There is an investment opportunity out there right now that very few people are aware of, or even care to understand. A major shift in demand for battery metals is in its infancy, and companies who control the right projects in the best jurisdictions will be able to generate outsized returns for shareholders once the herd takes notice and realizes what is happening. Before I introduce a company that I think is perfectly positioned to benefit from this surging demand, I want to lay out why this could be a unique opportunity to bet on the future of clean energy and potentially generate life changing investment returns in the process.
There is a massive global energy revolution underway, as technological advancements have made it much more affordable to harness sources of clean energy such as solar and wind energy. With the global population continuing to grow at the rate of nearly 100 million people per year, energy demand also continues a steady rate of ascent. In fact, in 2018, global energy demand rose 2.9%, its fastest rate of increase in nearly a decade:
This trend is further reinforced by the transition of tens of millions of people in emerging economies from rural living conditions to urban areas. In 2019, everyone wants to be on the energy grid, have internet access and renewable energy; and battery storage is enabling them to do just that. This major demographic transition is also creating an air pollution problem that has quickly become the world’s single largest health risk, according to the World Health Organization. Approximately three million deaths per year have been linked to exposure to outdoor air pollution.
The world is shifting to clean energy, and emerging market behemoths like China and India are going green with great urgency, due to their air pollution problem. India has set a target date of 2030 for banning the sales of gasoline and diesel vehicles, and China is currently determining which year they will commit to banning the sales of gasoline and diesel vehicles.
As the electric vehicle revolution takes hold of the globe, analysts are forecasting the demand for battery metals to surge. This demand growth for battery metals is not only underpinned by the EV revolution, but also by the growing demand for grid power storage globally. Both domestic and industrial users are seeing large increases in power storage demand. The global energy grid needs to be rewired and large end users such as cryptocurrency miners, internet servers, and electric vehicle charging stations require huge amounts of energy storage capacity.
Battery metals will enable the world to fully step into the 21st century of energy creation, storage, and transmission. It is difficult to overstate the rewiring of the global energy grid, from an investment standpoint. Over the next decade, there will be a massive transformation in the sources of energy, how that energy is harnessed, and where it will be available.
At the most recent Tesla shareholders meeting, Tesla CEO Elon Musk stated that Tesla “might get into the mining business” in order to ensure that the world’s largest EV producer will have the key battery metals that it will need to meet EV demands over the coming decades. This is a big statement from Musk because it emphasizes that EV manufacturers are aware that battery metal supply is not guaranteed, especially in the face of surging demand.
Which battery metals are needed most? And what sort of demand growth will the EV revolution help catalyze?
The main battery metals are copper, cobalt, graphite, lithium, and nickel. With cobalt, nickel, and copper offering the most compelling outlooks from a future price appreciation standpoint, this is due to the fact that supply of these three metals is much harder to “turn on” compared to lithium and graphite. Nickel, in particular, offers the prospect of strong growth in all future EV adoption scenarios according to Bernstein Research:
Source: Bernstein Research
The sheer scale of the looming demand growth for battery metals is impressive with the demand for battery metals forecast to grow ~1,000% over the next decade:
It’s not hard to see that this is a bull market. The key questions from an investment perspective are: “Which metals should I focus on?” and “How do I position myself to benefit from this battery metals demand surge?”
Nickel is probably the least talked about battery metal (as most investors/analysts focus on lithium, graphite, or cobalt). However, nickel is a critical component of lithium-ion batteries, and the demand for EVs, which require lithium-ion batteries in each vehicle, has been growing at a 30%-40% annual rate.
Second generation lithium-ion batteries have a different chemical makeup than first generation batteries (which relied on lithium iron phosphate (LFP) and lithium manganese oxide (LMO)) -- neither of which used nickel in their chemistries. Second generation lithium-ion batteries also utilize nickel manganese and cobalt (NMC). Tesla has its own lithium-ion battery which utilizes nickel, cobalt, and aluminum (NCA).
