World’s top manufacturer of EV batteries races to secure future metal supply and more

By Jack Graham

The old mining adage, “the cure for low prices is low prices” certainly holds true for nickel, which after about two years of price stagnation - roughly from the summer of 2015 until the summer of 2017 - has finally turned upward. The base metal used mostly as an alloy in stainless steel production reached a floor of US$4 a pound during the 2015-17 nickel bear market but lately has seen a sharp reversal of fortune. Over the last year nickel has rallied 65% and in April it hit a three-year high due to concerns that Russian nickel producer Noril’sk Nickel would be included under US sanctions targeting Russian firms.

So what’s behind the nickel rally? There are principally three reasons. The first is that due to weak prices, nickel output dropped, because low prices did not provide enough revenue for large nickel miners to meet their expenses and turn a profit - everything from operational costs to exploration and overhead. That has set up the risk of a deficit in nickel, which is coming at the worst possible time due to nickel’s increasing use in lithium ion batteries used in electric vehicles.

According to a May 2018 report by Wood Mackenzie*, nickel prices will approach US$15,000 a tonne in June, and push higher in July. By 2020, the consultancy predicts nickel to jump to $18,600/t, as supply deficits accumulate. 

*Nickel futures 1 year chart

"Thus our full-year cash price forecast for 2018 has increased from the prior US$13,390/t (US$6.07/lb) to US$15,060/t (US$6.83/lb). We expect some price moderation in H1 2019 due to Brexit in Europe and a stabilising Japanese and US stainless sector, but price momentum should then pick up during H2 and hold firm through 2020, as substantial deficits continue to accumulate. Consequently, our forecast year average prices in 2019 and 2020 have also increased, to US$16,700/t (US$7.58/lb) and US$18,600/t (US$8.44/lb), respectively."

The consulting firm adds that it expects demand in 2019 to pick up due to increased output of high-nickel stainless steel at Baosteel Desheng in China – a major stainless steel producer.

The second reason has to do with nickel supply. Between December and April the supply of nickel in London Metal Exchange (LME) warehouses dropped 18%. This is an important factor telling us that nickel prices need to rise much higher. When nickel prices go up, mining companies begin mining again, trying to capture the higher prices, along with exploration firms who want to discover new deposits. All of this is good for investors, until too much nickel is mined and the market gets over-supplied again - hence the saying, “the cure for high prices is high prices.”

Third, the demand for nickel is climbing exponentially. According to UBS**, 15 million electric vehicles will be on the road by 2025, which is expected to lift nickel demand by 300,000 to 900,000 tonnes, or between 10 and 40% of the current market. Nickel is a key component of lithium-ion batteries, and depending on the mix, up to 80% of the battery could contain nickel - as in nickel-cobalt-aluminum (NCA) batteries used in the Tesla Model S. According to an infographic from Visual Capitalist, nickel use in EVs could catapult demand for the base metal from the current 70,000 tonnes to 167,000 tonnes, based on 6% EV market penetration. Raise that to 10% and nickel demand soars to 400,000 tonnes. The scenario isn’t far-fetched, when you consider that China, India, Norway, the UK and France have all vowed to ban gas and diesel-powered vehicles in an effort to go all-electric. 


*Nickel: The secret driver of the battery revolution (courtesy of Visual Capitalist)


As automakers and battery manufacturers scour the globe looking for mines needed to source the metals needed for electric vehicles, nickel is becoming more and more important. Already we are seeing a run of offtake agreements being struck with lithium and cobalt suppliers. The interest is primarily from Asian EV manufacturers and battery companies, since the Asian EV market is far more advanced than the market in North America. China represents about a quarter of the global EV market - last year selling 700,000 electric cars, 200,000 more than 2016. The Middle Kingdom sees EVs as part of the solution to the pollution problem caused by car-choked cities. The country has signed lithium offtake agreements with mines in Australia, China and Africa, and is currently trying to ink a deal between Tianqi Lithium and SQM, the largest lithium producer in Chile. Other Asian companies like Panasonic and Samsung are trying to make deals in the “lithium triangle” of Chile, Argentina and Bolivia. Chinese carmaker Great Wall Motor has signed an agreement with Pilbara Minerals of Australia to supply lithium for the next five years.

As far as cobalt, another key EV battery ingredient, China Molybdenum bought the Tenke copper and cobalt mine in the Democratic Republic of the Congo for $2.65 billion.

Shares in China’s biggest lithium battery maker Contemporary Amperex Technology Ltd (CATL) soared 44 percent on their debut in Shenzhen on Monday giving the company a market capitalization of $12.3 billion. Funds from the IPO will go towards developing plants in China that will be as big or bigger than the Tesla Gigafactory in Nevada. Last November CATL said it is “looking into upstream investments in raw materials, mostly cobalt” to ensure a stable supply of materials as demand for EVs soar.

The Chinese company recently made a strategic investment with North American Nickel (TSXV:NAN), whose flagship Maniitsoq project in Greenland contains metals essential for EVs including nickel, copper and cobalt. The deal included CATL investing $15 million of a $17.5 million private placement.

