One of Australia’s largest high-grade nickel producers says there has been a significant increase in inbound off-take enquiries for nickel sulphide concentrate post current contract periods – a trend primarily linked to the accelerating electric vehicle (EV) battery sector.
Addressing the second day today of the Paydirt 2019 Battery Minerals Conference in Perth, Western Areas managing director Dan Lougher said some of the new inquiry was driven in part by the Company’s 2nd largest offtake partner, China’s largest stainless steel producer.
“Their current offtake contract expires in January next year but they have a strong growth plan which will require significant additional nickel units – reinforcing an emerging industry-wide trend,” Mr Lougher said.
“Players looking to lock in new long-term contracts will be doing so at a time technological changes in the battery space are favouring the new NCM 811 classification (Nickel, Cobalt, Manganese), which research indicates will be the fastest growing battery combination by 2025.
“These battery cells offer better energy density, allowing fewer and/or lower weight batteries in cars – but they will require even more nickel.
“So we can expect the sector to see a demand creep at a time the current nickel price is too low to incentivise new project development.
“New mine development can take up to three years but as the nickel ‘production pie’ is not expanding, nickel supply markets are likely to diverge and split between stainless steel and EV demand.”
Mr Lougher noted that London Metal Exchange (LME) and other nickel stockpiles were already shrinking on the back of current stainless demand for nickel and which continues to dominate nickel use – currently consuming 72 per cent of world nickel production with that figure set to rise.
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“In addition, nickel supply pressure is being exacerbated by non-ferrous alloys which command 10 per cent of total global markets but are booming due to strong growth in aerospace industries and a recovery in oil and gas investment internationally,” he said.
“But the supply and price crunch is coming as nickel use in batteries – currently accounting for only 4 per cent of total global nickel consumption – has been growing by 30-40 per cent a year, albeit from a low base, due to growing nickel use in lithium ion batteries for the EV industries.
“However, the chemistry for lithium-ion batteries favours nickel sulphide styles but very little of the known nickel sulphide ore bodies worldwide are left to be developed.
“This lack of these ore bodies was already an issue for the nickel industry so if EVs are to become a reality in day-to-day motoring, then higher nickel prices will be required.
“The new demand nickel units will have to be sourced increasingly from nickel laterites which are victim to higher processing costs.
“Laterites are also serial disappointments, with major cost explosions in excess of 150 per cent increases on every new project in this category.”
The Western Areas executive noted that EV plus hybrid vehicle versions are expected to account for 5-6 per cent of total car sales worldwide by 2022, led by China and its highly subsidised EV automotive sector.
“This customer trend change will potentially underpin very significant incremental nickel demand in a current global nickel market of around 2.2 million tonnes of concentrate per annum,” he said.
“But two successive and sizeable nickel market deficits over 2018 and 2019, combined with expectations for continued deficits through the first half of the 2020’s, point to unavoidable higher nickel prices.”
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Any price lift in the immediate years will favour Western Areas as the price spike will coincide with current work by the company on constructing initial infrastructure for its new A$300 million Odysseus sulphide nickel mine within the Company’s broader Cosmos project area, north of Leinster in Western Australia.
Odysseus will be a long life (>10 years) low cost mine boasting a current ore Reserve of 8.1Mt @ 2.0 per cent for 164,000t nickel concentrate produced at an estimated all in sustaining cost of A$3.50/lb.
The mine has significant upside from two major nearby deposits not contained in the DFS and final investment decision criteria for Odysseus.