December 2021
The recent history of nickel has had a distinctly Indonesian focus. This is hardly surprising given the spate of developments seen in the country. While initially the focus was predominately on shipping raw ore to China, investment and development activity shifting the focus to domestic downstream processing has been in overdrive since the Indonesian government brought forward a raw ore export ban to the start of 2020.

From almost out of nowhere, it will see the country overtake China as the largest finished nickel producer in the world.

With the increasing interest in nickel as an input into electric vehicle (EV) batteries due to global ambitions to reach net-zero carbon emissions and the emerging Green Economy, new sources of the metal are in hot demand. With such virtuous aims, consumer expectations are extending to ‘responsibly sourced’ materials to help them save the world.

As Indonesia looks to move from supplying the stainless industry to the battery material sector, Environmental, Social and Governance (ESG) considerations—particularly around the fact that energy-intensive nickel processing is facilitated in Indonesia by coal-fired power plants, as well as around Indonesia’s environmental standards and labour laws—will increasingly raise their head. While China may be less fussed, Western consumers are expected to be increasingly discerning about where their raw materials come from.

The dominance of China-backed investments—as some consumers look for sources outside China’s value chain—and the increasing ESG concerns regarding Indonesian material have seen consumers having to look at what else is available. While there have been some Indonesian developments by proponents from outside China—notably by Vale, BASF and Eramet—ESG concerns may still see consumers looking to other regions altogether.

Historically significant producers of mined nickel include the Philippines, New Caledonia, Australia, Russia and Canada. It is expected that these will remain the predominate alternative source countries going forward.

All these alternate regions have relatively large, long-life production assets. In addition, rising demand has seen significant growth in exploration activity, particularly in Australia and Canada, largely targeting new sulphide deposits—as opposed to Indonesia’s lateritic resources—which are considered more suitable for producing ‘green’ nickel for the sustainability-focused battery sector.

The only way new projects outside Indonesia will start accounting for significant new production volumes will be if there is a concerted effort by consumers to source virtuous nickel—in other words, if ESG concerns outweigh the abundant availability from Indonesia.

Buildout of processing capacity will see Indonesia surpass China as the world’s largest producer of finished nickel. To date, this buildout has largely been on the back of Chinese investment in feedstocks for the stainless-steel sector, though production of materials for the battery sector is starting to increase and take a larger share.

New developments by Tsingshan to produce battery materials from its abundant ferronickel capacity have, however, only further added to ESG concerns about Indonesian supply—and lateritic sources more generally—adding further impetus, particularly for value-chain emission conscious consumers, to start looking elsewhere.

The Pacific Solution

With Indonesian ore exports withdrawn, some expected the Philippines, possibly with some help from New Caledonia, to fill the gap. However, so great and abrupt was the eventual withdrawal of Indonesian seaborne supply that this was always a pipedream. The gap and any supply concerns were largely removed due to a drop in demand through the Covid-19 pandemic and the rapid buildout of capacity targeting the stainless-steel sector in Indonesia.

The Philippines is home to Nickel Asia’s Taganito HPAL operation, which sends its mixed sulphide product to battery producers in Japan, and the country is now the major raw-ore source for China—though operations have been disrupted this year by a wet season.

EV maker Tesla has partnered, as technical advisor, with the consortium—Prony Resources—which bought Vale’s VNC assets in New Caledonia. In October 2021, Tesla also signed a supply contract for an indicative 42kt from the Prony operation.

Any further expansion of supply from this region is expected to be negligible in the medium term.

Down Under

Australia’s nickel industry is centred in Western Australia. There has been noticeable progress in bringing additional nickel production online in the region.

Panoramic Resources continues working towards the restart of its Savannah mine, which will largely feed into the Nickel West value chain. Elsewhere, Mincor Resources is developing its project around the historic producing region of Kambalda.

The Ravensthorpe operations recently opened a new mine, Shoemaker-Levy, to shore up production for an additional 20 years beyond its previously expected 10-year life.

