Barry FitzGerald: We need to talk about WA laterite nickel
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After decades in the wilderness, things are finally starting to stir for Western Australian laterite nickel focussed ASX juniors.
Garimpeiro reckons it is transformational stuff, one he is prepared to wrap up into a new thematic – the rise of the WA laterites.
They have been cheap as chips for years, with investors spurning them in favour of the sulphide nickel players because of distant memories of laterite project failures in the 1990s, early 2000s.
And yes, laterite projects continue to involve multi-billion dollar capital expenditure commitments and complex processing methods compared with the sulphide route alternative.
But they come with multi-decade and large scale nickel (and cobalt) production potential – just what the world needs as the battery-led decarbonisation effort is stepped up.
Sulphide nickel projects of scale are rare and cannot be relied on to grow meaningfully.
Initially at least, that has opened the door to Indonesia’s nickel pig iron (NPI) industry based on laterite ores.
The Indonesian industry accounts for nearly all of the forecast growth in nickel production out to 2030.
But its doubtful ESG credentials means that participants along the battery supply chain wanting to ensure their battery nickel needs come from sustainable sources in Tier 1 locations are increasingly turning to the WA laterite scene.
Currently at least, the WA laterite nickel players with compliant resources can be bought for less than 1c a pound of nickel. If the rise of the laterites pans out as Garimpeiro suspects, that knockdown price will be a thing of the past.
It means a share price price-rating for the laterite juniors is afoot. Not necessarily in a hurry. But with the world facing up to a 20% nickel supply shortfall come 2030 on McKinsey & Co estimates, the re-rating is on its way.
Two recent announcements involving ASX laterite companies reflect what Garimpeiro is banging on about it. From no interest in the sector for years, there is now a flood of interest, especially from overseas heavyweights.
First there was the announcement from Alliance Nickel (ASX:AXN) that it had struck a strategic alliance with leading automaker Stellantis (Jeep, RAM, Chrysler, Maserati, Alfa Romeo, Fiat and Peugeot).
The agreement covers an offtake agreement for 40% of the production from Alliance’s undeveloped NiWest project over an initial five-year-term, a relationship cemented by Stellantis taking up a $15m placement in Alliance.
The placement funds are being applied to completing a definitive feasibility study and final engineering studies into a heap-leach project as distinct from the usual high pressure acid leach route (HPAL) for WA laterites.
HPAL is used 20km up the road at Glencore’s Murrin Murrin laterite project, one of two surviving and now thriving WA laterite projects from the 1990s and early 2000s investment boom in laterite projects. But Murrin Murrin also successfully ran a heap leach operation in its early years.
An early study by Alliance put the capital cost at $US882m for a 25 year-plus project producing sulphate nickel and cobalt for the battery industry. Robust economics were suggested by the indicated 3.3 year capital payback period.
More recently Ardea (ASX:ARL) announced a Japanese consortium consisting of Sumitomo Metal Mining, Mitsubishi Corp and Mitsui had signed a non-binding memorandum of understanding covering the development of its Kalgoorlie nickel project.
While it is non-binding it nevertheless envisages the consortium – think of it as Japan Inc – negotiating a binding agreement to complete development studies (to be funded by the consortium), make a final investment decision, and to jointly secure development funding for the $3 billion-plus project.
The project has been on the books a long time but it seems that Japan Inc reckons its time has arrived. Since the MOU with Japan Inc was announced in early July, Ardea shares have risen 68% to 74c.
Other nickel laterite players to watch as the rise of the laterites plays out include Nico (ASX:NC1) which owns the large scale Wingellina project which a PFS study indicated could have an initial 42-year mine life as a 40,000tpa nickel and a 3,000tpa cobalt producer.
It has flagged that a strategic partnering process could be completed by the end of the year.
The small market cap Panther Metals (ASX:PNT) is another one to watch. Less advanced than the others after joining the ASX in December 2021, it nevertheless has a 476,000t nickel and 32,200t cobalt resource already in the bag, with exploration upside. Its market cap at its mid-week share price of 7c was $6m.
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