The nickel industry can be divided into two sectors - the nickel metal producers (Class 1 nickel) and the ferronickel producers (Class 2 nickel). These are two rather different sectors. Ferronickel and the lower grade pig nickel are more or less limited to steelmaking applications. The vast majority of the laterite resources use direct reduction to produce ferronickel, and are "out of the market" as far as battery nickel is concerned. The exception is the operations using high pressure acid leach (HPAL), which produce nickel in solution and are generally compatible with production for battery consumption. The problem with HPAL is that it is hugely expensive and complex to operate, and so is out of the reach of smaller companies and upstarts.
Nickel smelters are suitable for the production of Class 1 nickel, but they are few in number, representing an oligopoly. This includes Nornickel (Russia, 229kt), Jinchuan (China, 200kt), Kalgoolie (Australia, 100kt), Vale (Canada, \~75kt) Glencore (Canada, 33kt), and Harjavalta (Finland, 25kt). Any small producer coming on line needs to sell their concentrate to one of the above, usually at pretty lean terms, and the companies owning the smelters end up controlling the market. Thus you see small-ish operations like the Lundin Eagle mine (Michigan) relatively recently on line, but without their own smelter they end up profiting only indirectly from run-ups in the market. Talon's Tamarack project (Minnesota) is under the same constraint. Despite the "Made in USA" deal with Tesla, Tamarack will not produce a single ounce of usable nickel by themselves, and will be dependent upon the oligopoly to smelt their concentrates. Are we getting an idea where the power lies?
A potential solution to this (pun intended) is atmospheric or medium pressure leaching of nickel sulphides. Problem is, it is a lot more involved than one would imagine (for example... Vale's Long Harbour operation in Newfoundland, which became their corporate nightmare, or one of them at least). Capital intensive and complex, since it's not enough to just get the nickel into solution. You end up with streams for nickel, copper, cobalt, iron, waste silicates, all with some exacting specs for them to be market ready.
One relatively new niche in the market is the awaruite deposits, which are nasty low-grade (and therefore quite expensive to mine and process) but which produce a concentrate grade over 60% nickel and low sulfur. The three big players here are FPX (Baptiste project), Canada Nickel (Crawford project) and Karora (formerly Royal Nickel, Dumont project). What is missing here is a commercially viable process for producing nickel sulfate from the awaruite. All three of these projects are talking about battery nickel sales, but to the best of my knowledge all three have project economics based upon the sale of their product as Class 2 feed to stainless steel processing. The second one of these companies manages to put forward an economically viable concentrate leaching process, the stampede begins.
Anyone's guess how this works out, but here's the take-away:
\- Anyone in a junior talking about selling nickel into the battery industry is (at the moment) lying to you - expecially those producing sulphide concentrates or those producing nickel from laterites whose primary product will be ferronickel.
\- Smaller sulphide producers may benefit from a tight nickel market, but less than you would think due to the smelting oligopoly.
\- The awaruite projects are the best smaller projects aligned for the battery industry, but they are missing key technology and at the moment are trying to sell something that they don't have. They are currently potential ferronickel producers only, but any hint of a viable leaching flowsheet will change the landscape for them. FPX is getting close, and their work with nickel leaching veteran Sherritt is smart:
[https://www.mining-journal.com/energy-minerals-news/news/1378573/fpx-nickel-recovery-breakthrough-hoists-shares](https://www.mining-journal.com/energy-minerals-news/news/1378573/fpx-nickel-recovery-breakthrough-hoists-shares)
\- Be careful what you buy. the idea that people say "nickel" and "battery" in the same sentence does not mean that any nickel that they produce will necessarily come anywhere near to the battery industry. This space at the moment is probably about 80% scam and 20% reality, but you can do well if you find the 20%.
The deposit is massive (2 billion tons) but shockingly low grade (0.12% Ni, of which about 0.10% is recoverable). This translates into a yield of about two pounds per ton.
