Electric Vehicles

  • Coronavirus highlights critical need for diversity in the battery metals supply chain

    The problems inherent in a battery metals supply chain supremely concentrated on China have been spotlighted by coronavirus, but the problems have been in play for years. 

    The bottleneck was there for all to see long before the spread of Covid-19 shuttered factories across China. 

    According to a Wednesday report by the Associated Press “the problem is supply chains. China’s are famously nimble and resourceful, but they lack raw materials and workers after the most intensive anti-disease measures ever imposed closed factories [and] cut off most access to cities with more than 60 million people.”

    While companies have begun to re-open, there are ongoing higher costs and significant delays. A mid-February survey by The American Chamber of Commerce in Shanghai found that 78% of businesses in Shanghai, Suzhou, Nanjing and the wider Yangtze River Delta did not have enough staff to run full production lines. 

    Nearly half said their global operations had already been affected by the shutdown and 58% said their output would be lower than normal until at least the second half of 2020.

    Away from China

    Manufacturers are looking for new suppliers but few can compete on price and almost none can match China’s levels of service.

    These problems have been evident since President Donald Trump ignited the ongoing US-China trade war by imposing tariffs on imports from the trading giant. 

    And shifting production away from the Chinese state and into perceived cheaper South East Asian alternatives comes with its own set of problems. 

    A Wall Street Journal report written in the wake of the early stages of the trade dispute noted: “This should be Vietnam’s chance to shine. Instead it is becoming increasingly clear that it will be years, if ever, before this nation and other aspiring manufacturing destinations are ready to replace China as the world’s factory floor.

    The problem is even more acute for producers and users of battery metals. 

    Mitchell Smith, chief executive and president of cobalt development company Global Energy Metals (TSX-V:GEMC) told MiningMaven: “Coronavirus is having a large disruptive effect on the overall commodity marketplace as we are already witnessing large builds in stockpiles of minerals given the inability to transport and handle material at Chinese ports. The same can be said about exports of refined product.”

    Gigafactory

    Battery metals are key to the growth of the renewables industry: lithium-ion batteries form the basis for powering electric vehicles, for example.

    And while the explosion in the number of electric vehicles is set to drive the renewables revolution, the fact is that supply chains are simply not ready to produce the number of batteries that this wholesale change will require. 

    Elon Musk’s Tesla is ahead of the curve. Its $4.5 billion Gigafactory 1 in Nevada opened in 2016. Musk said at least 100 of these gigantic electric vehicle assembly lines would be needed to power the future growth of the industry.

    And yet Tesla has started building its latest Gigafactory not in the United States, but in China. Tesla has struggled to recruit enough engineers in America to run operations, an issue it believes — or believed, until coronavirus broke out — could be solved by China’s army of specialists. 

    Europe’s first Tesla-inspired battery megafactory belongs to Sweden’s Northvolt. That company received a €350 million loan from the European Investment Bank in May 2019 to get the project started. But this is one of only a handful being built outside China. 

    In 2017, there were 17 lithium-ion battery mega-factories under construction globally. Today, 46 of the 70 in construction are in China.

    Another problem

    There is vast and increasing demand for refined cobalt in the manufacturing of lithium-ion batteries. But few have tracked the scarcity of these in-demand resources. According to a MassifCapital report on risks in the supply chain: “If every battery manufacturing facility under construction today is built and operates at 100% capacity, then the next ten years will see an 8x increase in demand for lithium, a 7x increase in graphite anodes, a 19x increase in nickel and a 4x increase in cobalt.

    China’s domestic and foreign influence on the global cobalt supply chain also remains substantial. This dependence has already caused significant problems and industry experts expect the trend to continue. 

    Mitchell Smith put it like this: “Prolonged economic disruption due to the coronavirus epidemic should make end-users in the automotive and electronics industries reflect on the over-reliance upon one country.” 

    As a whole the industry desperately needs to consider diversification of supply and refinement of the materials critical for the new renewable world we will all be living in, Smith added.

    Author: Mark Sheridan

    The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

    MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.

    MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.

    MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance.

     

  • Global Energy Metals highlights electrification of vehicles as a ‘once in a generation investment opportunity’

    Canadian cobalt developer Global Energy Metals (TSX.V:GEMC) issued a corporate update on Wednesday that saw it highlight the rise of electric vehicles (EVs) as ‘a once in a generation investment opportunity’.

