Australian nickel miners are swinging in 2021 as EVs provide long-term support for the forms of the rebounding battery metal expected to fuel the energy storage revolution.

Nickel, and particularly nickel chemicals derived from the clean, high-grade nickel sulphides mined in Australia, is a major and growing component of lithium ion batteries.

With the EV market forecast to grow at a compound annual rate of 25% in the coming years (and already outpacing that with an outrageous annual growth profile of 55%), the attention is now turning to where we will possibly find the nickel to fuel this transition.

Speaking at the Australian Nickel Conference in Perth yesterday, IGO (ASX:IGO) managing director Peter Bradford warned there is a serious threat that the mining industry acts as an anchor on the energy transition.

“Year to date, to the end of August, we’ve seen 150% growth relative to 2020,” he told delegates.

“So things are moving a lot faster and the challenge will be maintaining that supply to keep this monster growing at the rate that it is growing.

“And the risk is that the minerals industry holds the evolution back.”


Long term outlook shows more mines needed: WoodMac

Analysts at Wood Mackenzie believe the size and substance of the nickel market is going to mutate over the next two decades.

Presently ~70% of the nickel market is funnelled into stainless steel (an end market up 14% on its own this year) while just 7% goes into battery precursor.

By 2040 battery precursor will be 30% of that first use end market, with stainless steel shrinking, in percentage terms at least, to just 53%.

But that is only half the story. While there are concerns increased nickel pig iron production in Indonesia and the sale of South East Asian nickel matte into the battery market could flood the market, demand is still expected to outstrip supply, leading to sustained deficits from 2025 on.

A market that ranked around 2.4Mt in 2020 is set to inflate more than 100% to 4.9Mt by 2040.

“Based on current market fundamentals, we expect the deficits running through to 2030 will support annual average prices approaching US$19,440 per ton or US$8.80 per pound in the old money by 2026, followed by even higher prices of around US$21,000 through to 28-29,” Angela Durrant, WoodMac principal nickel analyst said.

“By then four straight years of metal inventory drawdowns will shrink global stocks towards 100 days of consumption … a level not seen since 2005, when prices also averaged US$19,980 per tonne.

Nickel has been a volatile commodity in the past. When prices slumped to decade long lows of US$7600/t in 2016 all bar a handful of nickel miners were running at major losses, making financiers gunshy.

But Durrant said there was very little on the horizon in currently planned projects to fill those gaps, with almost 1Mt in unannounced production needed by 2040 to feed the shortfall.

“Primary refined supplies through to 2031 … will struggle to average annual growth of around two and a half per cent a year, virtually all coming before 2027 as well,” she said.

“Therefore, by 2026, the market will need to find new nickel, either from our extensive list of probably projects or possible projects as well, or from elsewhere.

“The requirement for nickel from these sources is estimated to be around 570,000t, which will expand to 976,000t by 2040.

“I think it’s worth pointing out at this juncture that nickel prices are currently sitting at around US$18,000 to $19,000 at the time and even at this level we have not seen banks putting their hands in their pockets to finance new projects, which signals that there is still much caution, despite the optimism around EVs and nickel consumption growth.”

That means major miners will need to expand, but there could be more support for juniors with early stage projects as well as the recent enthusiasm around explorers like Chalice Mining (ASX:CHN) has shown.


Investment banks support electrification narrative

Durrant said lithium-ion batteries with higher nickel chemistries, known as 8-1-1 NCM (nickel, cobalt, manganese) battery types, are emerging as the leading technology because higher nickel levels improve energy density.

That should make lithium-ion batteries easier to miniaturise, improve EV range and make grid scale energy storage easier to scale.

Investment banks are also coming around on the electrification story as well – the narrative that metals like nickel and copper will see demand boom from the transition away from fossil fuels.

UBS yesterday listed nickel as one of its key commodity picks, predicting it will hit medium term rates of US$8.50/lb by 2025.

“While stainless steel nickel demand will slow, demand for nickel for batteries, as well as lithium, is likely to continue growing very strongly into the medium term,” analysts from UBS said in a research note.

That is the context in which BHP Nickel West, one of the world’s largest nickel businesses, has wrapped up deals to sell ESG-friendly nickel from Western Australia to Elon Musk’s Tesla and auto giant Toyota after opening a long-delayed nickel sulphate plant at the Kwinana Nickel Refinery in Perth last week.


Offtakers calling from all markets

It’s a good time for Western Areas (ASX:WSA) to be shopping offtake from its new Odysseus mine, which is due to open in December 2022 and where the WA nickel miner struck first ore yesterday.

Traditionally interest has only come from BHP and nickel smelters in Asia. Now the customer base for nickel is blowing wide open as EV and battery makers step into the market.

“So with the Odysseus offtake we’ve got a short-term two-year (deal), which only commences funnily in a year’s time, and we’ve been blown off our feet by the response so far,” Western Areas managing director Dan Lougher told delegates at the Australian Nickel Conference.

“…As we’ve just heard, things are looking very good up in Asia, Europe is coming into the market and so is North America. So everybody wants a piece of the pie.

“And as you’ve heard even yesterday, a new MoU between Toyota, Panasonic and BHP and we only just recently heard about the Tesla deal as well.

“So things are changing. I actually put down there that Korea was moving faster than Japan, but maybe I’ll have to rewrite my presentation.”

Lougher said nickel miners will be moving away from the traditional short-term smelter deals underpinned by stainless steel demand towards long-term, life of mine contracts that provide security of supply for customers and funding certainty for miners.

“We think that the new trend will be that contracts will move away from your typical smelter contracts and more into life of mine contracts, which is difficult for people like us, because we are very, very driven by short-term smelter contracts,” he said.

“But I think that the demand going forward, we will see some new factories being built. And that will then flow back into the miners, not just Western areas.”


IGO looking for new sources of nickel

It is no secret that IGO, which also owns a quarter-share of the Greenbushes lithium mine, is ensconced in due diligence on Western Areas.

The deal will solve a significant problem for IGO. Its Nova nickel mine is a great, low cost operation, but it is short on mine life.

Western Areas on the other hand has life yet at Spotted Quoll and Flying Fox mines at the Forrestania operations, a potential new mine at that complex known as New Morning, and the decade-plus Odysseus mine at its Cosmos nickel complex in the northern Goldfields still to come online.

It also has a scoping study on the way at Mt Goode, a large, low-grade underground and open pit mine reminiscent of the type of ore extracted by BHP at its nearby Mt Keith operations.

“It’s over 300,000 tons of nickel,” Lougher said. “And we say yeah, ‘0.6%, what the hell Dan?’ Well, with the right open pit mining methods, the hydrometallurgical probably processing route, this is actually going to come up.

“And we are pushing this now quite hard, especially in terms of talking to some key strategics (investors).

“This will push nickel at Cosmas over 20 years, well into 2040.”

IGO and Western Areas were mum on the potential deal, but IGO’s Bradford remains confident there will be more orebodies like Nova on the Fraser Range as well.

He pointed to discoveries such as Legend Mining’s (ASX:LEG) Mawson and rich list prospector Mark Creasy’s Silver Knight find, which IGO now owns and is set to begin mining in 2023.

“When we started this journey, the only known discovery on the belt was Nova,” Bradford said.

“But we had the conviction that there were more Novas to be found. And it’s great to see the outcomes by Legend at Mawson.

“And it’s great to see the discovery by Mark Creasy at Silver Knight.

“All of this goes to validate our conviction that this will turn into a nickel province.”


Selected nickel stocks share prices today: