Newly hailed as a critical mineral last year by the US Geological Survey, the importance of nickel to the global mining landscape and world economy has rarely been in greater focus.

The equation is thus: currently around 2.5Mt of the stuff is mined and purchased worldwide, mostly used to reduce corrosion and wear in stainless steel.

In 20 years that demand profile will double in size, much of it from the battery industry where a specific type of nickel, the cheaper to process but hard to find nickel sulphide variety, is favoured for its capacity to convert to the battery grade chemical nickel sulphate.

Every man and his dog wants more nickel sulphides, including the world’s biggest miner BHP (ASX:BHP) and carmakers like Elon Musk’s Tesla, not necessarily right now but definitely in the not too distant future.

Without producing far more nickel than we mine currently — and lithium, copper, cobalt, graphite etc. — the EV revolution just ain’t happening.

That was highlighted last year when Tesla signed a supply deal with BHP for offtake from its Nickel West business in WA, a couple years after Musk called on the world’s miners to find and mine more of the rare commodity needed for its preferred nickel-cobalt-manganese or NCM lithium ion batteries.

BHP responded by replacing old and dirty coal, oil and gas with sparkly reborn nickel as a core division of its iron ore dominated business and making the commodity the focus of its first external corporate deals in a decade.

But BHP is finding competition is tough and it needs to look beyond its comfort zone in Tier-1 (i.e. Western) jurisdictions like Canada and Australia to find and mine resources of the scale required to fill the shortfall.

Having been chastened in a bidding war over a pre-development nickel explorer in Canada by none other than Perth billionaire Andrew Forrest it’s already lowered its eyes on a proposed nickel sulphide mine in unglamorous Tanzania.

The deal, which will see BHP invest up to US$100 million over three tranches to claim a potential 15% stake in private Kabanga Nickel’s development of the same name, has shone a spotlight on the need to look just about anywhere for the resources of the future.


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BHP goes Kabang … a

The deal announced by Kabanga on Monday will see BHP drop US$40 million in an initial tranche for an unsecured debt over the mine which can be converted to equity, along with US$10 million into the developer of the mine’s low carbon hydrometallurgical processing technology.

Another US$50 million tranche would see BHP bump up its potential stake post-conversion to 15% alongside Kabanga (which currently holds 84% of the asset) and the Tanzanian Government.

Previously explored by mining giants Glencore and Barrick, who pumped more than 600,000m of drilling into Kabanga before relinquishing it in the downturn, the mine is regarded as the largest undeveloped nickel suphide resource in the world, containing 58Mt of ore at a grade of 2.62%, the equivalent of 1.86Mt of nickel metal.

The orebody is so large Kabanga compares its main, 1.2km deep orebody to four Eiffel Towers.

With a potential mine life of over 30 years and nickel prices hitting ~11-year highs of just under US$22,000/t on Wednesday, it is not hard to see why BHP is interested.

It is not BHP’s first rodeo in Tanzania. In fact BHP ran geophysical surveys on ground held by a nearby ASX-listed junior back in the 1990s.

Adavale Resources (ASX:ADD) executive director David Riekie, whose $18 million ASX-listed small cap controls around 1200km2 of exploration licences immediately next to Kabanga in Tanzania’s Karagwe-Ankolean belt, says the deal demonstrates the massive potential of the new mining district.

“I think it sends a very strong signal,” he said. “I think it’s really positive for us, the fact that it’s now recognising Tanzania as a destination of opportunity.

“It’s what we’ve thought for a while, but it needs to be reflected in market activities which is what we’re seeing now.”

Riekie said companies like BHP will have to look further afield to find new sources of nickel sulphides given the rarity of large fields globally.

“So further afield was Canada, further afield is Tanzania, there’s probably going to be other places,” he said.

“But again, there’s (only) a few spots in the world where you see these rich nickel sulphide opportunities.

“One of them is Western Australia, one of them’s Canada, the other one we’re going to see is going to be in Tanzania.”


Tanzania a turnaround state

BHP is not the only mining giant to signal its intention to move away from strict risk-averse capital management policies that favour investing only in Western jurisdictions.

Rio Tinto has signalled its plan to loosen its policy with regards to jurisdictional risk as well, while some of the world’s top performing new gold miners have emerged in West Africa, across the other side of the continent from Kabanga.

BHP’s investment decisions receive a high degree of scrutiny on their ESG merits to pass the muster internally and with investors who are increasingly punishing miners seen to be doing the wrong thing.

For that reason BHP’s decision to invest in Kabanga, and rumours it wants to purchase a copper development project in the Democratic Republic of the Congo, shines a positive spotlight on the region and its chances of becoming a major supplier of hard to come by battery metals.

Operating in Tanzania has not been without its challenges for miners in the past.

While it has been home to a significant gold industry for several years, Tanzanian explorers found themselves exposed when the Government of the day introduced nationalistic new mining laws in 2017.

But the end of a US$190 billion tax dispute with Barrick’s subsidiary Acacia Mining and reforms in 2020 improved its attractiveness as an investment destination.

The ascension of pro-business Samia Suhulu Hussan to the presidency of Tanzania in March last year has also thawed relations between the Government and its mining sector.

Australian companies that have stayed the course through the ructions like graphite explorer Walkabout Resources (ASX:WKT) (+125% over the past year), which is building the Lindi Jumbo mine, and gold company Orecorp (ASX:ORR) (+14.29%), which secured the special mining lease for its 3Moz Nyanzaga gold mine in December, have been rewarded.

Riekie said the needle has well and truly moved. Miners are accepting of the Government’s requirement to have a 16% free carried interest in operations while the Government has grown more supportive of investment to develop new mines.

“There was some unsettling of a lot of people’s projects and potential to bring them into production because of the harder line that was being adopted by the government,” he said.

“And that’s certainly been a change, a tipping point in the current President’s view on what is needed for that level of trust, to be reengendered and reinvigorated in these types of projects.”


Could there be another Kabanga?

Adavale’s licences skirt the Kabanga deposit to the west, north and east and given the immaturity of the district, the company has the conviction that there is more to be found.

It has identified 22 priority targets in geophysics and geochemistry and struck mineralised sulphides in early drilling at the Kabanga Jirani project.

The company recently added another set of licences via a farm-in at the Luhuma prospect, covering 98.89km2 immediate northeast of its existing package.

The ground holding is next to a tenement currently held by the Tanzanian Government where BHP hit an 8.4m massive sulphide intersection grading 1.1% nickel in historic drilling.

With demand for nickel and investment in its exploration being driven by the electric vehicle and decarbonisation thematic, Riekie says Adavale is set up well to search for the commodity in a known nickel belt.

“At Luhuma those holes have had some very nice intersections, and we’ve got all the ground around that, that we see as becoming an exciting opportunity for us,” he said.

“Drilling will determine how large (the prospects) are going to be, and if we can end up with something like a baby Kabanga, thank you very much, that would be fantastic.

“We just think that those sorts of structures (like Kabanga) are not in isolation.

“And we think with the information that we’ve got, the gravity surveys that we’re now doing, and the RC program, it’s no longer a regional scale opportunity that we’re looking at. We’re looking at a more localised and prospect scale, which is like what we see at Kabanga.”


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