    The business, which has built a portfolio of cobalt projects in stable jurisdictions, said the transportation and energy storage industries are set to undergo a ‘profound transformation’ over the coming decades. An ongoing shift from fossil-fuelled to electric-powered vehicles is being accelerated by considerable amounts of investment from businesses and consumers alike. According to Global Energy, cobalt is critical to the continuation of this trend, with demand expected to increase substantially due to its heavy use in lithium-ion batteries.

    However, the firm does not believe that supply will be able to keep up with this demand. This is because much of the world’s cobalt is sourced from the DRC- a nation known for its conflict, artisanal mining, and human rights violations. Likewise, cobalt is often mined as a byproduct, meaning supply is very much tied to conditions in the market for other metals such as nickel and copper.

    As such, Global Energy’s president and CEO Mitchell Smith said the raw materials and companies powering the shift towards the electrification of vehicles present ‘a once in a generation investment opportunity’, adding:

    ‘Lithium-ion batteries are at the heart of the current and future energy transition. Batteries that are powered by cobalt are critical to the future of the eMobility revolution. To get exposure to the battery and energy storage opportunity, maybe the biggest investment growth opportunity there is at the moment, one needs to look at the companies securing the metals critical to the space. Global Energy offers that exposure at a basement level entry cost.’

    Global Energy also provided a recap of its operations over the last six months. The period notably saw the firm take 100pc ownership of its flagship Millennium cobalt project in the Mount Isa region of Queensland, Australia. As part of the deal, the firm also took on two exploration assets called Mt. Dorothy and Cobalt Ridge, increasing its land position in Queensland considerably.

    Following the deal, which was completed with ASX-listed business Hammer Metals, Global Energy filed a technical report for Millennium highlights its upside opportunity and resource expansion potential. It also formed a partnership with industry peer Cobalt Blue Holdings to investigate the site’s cobalt, copper, and gold recovery potential in full. The results of this work are pending.

    Elsewhere, Global Energy has also taken significant steps forward at its Nevada-based cobalt, nickel, and copper properties Lovelock and Treasure Box. In early summer, the firm began an exploration program including airborne surveying, digital modelling, underground sampling and mapping, and fieldwork at the assets – which are located near Tesla’s Gigafactory.

    It also acquired the right to use technology owned by TSX-listed Canada Cobalt Works called RE-20X at the properties. This skips the normal smelting process to provide high recovery rates for cobalt, nickel, and copper to ultimately create battery-grade cobalt sulphate.

    Finally, the six-month period saw Global Energy attend several key industry events around the world in a bid to spread its message. These included the 2019 China Mining Summit and CRU Ryan’s Ferroalloys Conference.

    Author: Daniel Flynn

    The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

    MiningMaven Ltd, does not own a position in the stock(s) and/or financial instrument(s) mentioned in the piece.

    MiningMaven Ltd, has been paid for the production of this piece by the company or companies mentioned above.

    MiningMaven Ltd is not responsible for its content or accuracy and does not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance

  • Horizonte Minerals to push forward at Araguaia after completing $25m Orion royalty deal (HZM)

    Horizonte Minerals (LSE:HZM) sat at 4p on Monday morning after confirming the drawdown of $25m worth of funding towards its Araguaia ferronickel project in the Para state of Brazil.

    As announced in August, Orion Mine Finance has provided an upfront $25m cash payment to Horizonte in exchange for a 2.25pc royalty on Araguaia. This royalty applies only to the first 426,429ts of contained nickel within the ferronickel produced and sold at the asset. This volume is equivalent to the nickel production estimated over Araguaia’s life of mine as per its stage one feasibility study (FS).

    Orion is a significant player in the mining financing space, deploying around $1.5bn in royalties, streams, debt, and equity over the past three years alone. The non-dilutive funding it has provided to Horizonte will support the business in advancing pre-construction work streams at Araguaia.

    Araguaia is a Tier 1 mining project with a high-grade scalable resource, located south of the Carajás Mining District in the Pará State of north-east Brazil.  The area boasts plenty of well -developed infrastructure such as roads, rail and hydroelectric power.