NCA and NMC batteries allow EVs to reach larger ranges and between 20% and 50% of the mass of these batteries is nickel. In addition, another way to increase the range of EVs is to install larger batteries. So, not only are the latest EVs built with lithium-ion batteries that contain significant amounts of nickel, but they are also being built with larger batteries. This combination means that nickel demand is increasing and set to grow exponentially over the next decade.
According to Bernstein, “The simple fact is that the EV revolution will not happen at today’s commodity price deck.” What’s even more interesting is that while most battery metals have recently experienced growth in their global reserve base as rising prices and improved mining technology has made it easier to access these metals, known global reserves of nickel actually decline 5.1% between 2017 and 2018:
This decline in global nickel reserves just as the global EV revolution is on the brink of sending nickel demand through the roof could be creating the perfect storm for a large move higher in the price of nickel.
Current battery technology requires roughly 22 kilograms of nickel per electric vehicle, however, by 2030, it is forecasted that 46 kilograms of nickel will be required for each EV:
This constitutes the largest percentage increase, in terms of the average metal required per EV for any battery metal. Not only is the amount of nickel per EV set to more than double in the next decade, but the real growth in nickel demand will come from the explosion in EV demand from ~4 million EVs today to more than 120 million by 2030:
Moreover, in the “EV30@30 Scenario” there would be nearly 240 million EVs on the road by 2030. In the EV30@30 Scenario 30% of all new vehicles sold in 2030 will be EVs - with air quality continuing to deteriorate in China’s largest cities and more than 1 million deaths linked to air pollution, the EV30@30 Scenario has a good chance at becoming reality. If this proves to be the case battery metal demand will go from robust to parabolic.
The demand case for nickel is undoubtedly strong, but what about the supply side?
Nickel is one of the battery metals that is geologically constrained (along with cobalt and copper):
Geologically constrained simply means that nickel requires a higher price for the metal in order to incentivize larger, lower grade bulk tonnage projects to advance into production. At US$5.76 per pound of nickel there is a fairly limited supply of the metal, however, at US$10/lb the supply picture would look significantly different:
What’s perhaps most exciting from a nickel investment standpoint is that the nickel price has been fairly stable at a relatively low level for several years. Nickel has even experienced some softness due to fears pertaining to the US/China trade war and the coronavirus -- resulting in slowdown in China. Meanwhile, global demand is about to rapidly outstrip the global nickel reserve base:
A supply constrained metal that is right on the cusp of a relentless explosion in global demand. In the commodity sector, situations don’t get much better than the one in which nickel finds itself right now.
So how does one invest for a nickel boom?
The largest percentage gains are likely to come via junior nickel exploration/development companies whose projects have relatively low capex, while being able to deliver significant upside leverage to a rising nickel price. Sure, producers like HudBay (TSX:HBM) or Vale (NYSE:VALE) will likely deliver strong returns to shareholders in a rising metals price environment. However, the life changing returns (1000%+) are more likely to come from micro-cap exploration and development companies that simply need better market conditions and a rising nickel price in order to advance their project into production in the coming years.
The company that I alluded to at the beginning of this article is called Canada Nickel (TSX-V:CNC), and its shares just began trading last week. Earlier this week, Canada Nickel released a maiden resource estimate for its flagship Crawford Nickel/Cobalt Project near Timmins,Ontario (a very pro-mining region of Canada).
The maiden resource estimate was an eyebrow raiser. It includes a higher grade core of measured and indicated resource of approximately 263 million tonnes at 0.31% nickel, 0.013% cobalt, and 0.038 g/t Pd + Pt within an overall measured and indicated resource of approximately 600 million tonnes at 0.25% nickel, and 0.013% cobalt, and an additional higher grade inferred resource of approximately 66 million tonnes at 0.29% nickel and 0.013% cobalt within an overall inferred resource of approximately 310 million tonnes at 0.23% nickel and 0.013% cobalt. Simply put, Crawford as it is now ranks as a top 12 nickel sulphide resources globally. With further exploration success Crawford could climb to becoming a top 10 nickel sulphide resource globally.