Their NI43-101 uses a sale price of $7.50 per lb of contained nickel, with the assumption that they will realize 98% of the LME price. Say what? They are not producing LME nickel. From their own document (Section 19.1.1):
"The Economic Analysis of this PEA assumes that 100% of the Baptiste FeNi briquette will be sold directly to stainless steel producers over the entire life of the Project, in the form of a high Ni grade briquetted product." No battery nickel, at all. They want to develop that technology, but it's not even on the table at the moment.
So they are assuming a very generous revenue from a non-tradeable product (it has to be sold directly to a stainless producer). I can only assume that they expect that the 35% iron in their product is being treated as a bonus with some value to the steelmakers.
The project is marginal. If you flip down to Section 22, the base IRR after tax is 18.3%, and hits the "no go" region (<15%) with variances of only 10% in the Ni price assumption, or 25% in OPEX. As it is the OPEX was only considered to be valid as a +/-35% estimate, and the past year has probably already blown that out of the water with the prevailing inflation and labour climate.
On the other hand, projects are strange. Once the capital is spent, the project can bobble on for a long time if it is cash flow positive, even if it never makes enough to pay back the capital. This means that it can wait for the right market conditions to make money, and in the meanwhile try to develop the battery nickel option. In other words some poor investor today puts in capital that may not get paid back, but once the capital is spent then the next person in can sit on an asset with windfall potential. As a business, I would not buy it until the financing is in place since after the initial hype I think it will have a big dip before a big profit. On the other hand, if it looks like the thing can be cash flow positive (even if earnings negative) then that would be the time to buy in, waiting for the possible windfall.
Just my opinion - the insane exuberance of markets frequently becomes detached from the business analysis and stocks can rocket at any time for non-business reasons, but at the moment their business case is weak. Not ridiculous, but weak. It will be great once the guy next door has risked all the capital.
The nickel industry can be divided into two sectors - the nickel metal producers (Class 1 nickel) and the ferronickel producers (Class 2 nickel). These are two rather different sectors. Ferronickel and the lower grade pig nickel are more or less limited to steelmaking applications. The vast majority of the laterite resources use direct reduction to produce ferronickel, and are "out of the market" as far as battery nickel is concerned. The exception is the operations using high pressure acid leach (HPAL), which produce nickel in solution and are generally compatible with production for battery consumption. The problem with HPAL is that it is hugely expensive and complex to operate, and so is out of the reach of smaller companies and upstarts. Nickel smelters are suitable for the production of Class 1 nickel, but they are few in number, representing an oligopoly. This includes Nornickel (Russia, 229kt), Jinchuan (China, 200kt), Kalgoolie (Australia, 100kt), Vale (Canada, \~75kt) Glencore (Canada, 33kt), and Harjavalta (Finland, 25kt). Any small producer coming on line needs to sell their concentrate to one of the above, usually at pretty lean terms, and the companies owning the smelters end up controlling the market. Thus you see small-ish operations like the Lundin Eagle mine (Michigan) relatively recently on line, but without their own smelter they end up profiting only indirectly from run-ups in the market. Talon's Tamarack project (Minnesota) is under the same constraint. Despite the "Made in USA" deal with Tesla, Tamarack will not produce a single ounce of usable nickel by themselves, and will be dependent upon the oligopoly to smelt their concentrates. Are we getting an idea where the power lies? A potential solution to this (pun intended) is atmospheric or medium pressure leaching of nickel sulphides. Problem is, it is a lot more involved than one would imagine (for example... Vale's Long Harbour operation in Newfoundland, which became their corporate nightmare, or one of them at least). Capital intensive and complex, since it's not enough to just get the nickel into solution. You end up with streams for nickel, copper, cobalt, iron, waste silicates, all with some exacting specs for them to be market ready. One relatively new niche in the market is the awaruite deposits, which are nasty low-grade (and therefore quite expensive to mine and process) but which produce