    Horizonte’s stage one FS for the asset centres around an open-pit nickel laterite mining operation that delivers ore from several pits to a central processing facility. Here, a single line rotary kiln electric furnace (RKEF) extracts ferronickel, used in the stainless-steel industry, from Araguaia’s ore. After an initial ramp-up period, the project will reach full capacity of c.900,000ts of dry ore feed per year to produce 52,000ts of ferronickel containing 14,500ts of nickel annually. Over an initial 28-year mine life, the FS design generates free cash flows after taxation of $1.6bn returning an IRR of more 20pc against on an initial capital cost of $443m.

    On top of this, Araguaia has been designed to allow for a second RKEF process plant, funding through operational cash flow. This stage two expansion would double Araguaia’s ferronickel output, providing for a 26-year mine life generating cash flows after taxation of $2.6bn with an estimated NPV of $741m and an IRR of 23.8pc. All of these figures were reached using a conservative base case nickel price forecast of $14,000/t, well below the $16,462/t at which the metal presently sits.

    Monday’s news comes just days after Horizonte announced that a pre-feasibility study (PFS) confirmed its Vermelho project as a ‘large, high-grade resource, with a long mine life and low-cost source of nickel sulphate for the battery industry’.

    The work estimated that the property, also based in Para, would have a 38-year mine life generating total cash flows after tax of $7.3bn. Elsewhere, the PFS gave Vermelho – which produces nickel suitable for use in electric vehicle batteries- an IRR of 26pc and an estimated base case post-tax NPV of $1.7bn against an initial capital cost estimate of $642m. Finally, the work put Vermelho’s estimated annual production at 25,000ts of nickel and 1,250ts of cobalt when operating at full capacity. This translates into a cash cost of $8,020/t of nickel, defining the project as a low-cost producer.

    Author: Daniel Flynn

    The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

    MiningMaven Ltd, does not own a position in the stock(s) and/or financial instrument(s) mentioned in the piece.

    MiningMaven Ltd, has been paid for the production of this piece by the company or companies mentioned above.

    MiningMaven Ltd is not responsible for its content or accuracy and does not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance

  • Horizonte Minerals well positioned to see out coronavirus as Araguaia work continues (HZM)

    Junior nickel player Horizonte Minerals(LSE:HZM) reassured investors that coronavirus is yet to have a significant impact on its operations on Tuesday.

    The firm said it remains well funded to achieve its goals and see out the spread of COVID-19 – which was declared a pandemic by the World Health Organization earlier this month. To date, nearly 200,000 cases of the virus have been reported globally, claiming 7,500 lives and causing markets around the world to crash at levels not seen since the financial crisis.

    As the world aggressively tackles the ongoing outbreak, we acknowledge there is growing uncertainty around economic growth and underlying business conditions,” said Horizonte. “While it would be inconsiderate to describe the situation as ‘business as usual’, we continue to work on the various workstreams required to achieve our stated goals.”

    Among Horizonte’s goals is the development of its flagship Araguaia project to the construction-ready phase.

    Araguaia is a tier-one ferronickel mining project located south of the Carajas mining district in north-east Brazil’s Para state. A stage two expansion case devised in a 2018 feasibility study gives the property a 26-year mine life, generating cash flows after tax of $2.6 billion with a $741 million net present value and a 23.8% internal rate of return.

    These figures are based on a nickel price of $14,000 a tonne - well below the $18,000 a tonne the metal was trading at in October before its collapse in the face of falling stainless steel demand and coronavirus’ spread. Despite the short-term weakness, Horizonte believes that nickel market fundamentals remain “robust” for the medium-term and aligned with the planned start of Araguaia’s production.

    The firm also hopes to progress discussions around financing Araguaia’s ultimate construction into a mine. It got the ball rolling here last August when it revealed a $25 million royalty funding agreement for the property with Orion Mine Finance – one of the world’s most prominent mining investors.

    Alongside Araguaia, Horizonte is also developing the Vermelho nickel-cobalt project in Brazil, which it plans to use to supply nickel and cobalt to the EV battery market. A pre-feasibility study released in October last year confirmed the asset as a “large, high-grade resource with a long mine life and low-cost source of nickel sulphate for the battery industry”. Specifically, the work gave the project a 38-year mine life estimated to generate total cash flows after tax of $7.3 billion.