IGO is considering an acquisition of Western Areas—owner-operator of the Forrestania/Cosmos nickel project—to shore up its nickel reserves and help underpin development of its proposed nickel sulphate plant.

A shift towards the battery sector has been seen, with BHP’s Nickel West starting up a nickel sulphate circuit at its Kwinana refinery and announcing plans to expand its Mount Keith production by 40%. EV flash-mob Tesla signed a significant supply deal with BHP’s Nickel West, giving the operations its ‘responsibly sourced’ tick of approval.

There are also a number of exploration projects in the area touting ‘exciting’ nickel intersections. A lot of market attention in Australia is looking at Chalice Mining and its Gonneville project in Western Australia. Although it was initially sold as a palladium prospect, the project’s marketing has shifted to how its contained resources contribute to the Green Economy. While it has potential, with a significant, largely un-drilled EM anomaly, any production is a long way off. Its equity could be generously described as currently being fully valued.

Oh Canada

Canada is currently the sixth-largest producer of mined nickel supply and fourth-largest producer of finished nickel. With a major existing production hub around Sudbury, Ontario province has seen a spate of exploration and development activity as interest in nickel has been rekindled. The region is home to major operations owned by both Glencore and Vale.

While it has faced some labour issues at Sudbury, Vale recently commissioned a new underground nickel mine at its Voisey’s bay operations.

Containing the necessary raw materials and access to abundant hydropower, Canada has the potential to be at the forefront of ‘green nickel’ within the EV battery supply chain. While these value chains will take time to develop, progress is starting to be made.

As in Australia, there are any number of smaller early-stage projects undertaking extensive exploration, looking to firm up nickel resources through both greenfield projects and the restart of historical operations. Along with Australia, Canada has the highest likelihood of bringing on new supply at some stage.

Of particular note is the ongoing bidding war between BHP and Fortescue-backed Wyloo Metals for Noront Resources and its Ring of Fire assets.

Land of the Free

The US has significant ambitions in developing battery capacity for the EV sector. Several major car producers, namely GM and Ford, are already outlining plans to produce EVs domestically in the US and will be looking to source the required materials and batteries. However, in the US miners are not entirely free to do as they please. A number of proposed nickel projects in Minnesota have run into significant roadblocks to development, largely due to environmental concerns and community opposition.

The two largest proposed projects, Antofagasta-backed Twin Metals and PolyMet’s NorthMet, have remained bogged down in the permitting process. In October 2021, the Twin Metals project was dealt a blow, with its lease application rejected and a 20-year ban on mining in the Boundary Water region announced. Antofagasta is planning on appealing these decisions.

Given the struggles Twin Metals and PolyMet are facing to progress, it is likely that the less progressed Rio Tinto-backed Talon Metals project in North Tamarack may face a similar fate. Developments have indicated the US will remain reliant on external sources of nickel to develop a significant battery industry. It is expected to look north to Canada and potentially across the Pacific to Australia, both historically relatively stable trading partners.

The Mother(Russia)lode

Russia is home to the largest nickel/copper/PGM-rich geological structure in the world. Nornickel, with its operations on the Taimyr and Kola Peninsulas, is merely nibbling on the edge. The company processes ore further downstream at its Harjavalta refinery operations in Finland, and an expansion of nickel sulphate capacity at the plant has already been announced—though environmental concerns about the source material in Norilsk are likely to remain despite significant investments announced by the company to attempt a cleanup.

At the End of the Day

Finland and Brazil also have the potential to expand their nickel production. As well as Nornickel’s expansion of the Harjavalta refinery in Finland, Terrafame has started a nickel sulphate production line at its Sotkomo operations. In Brazil, Horizonte Minerals has secured financing for its Araguaia ferronickel project and is also progressing its earlier stage Vermelho project, which is slated to supply the battery sector. On the mining/intermediate front, Sherrit has announced plans to expand operations at Moa Bay in Cuba.

With surging production out of Indonesia—and it’s not slowing down yet—at the end of the day, consumers may either have to pay a potential ‘green premium’ from alternate sources or compromise on possible ESG concerns to secure the material they require.