CATL’s involvement fits into a pivotal year for NAN, as the company embarks on its 2018 exploration program located on the West Greenland coast. The area of interest is the 15 by 75-kilometre-long Greenland Norite Belt, which contains important occurrences of magmatic sulfide mineralization containing nickel, copper, cobalt and platinum group metals (PGMs). The geological process responsible for the formation of magmatic sulfide mineralization is recorded in many of the intrusions of the West Greenland norite belt, and the metal concentrations in the sulphides are indicative of a very efficient geological concentration mechanism of the metals into the sulphide magma. North American Nickel is searching for concentrations of these magmatic sulphides in order to identify a maiden resource that could ultimately become a mine.

The 2017 90-day field program drill-tested targets of merit from 2016 that displayed continuity among multiple mineralized zones across the district-scale property containing nickel, copper, cobalt and PGMs.

The last two years of exploration have been valuable in terms of understanding how the mineralization extends from surface to depth at three high-grade zones: Imiak, Spotty and Mikissoq. Another zone called Fossilik also contains high-quality mineral “shoots”. All of these zones share a common feature; they are all related to compositionally distinctive rock types of the noritic intrusions.

According to Peter Lightfoot, NAN’s Chief Geologist, the strategy was to identify surface mineralization and follow it to towards the source, with the aim of locating continuous intervals of ore-grade mineralization at depth. The challenge though, was that the zones were interrupted by structures that break-up and/or detach the mineral zones from the primary intrusions.

Lightfoot decided to take a new approach, building on his background as a nickel sulphides expert. His CV includes 20 years working with Inco, then Vale, as Chief Geologist at the company’s Voisey’s Bay, Sudbury and Thompson operations.

Having had time to examine the 2017 rocks in detail, Lightfoot and his team noticed there was a specific type of Norite Belt rock that had very high magnesium and chrome concentrations. These rocks are known as melanorites or melagabbros.

“Using the historic database of some 15,000 assays, we were able to show that if you explore the melanorite part of the intrusion , your chances of finding mineralization were much higher,” said Lightfoot, adding that the melanorites have a clear geochemical signature, and the distribution of the rock type is understood from Worldview-3 satellite imagery.

“Rather than carrying on drilling down the plunge of mineral zones, what we’re going to be doing in 2018 is exploring the larger bodies of melanorites developed right adjacent to the known mineral zones. So our approach this year is to make use of very deep-penetrating, electromagnetic methods to look for the conductivity signatures of these sulphides,” he explained.

“If we find a conductor with this electromagnetic (EM) approach, we’re going to be testing it with boreholes, and trying to find an entirely new zone of mineralization within the larger melanorite bodies. So that’s really the shift from what was a successful strategy in 2017 of adding incrementally, to actually trying to find something that is a significant new footprint of mineralization.”

It’s already known that Maniitsoq contains two significant minerals that can be used to produce copper and nickel - chalcopyrite and pentlandite. The latter is an iron-nickel sulphide which contains about 36% nickel, as well as cobalt. Having those two minerals means the concentration levels and the metal recoveries are likely to be high.

Just as important, the property at Maniitsoq contains the right kind of mineralization for battery-grade metals i.e. high-quality nickel and cobalt mineralization. While more exploration needs to be done before Maniitsoq can be called a deposit, Lightfoot says “from the material that we see there is a very high-quality feed which will fit with traditional smelters. I’m very confident of that. There are no deleterious metals and the sulphide mineralogy is a classic assemblage of pyrrhotite, pentlandite and chalcopyrite.”

It should also be noted that the costs of extracting nickel and copper from sulphide ores is generally less complex and less expensive than mining from laterite ores. However, many of the existing nickel sulphide deposits on the planet are approaching exhaustion, and the production costs are increasing, so bringing on a new nickel sulphide deposit that coincides with a growing need for nickel in EV batteries means the timing could be very good for NAN.

“The great advantage of making a shallow discovery in a new environment is the opportunity to bring new material on board. So really the supply side of this whole EV battery story is still very much in the opportunity of new discoveries of sulphide feed,” says Lightfoot.

That opportunity has clearly been seen and capitalized on by CATL, which is getting in on the ground floor of North American Nickel as the Chinese battery maker looks to grow its supply chain of battery metals. Asked what else large strategic investors and mining companies are looking for right now in a nickel project, Lightfoot named Greenland. Greenland has that in spades. Being a well-established rule set surrounding exploration and mining, companies can be certain their investments are safe. The project is also close to the Seqi deep water port and has hydroelectric power potential from a quantified watershed - all pluses for a future mining operation.

“The Norite Belt has potential for high quality concentrate that would be a good fit for smelter infrastructure, and it also has the upside potential of multiple discoveries in the belt. The mineral potential of the Norite Belt provides the investor with an attractive package, and I certainly think it’s the foundation of why CATL have come into this project,” Lightfoot summarized.

Sources:

*Wood Mackenzie, Commodity market report, 2018 May

**UBS, Longer Term Investments, Smart mobility, 2017 October

About author: Jack Graham has more than 20 years of experience as a writer and editor specializing in Canadian small and micro-cap stocks