    Elsewhere in Tuesday’s release, Horizonte its team on the ground in Brazil were well prepared to continue work safely.

    “We have implemented strict health and safety policies specifically tailored to COVID-19,” said the firm. “To date, we have had no reported cases of the virus at any of our Brazil offices nor in London.”

    Author: Daniel Flynn

    The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

    MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.

    MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.

    MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance

  • REPORT: Horizonte Minerals- Accelerating plans to bring the Araguaia ferronickel project into production (HZM)

    Against a backdrop of surging nickel prices (up over 50% year-to-date), Horizonte Minerals (LSE:HZM) has made great progress at its wholly-owned Araguaia nickel project in Brazil over the course of 2019.

    Araguaia is a tier one mining asset with a high-grade, scalable resource that Horizonte plans to develop as Brazil’s next major source of production for ferronickel – an alloy that contains c.30pc nickel and c.70pc iron.

    With first production scheduled for 2022, MiningMaven has taken a deep dive into Araguaia, its background, and Horizonte’s two stage expansion plans as well as looking at why the project’s economics are so appealing.

    Please click here to read our report in full.

     

     

     

  • The major cobalt investment opportunity arising from the electric vehicle boom (GEMC)

    The global shift away from internal combustion engine-powered cars and towards electric vehicles (“EVs”) continues to accelerate at a record pace. With growing demand for the metals involved in the production of EV batteries being complemented in many cases by supply-side disruption, a major investment opportunity has arisen.

    According to the International Energy Agency (“IEA”), electric car usage has been soaring over the last decade, with global stock passing five million in 2018 – a 63% increase on the previous year. However, this annual growth rate looks set to accelerate further moving forward. The same organisation expects the number of EVs on the road to hit 125 million by 2030, while JP Morgan believes that EVs and hybrid electric vehicles will account for 30% of all vehicle sales by 2025.

    The reasons for this accelerating uptake are varied, encompassing improving technology, increasing environmental consciousness, and – critically – growing government support. Leaders around the world are setting ambitious targets and granting generous incentives to encourage the complete phase-out of traditional vehicles in favour of plug-in EVs in their respective nations. For example, the UK government’s current policy is to insist that, by 2040, all new cars and vans sold in the UK should be zero-emissions capable. Meanwhile, China aims to have five million EVs on the road by the end of 2020, increasing to over 80 million by 2030.

    However, when it comes to meeting these ambitious targets, getting the public on board is just one half of the battle. The other half is ensuring that the capacity exists to meet the demand for EVs and their related charging infrastructure – a burden shared by governments and automobile manufacturers alike.

    The wheels are already in motion here. Earlier this month, Canada and the US announced that they had finalised the Canada-US Joint Action Plan on Critical Minerals Collaboration. This aims to reduce both nations’ dependency on outside sources when it comes to sourcing “critical minerals” – many of which are required to build EV batteries – by securing supply chains. As well as the EV sector, this covers areas like manufacturing, communications, aerospace, and defence. Likewise, the US and China recently inked an initial trade deal that will boost America’s production of rare earth metals – critical to EV production because of their powerful magnetic properties.

    Waking up to change

    Key EV nations have woken up to the need to secure domestic energy metal supply, and these growing efforts throw yet more weight behind forecasts of a real explosion in uptake. The metals used in the production of these vehicles – particularly their batteries - are a clear beneficiary of this milestone. One of the most interesting is cobalt, a critical raw material for electric transport used in most common types of lithium-ion batteries.

    Alongside an anticipated surge in demand like many of its battery metal peers, cobalt is experiencing severe supply-side disruption. This comes almost entirely down to the fact that nearly two-thirds of the metal comes from the Democratic Republic of the Congo (“DRC").

    The cobalt industry in the DRC is well known for its vast artisanal mining contingent. Artisanal mining may be a vital source of income for many, but it also throws up many issues such as safety, child labour, and human rights abuses. These problems faced unprecedented levels of exposure last July when dozens of illegal miners were killed at Glencore’s Mutanda copper/cobalt mine after a wall collapsed. The firm subsequently shut the mine, effectively removing 20% of the world’s cobalt supply from the market. In the wake of this, several companies – including BMW and Apple – announced that they would stop buying cobalt from the DRC or at the very least insist on tighter regulations over working conditions.