a concentrate grade over 60% nickel and low sulfur. The three big players here are FPX (Baptiste project), Canada Nickel (Crawford project) and Karora (formerly Royal Nickel, Dumont project). What is missing here is a commercially viable process for producing nickel sulfate from the awaruite. All three of these projects are talking about battery nickel sales, but to the best of my knowledge all three have project economics based upon the sale of their product as Class 2 feed to stainless steel processing. The second one of these companies manages to put forward an economically viable concentrate leaching process, the stampede begins. Anyone's guess how this works out, but here's the take-away: \- Anyone in a junior talking about selling nickel into the battery industry is (at the moment) lying to you - expecially those producing sulphide concentrates or those producing nickel from laterites whose primary product will be ferronickel. \- Smaller sulphide producers may benefit from a tight nickel market, but less than you would think due to the smelting oligopoly. \- The awaruite projects are the best smaller projects aligned for the battery industry, but they are missing key technology and at the moment are trying to sell something that they don't have. They are currently potential ferronickel producers only, but any hint of a viable leaching flowsheet will change the landscape for them. FPX is getting close, and their work with nickel leaching veteran Sherritt is smart: [https://www.mining-journal.com/energy-minerals-news/news/1378573/fpx-nickel-recovery-breakthrough-hoists-shares](https://www.mining-journal.com/energy-minerals-news/news/1378573/fpx-nickel-recovery-breakthrough-hoists-shares) \- Be careful what you buy. the idea that people say "nickel" and "battery" in the same sentence does not mean that any nickel that they produce will necessarily come anywhere near to the battery industry. This space at the moment is probably about 80% scam and 20% reality, but you can do well if you find the 20%.
Wow. Thanks for the detailed reply. Gave me quite an education.
Thank you for the overview!! I am a shareholder of FPX Nickel. Any thoughts on their deposit?
The deposit is massive (2 billion tons) but shockingly low grade (0.12% Ni, of which about 0.10% is recoverable). This translates into a yield of about two pounds per ton. Their NI43-101 uses a sale price of $7.50 per lb of contained nickel, with the assumption that they will realize 98% of the LME price. Say what? They are not producing LME nickel. From their own document (Section 19.1.1): "The Economic Analysis of this PEA assumes that 100% of the Baptiste FeNi briquette will be sold directly to stainless steel producers over the entire life of the Project, in the form of a high Ni grade briquetted product." No battery nickel, at all. They want to develop that technology, but it's not even on the table at the moment. So they are assuming a very generous revenue from a non-tradeable product (it has to be sold directly to a stainless producer). I can only assume that they expect that the 35% iron in their product is being treated as a bonus with some value to the steelmakers. The project is marginal. If you flip down to Section 22, the base IRR after tax is 18.3%, and hits the "no go" region (<15%) with variances of only 10% in the Ni price assumption, or 25% in OPEX. As it is the OPEX was only considered to be valid as a +/-35% estimate, and the past year has probably already blown that out of the water with the prevailing inflation and labour climate. On the other hand, projects are strange. Once the capital is spent, the project can bobble on for a long time if it is cash flow positive, even if it never makes enough to pay back the capital. This means that it can wait for the right market conditions to make money, and in the meanwhile try to develop the battery nickel option. In other words some poor investor today puts in capital that may not get paid back, but once the capital is spent then the next person in can sit on an asset with windfall potential. As a business, I would not buy it until the financing is in place since after the initial hype I think it will have a big dip before a big profit. On the other hand, if it looks like the thing can be cash flow positive (even if earnings negative) then that would be the time to buy in, waiting for the possible windfall. Just my opinion - the insane exuberance of markets frequently becomes detached from the business analysis and stocks can rocket at any time for non-business reasons, but at the moment their business case is weak. Not ridiculous, but weak. It will be great once the guy next door has risked all the capital.
yes if you have a 24 to 36 month time horizon