from a Covid-effected US$11,000 a tonne early last year to latest sales at US$19,500/t.
The third factor, quality, will be the next price driver, especially for Australian nickel producers because their material has a relatively low carbon pollution footprint, especially when compared with nickel pig iron (NPI) which has become the dominant form of the metal.
Nickel, always a commodity where fortunes are made quickly, and sometimes lost just as quickly, the starting point for this analysis is the last in-depth look in early June.
The man in that story was iron ore billionaire Andrew Forrest who is stuck with his school days nickname of Twiggy, and who’s first entry into nickel was less then successful when the company he founded, Anaconda Nickel, failed to master a complex chemical processing technology.
Forrest today is playing in the safer nickel space of hard-rock sulphide ore, of the sort mined around Australia’s nickel capital, Kambalda in Western Australia, as well as Canada and Russia.
Twiggy’s latest nickel investments
Three nickel stocks are on Forrest’s latest nickel investment program.
Mincor has is up 25% from $1 to $1.25. Poseidon has risen 74% from $0.069 to $0.12, while Noront has risen by 73% from C$0.33 to C$0.57 – thanks to a 26 July takeover bid from BHP Group (ASX: BHP) priced at C$0.55.
Another stock mentioned in early June, Centaurus Metals (ASX: CTM), has joined what might be called the “nickel sulphide party” with a 32% rise from $0.69 to $0.91 as it makes brisk progress developing its Jaguar project in Brazil.
Diverging nickel markets
The reason nickel sulphide has been mentioned repeatedly in this update on the nickel sector is that a change is developing in the nickel market which will widen as environmentally conscious makers of electric vehicles increasingly specifying low-carbon nickel for the batteries in their cars.
It is also possible that governments will demand tighter controls on NPI which is the favoured way of producing nickel in China and Indonesia, but generates vast amounts of carbon pollution in its production.
According to the Nickel Institute, a Brussels-based industry lobby group, traditional nickel metal (of the sort produced in Australia) has a carbon footprint 10-to-14 times lower than the footprint of NPI.
The difference is so significant that the hunt for clean nickel by Tesla founder, Elon Musk, is easy to understand because he wants to sell cars which have “green” appeal and that’s difficult if the nickel in a battery comes from NPI.
BHP’s revitalised interest in nickel is a guide to how the industry is dividing into two types of production with high-carbon material heading for use in the production of stainless steel and low-carbon nickel destined for the faster-growing battery sector.
The involvement of BHP in nickel is a lesson in how the outlook for the metal has changed with the company a reluctant participant after inheriting a nickel business through the 2005 takeover of Western Mining Corporation with the Olympic Dam copper and uranium mine in South Australia the primary interest.
Low prices dogged the WMC nickel business in the early years of BHP ownership and an attempt to get bigger through the development of the Ravensthorpe project (which used the same technology as Forrest’s Anaconda adventure) was an expensive flop.
BHP became so disillusioned with nickel that it tried several times to sell the business but couldn’t attract a single bid because of a $1 billion environmental clean-up required around old mines and processing plants.
Everything changed with the advent of long-life, rechargeable, lithium-ion batteries that have a nickel rich cathode with sulphide nickel ore producing the best quality material for battery makers.
New nickel fortunes
In what must have been a “lightbulb moment” for senior BHP management an unwanted, unloved, rundown, rusty and scrapheap destined nickel operation in WA was suddenly elevated to the coveted status of “future facing” business because of its key role in battery technology.
Rather than quitting nickel, BHP is digging deeper with mine and processing expansions underway in WA and a plan unveiled to enter the Canadian nickel sulphide business through the proposed takeover of Noront – in which Forrest already has a 15% stake.
In time, and perhaps quite soon, nickel will become a two-stage metal with a pricing difference developing between NPI material, which will predominantly be used by Chinese steel makers, and sulphide nickel which will be used by European and US battery makers.
Macquarie Bank is its latest look at nickel highlighted the differences developing when it pointed out that NPI, for the first time, was accounting for more than 50% of nickel production, up from 15% a decade ago.
Another first noted by Macquarie is that Chinese nickel producers now fill the top three positions on the industry league table, though largely because of outages at traditional nickel sulphide operations such as flooding in a big Russian mine (Norilsk) and a strike in the Canadian nickel capital of Sudbury.
Price continues upwards
Supply and demand factors, as mentioned earlier, are the keys to the nickel price edging closer to a 10-year high of more than US$20,000/t, which is one reason to keep an eye on the Australian nickel sector.
But the more important reason is that the quality question will become more important as battery makers seek low-carbon sources of material and that means buying nickel from Australia, Canada, Russia and Brazil.
Stocks to watch
Exploration success and project development will also have an effect on share prices with stocks to watch including:
Lunnon Metals (ASX: LM8) only got a passing mention in early June because it didn’t list until mid-June after raising $15 million at $0.30 a share. Its funds are earmarked for drilling tenements near Kambalda. At last sales of $0.60 subscribers to the Lunnon float have already doubled their money.
As mentioned earlier, Mincor is up 25% since early June and should continue to perform strongly as its “connects the dots” between two historic Kambalda mines, Durkin and Long, where a tract of land dubbed the Golden Mile has been left unexplored for more than 20 years.
Recent drilling in the gap has returned high-grade nickel, as expected.
Also mentioned earlier, Poseidon is picking where earlier explorers left off with high-grade nickel intersections at its Golden Swan project, including grades up to 14.3% nickel from a relatively narrow 0.8m slice.
Centaurus is poised to generate handsome profits from its Jaguar project, which is costing US$288 million to develop but should pay that back in less than two years, and perhaps sooner.
A relatively new player in the nickel game is Blackstone Minerals (ASX: BSX) with the Ta Khoa project in Vietnam and a marketing deal with a big South Korean battery maker.
Shaw and Partners recently initiated coverage of Blackstone with a buy tip and a price target of $1.90, well above last sales at $0.43.
Another explorer worthy of a mention is Azure Minerals (ASX: AZS), which is having ongoing success at the Andover project, which has been described as WA’s latest nickel discovery.
The company has discovered significant nickel-copper sulphide mineralisation within the project’s VC-07 and VC-23 targets after only acquiring the asset in July last year and kicking-off drilling in October.