    Meanwhile, some areas of the EV market are even looking at ways to cut the amount of cobalt used in the batteries powering their vehicles. Tesla boss Elon Musk has pledged to remove the mineral from the next generation of his company’s cars and has already reduced the amount used in Tesla batteries from 11 kilograms per vehicle to 4.5 kilograms. Likewise, global tech companies like South Korea’s SK Innovation and LG Chem and the UK’s Johnson Matthew are researching ways of making cobalt-free batteries.

    However, the reality is that removing cobalt from lithium-ion batteries is more easily said than done. Benchmark Minerals’ forecasts suggest that global demand for cobalt in 2029 will be 300,000 tonnes compared with an estimated 70,000 tonnes in 2019. Meanwhile, Tesla is thought to be inking a long-term contract with Glencore to ship cobalt to its new EV factor in Shanghai – suggesting the metal will remain key to the company’s expansion over the next few years at least.

    So, while the movement away from cobalt may one day occur, for the time being, it appears to remain merely an idea than a reality. This poses an interesting dynamic for the metal in which its usage hasto grow alongside accelerating EV adoption at the same time as industry participants are eschewing its key supplying nation. A clear beneficiary, therefore, appears to be companies with cobalt projects in the remaining 40% of supplying countries that are presumably giving rise to fewer ethical and jurisdictional issues than the DRC.

    One such example is Global Energy Metals (TSX-V:GEMC), a pure-play cobalt business building a portfolio of projects in stable jurisdictions such as Queensland in Australia, Nevada in the US, and Ontario in Canada. Chief executive Mitchell Smith explains that the company has positioned itself ahead of the curve when it comes to the global trend of moving away from areas such as the DRC to source increasing amounts of cobalt.

    As the global energy landscape evolves it is becoming much more mineral and metal intensive. Increasing the global production of batteries to electrify vehicles and power electronic devices will demand enormous quantities of critical minerals like cobalt. But the development of new mines, especially those in jurisdictionally safe mining districts in close proximity to refining capacity and end-use markets is not keeping pace,” he says.

    “This paves the way for Global Energy Metals to continue to grow its strategies on a number of verticals and be integrated into the battery economy through collaboration with fellow industry peers with the direction of building a stable supply chain and mineral independence.”

    Author: Daniel Flynn

    The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

    MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.

    MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.

    MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance

     

  • US senator lays out plans to boost domestic battery metal miners with streamlined regulation

    Battery metal miners with US-based projects received a welcome boost last week after plans to streamline domestic regulation and permitting requirements in the sector were unveiled at a major industry conference. Speaking at a Washington-based event on Thursday hosted by Benchmark Minerals Intelligence, US Senator Lisa Murkowski said she plans to introduce the Minerals Security act alongside fellow senator Joe Manchin.

    Murkowski, who chairs the US Senate’s Energy and Natural Resources Committee, told Reuters the act would support the development of lithium, graphite and other electric-vehicle supply chain minerals mines in the US. The directive will form part of growing efforts to curb China’s increasing dominance in the electric vehicle (EV) space.

    Although electric-focused automakers and battery manufacturers like Tesla and Volkswagen wish to expand in the US, they are currently reliant on mineral imports rather than domestic mines and processing facilities. The chief source of this supply is China, which produces nearly two-thirds of the world’s lithium-ion batteries. The US, meanwhile, manufactures just 5pc.

    Our challenge is still a failure to understand the vulnerability we are in as a nation when it comes to reliance on others for our minerals,’ Murkowski said. She added that China’s lead in the EV space – which is expected to soar over the coming decades – also gives it an edge in its ongoing trade disputes with the US.

    The US is not the only country worried about China’s dominance over the growing EV supply market, either. Indeed, France and Germany both asked the European Commission to support a €1.7bn battery cell consortium earlier this week. Also in attendance at Thursday's event was Tesla, which highlighted its concerns around a global shortage of nickel, copper, and other EV battery minerals in the future due to underinvestment.

    The combination of concerns over global supply and increasing efforts to boost the US battery metals sector is encouraging for those firms already operating projects in the sector. For example, Tim McKenna of Piedmont Lithium - which is developing a lithium project in North Carolina – said at Thursday’s event: ‘We need to focus the United States on the fact that China is way ahead of us in the electric vehicle race.’