What this means is that Canada Nickel has a billion tonnes of ore grading ~.25% nickel. Crawford also hosts a nice bonus of cobalt and platinum group metals. While .25% nickel may not seem like a high grade, it’s important to understand the factors that affect mining profitability which include: economies of scale (the size of the project), location (infrastructure including roads, mills, power lines, etc.), permittability, metallurgy (how much of the metal is recoverable?), etc.
Crawford is an ideal location for a mineral deposit in a highly pro-mining region of Canada near Timmins, Ontario, which also boasts excellent infrastructure. Another aspect of Crawford that is special is the fact that only 1.5 kilometers of strike length has been drilled out from a total ~8 kilometer geophysical footprint:
There is also a large geophysical anomaly that runs across the entire structure for nearly 1 kilometer at depth:
Not only is Crawford already massive, but also hosts tremendous exploration potential and potential for significant resource expansion.
As we learned in my interview with Rob Cudney from last month, management is the most critical aspect of investing in any junior mining company. Canada Nickel has top notch management led by CEO Mark Selby who is well known as a nickel expert after leading RNC Nickel and advancing its Dumont Nickel Project for several years. Selby owns ~4% of Canada Nickel personally, and his family in total owns nearly 10%. He has skin in the game and he is committed to generating shareholder value for Canada Nickel shareholders.
Mr.Selby was interviewed recently here and here, and he described the 900 meter intersection at Crawford that was virtually continuously mineralized (only one sample out of hundreds did not contain mineralization):
"We saw this mag anomaly that went down a kilometer and we could see from the first few drill holes that there was some higher grade around that mag high. Again, there's been more than a few mining companies spend a lot of time drilling around one piece before finding out the best part was over there instead. To just make sure that we weren't missing out on the absolute best part of it, we drilled a drill hole right through the heart of it. We didn't find anything that was much higher grade than what we're drilling, but we hit 900 nine hundred meters of 0.31% nickel. There was only one assay in the entire 900 nine hundred meters that was not mineralized. There are no dykes. There are no other sorts of disruptions in the mineralization. The scale of what we have here is really amazing. We basically went another couple hundred meters below where the resource estimate is sitting today."
Another important member of the Canada Nickel team is VP of exploration Steve Balch. Mr. Balch is an Ontario registered geoscientist with 32 years experience in geophysics (specializing in the magnetic and electromagnetic methods), and experience in large exploration compilations. After working at Inco for six years in the Sudbury Basin and at Voisey’s Bay, Balch joined Aeroquest in 2001 and helped develop the AeroTEM system, focusing on the on-time measurements of the linear triangular waveform. In 2007, Mr. Balch founded Triumph Instruments and developed the AirTEM system, a multi-coil helicopter-borne EM system that is now in use in Mexico, China, Canada, and Eastern Europe. He has also been active in borehole geophysics and has worked to develop new technology including north-seeking gyros, temperature compensated induction conductivity probes, UAV-based magnetometers, and high sensitivity magnetic gradiometers.
Canada Nickel is currently extremely busy with ongoing drilling and metallurgy and investors can expect a resource update in July, followed by a maiden PEA in Q4 2020. With exploration success and a new bull market in nickel, Canada Nickel could become a ten-bagger from current levels (C$.53 per share with ~57 million shares outstanding). It’s also important to note that Canada Nickel currently has an extremely tight free trading float of only ~10 million shares right now (until the end of June), and another 20 million shares are escrowed for a period of three years and steadily released from escrow over this three year period.
I have been bidding for Canada Nickel shares on the open market this week, but have yet to get a fill. I may have to raise my bid over the coming days - I view Canada Nickel shares as being attractively valued below C$.75. Once markets stabilize and economic growth returns to normal the coming nickel bull market could ignite nickel juniors with the largest deposits in the best jurisdictions (in my estimation Canada Nickel would be near the top at that list).
Disclosure: Author has been compensated for marketing services by Canada Nickel Resources Ltd. and the author also intends to purchase CNC.V shares on the open market over the coming days.
DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.