    A potential beneficiary that we have previously covered on Mining Maven is Global Energy Metals (TSX-V:GEMC). Last month, the Canadian developer- which is planning to co-list in London- revealed that it had made a payment allowing it to begin exploration work at the two US cobalt projects it is buying in Sparks, Nevada. The properties are called Lovelock and Treasure Box and are located in Churchill County, around 150km east of Tesla’s major battery factory in Sparks.

    Lovelock covers around 1,400 acres and is said to have produced 500ts of cobalt and nickel mineralisation between 1883 and 1890 when it was last in operation. Global Energy believes exploration work and modern drilling techniques could unlock a large amount of potential value at the site. Treasure Box, meanwhile, is adjacent to Lovelock and hosts mine workings from limited copper production, which occurred until early into the 20th century. A historical diamond drill hole at the asset reportedly intersected 1.52pc copper over 85ft, with mineralisation beginning at the surface.

    Global Energy has agreed to buy an 85pc-interest in the projects from Nevada Sunrise, making its first option payment in March. In April, it raised $813,500 in an oversubscribed private placing intended to support its work programme in Nevada.

    Speaking to Mining Maven in February, Global Energy’s chief executive Mitchell Smith said the acquisition had given the business a low-cost entry to an exciting jurisdiction close to the world’s largest battery factory:

    Author: Daniel Flynn

    The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

    Catalyst Information Services Ltd, the owner of MiningMaven.com, owns a position in the stock(s) and/or financial instrument(s) mentioned in the piece.

    Catalyst Information Services Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.

    MiningMaven.com and Catalyst Information Services Ltd are not responsible for its content or accuracy and do not share the views of the author.  News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance

  • Who will be the big winners from a nickel price boom? (HZM, POW, RGM)

    2019 was an exciting period for the nickel market, with increasing demand and supply disruption helping to drive the metal’s price higher at a time when other commodities trod water. Having started the year at $10,600/t (“per tonne”) on the London Metals Exchange (“LME”), the metal hit a high of $18,000/t in September and became one of the year’s strongest performing metals.

    The price of nickel subsequently dropped, hitting a low of $13,000/t in December. However, this pullback could have created an opportunity, and investors are now eagerly anticipating what might come in 2020 for the base metal.

    With many of the forces that propelled last year’s nickel rally still in place, we have taken a look at several of the London-listed firms that will benefit if the metal soars.

    Strong supply/demand dynamics

    On the demand side, stainless steel – which accounts for most of nickel’s global usage – experienced a surge during 2019.

    Meanwhile, the level of nickel required for electric vehicles (“EVs”) continued to grow, with more units being sold at the same time as critical developments in battery technology increased dependency on the base metal. According to the Nickel Institute, two of the most commonly used types of EV batteries, Nickel Cobalt Aluminium and Nickel Manganese Cobalt (“NMC”), are now made up of 80% and 33% nickel respectively. Meanwhile, newer formulations of NMC batteries are also approaching 80% nickel content, the body says.

    Elsewhere, nickel prices were bolstered by fears on the supply side. Indonesia, the world’s largest nickel producer, confirmed plans to bring forward a ban on the export of raw nickel ores from 2022 to January 2020. With Chinese producers stocking up on nickel inventories in anticipation of the ban, LME nickel warehouse stock levels have reportedly dropped by almost 50%. In October, Reuters reported that stocks had even fallen to 79,800 tonnes, their lowest value since January 2009.

    A secure setting for 2020

    Nickel currently sits at around $13,800/t, approximately 30% higher than it was a year ago in spite of the recent decline. This suggests that the bull market is still intact, with fundamental growth expected across core markets as supply concerns continue.

    From a demand perspective, the use of nickel in the stainless-steel sector is expected to continue to rise at a steady rate.

    But the real game-changer for the metal this year could be in EV space. According to Kitco, batteries (including those used to power laptops, phones, etc.) currently account for 5% of the global nickel market. However, with a record four million EV units slated for global sale over the next 12 months, this share could rise to 8% in 2020.

    With EV use set to grow by 30-40% annually for some years, the nickel market is likely to witness enduring change. Global demand is expected to rise from two million tonnes per annum, where it currently sits, to six million tonnes per annum by 2035. Batteries are expected to account for almost half of this demand growth.

    Meanwhile, nickel’s bleak supply outlook is also set to linger. Wood Mackenzie has estimated that Indonesia’s export ban will directly result in the loss of 190,000 metric tons of nickel globally by next year. Meanwhile, very few large-scale nickel projects have been developed in recent years. With the process of moving greenfield nickel assets from exploration through to production taking many years, many analysts believe that LME stocks will continue to fall as demand grows. This is expected to result in an annual average deficit of 60 kilotonnes of the metal through to 2027.

    Add the Federal Reserve’s dovish rate stance into the mix, and the combination of dwindling supply and rising demand could create an ideal setting for nickel explorers and producers globally.

    For example, Fastmarkets analysts forecast an average LME nickel cash price of $16,375/t in 2020- a considerable leap on the metal’s current position. Meanwhile, Wood Mackenzie expects nickel prices to continue breaking out beyond the current 12-month period, reaching $25,000/t by 2025 and $28,000/t by 2027.

    Who will be the big nickel winners?

    Several firms listed on London’s junior market are well primed to benefit from an increase in nickel prices throughout 2020.

    Horizonte Minerals (LSE:HZM) is one of the most likely candidates. The company wholly-owns the advanced Araguaia ferronickel project and the earlier-stage Vermelho nickel-cobalt asset to the south of the major Carajás mining district in Brazil.

    Horizonte has grown the resources of its assets by more than 800% in just seven years. It now plans to turn Araguaia into Brazil’s next major tier-one producing ferronickel mine by 2022.

    The firm recently entered a $25 million royalty agreement with Orion Mine Finance, providing the initial capital required to begin an early works programme at Araguaia and advance the project towards construction. At a nickel price of $14,000/t, the project has an estimated net present value (“NPV) of $741 million and an internal rate of return (“IRR”) of 23.8% (provided stage two expansion is completed).

    Applying recent nickel price highs of $16,000/t only serves to improve Araguaia’s economics. Under these conditions, the asset’s NPV rises to $1 billion while its IRR hits 30%. This would see the project generate free cash flow of $3.5bn. For perspective, Horizonte’s market cap currently sits at £51.8 million.

    Another London-based stock that could benefit from surging nickel prices is Power Metal Resources (LSE:POW). This company recently confirmed that it would earn-in to a 40% interest in the Molopo Farms Complex (“MFC”) nickel-copper-PGM (“platinum group metals”) project in Botswana, giving it an effective project interest of 50.96%.

    Following an airborne survey and follow-up groundwork in 2019, five targets have been selected at the MFC project as a focus for an initial drilling programme. Power Metal describes these targets as highly conductive bodies that “could potentially be host to massive nickel sulphides” due to their location, geology, and associated magnetic responses.

    Finally, a third London-listed firm operating in the nickel space is Regency Mines (LSE:RGM). Following a significant management shakeup last year in the wake of a challenging period, the organisation plans to push forward at its flagship, 50%-owned Mambare nickel-cobalt project in Papua New Guinea. Mambare covers 256 square kilometres and contains a compliant resource of 162.5 million tonnes at 0.94% nickel and 0.09% cobalt.

    A valuable investment opportunity

    The macro trade winds for the price of nickel look highly favourable. Given that Indonesia’s export ban will come into force imminently, supply is inevitably going to tighten this year. Meanwhile, the Federal Reserve’s hesitancy around raising interest rates any further this year is likely to cause further dollar weakness- a generally bullish force for commodities.

    In parallel, 2020 is also expected to welcome in a great deal of EV market growth, putting further upward pressure on nickel prices. Following the nickel sell-off in the last quarter of last year, this could open up a valuable investment opportunity – especially given that stocks operating in the nickel market generally fell alongside the base metal. If the bullish outlook for nickel materialises into another price rally, it stands to reason stocks with nickel exposure will follow suit.

    Given the stage of Araguaia’s development and the potential for news flow from Vermelho, Horizonte Minerals offers low risk and potentially sizeable returns at 3.1p (as at 21 January 2020). Power Metal, on the other hand, is a racier option. However, after raising £700,000 in December, the organisation has the funding in place to deliver exploration progress.

    If looking to take a punt on nickel having another bumper year, these two stocks could present significant upside to your portfolio.

    Author: Daniel Flynn

     

    The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

    MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.

    MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.

    MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance