- Nickel has been one of the roughest commodity markets in 2024, with low prices closing a string of Australian mines
- But experts and miners have critiqued BHP’s call that there’s been a structural shift in the market as they look to emerge as a counter-cyclical play
- Centaurus Metals up 26% after presenting on Wednesday
Nickel believers are hopeful the contrarian play on the beaten-up commodity is emerging after a bruising year signposted by BHP’s (ASX:BHP) decision to close its 80,000tpa Nickel West business at the end of 2024.
BHP’s normally strong presence at the Diggers and Dealers Mining Forum in Kalgoorlie, which wrapped up yesterday, included just a plain, stripped-back booth Stockhead referred to as being on ‘care and maintenance’.
The miner reported a ‘structural shift’ due to oversupply from Indonesia, which has gone from around 3% of the global nickel market in 2015 to over 50% this year with the help of Chinese technology and investment.
But some analysts are sceptical the Australian nickel story is dead, even with all bar two of the country’s half-dozen or so operations shut or announced for mothballing in the past year.
“I think one thing that we’ve seen in the market many times is commodity markets are cyclical,” Barrenjoey analyst Daniel Morgan said.
“Nickel is probably one of the most cyclical commodities there is and I’ve seen in multiple commodities people misdiagnose a cyclical problem as being structural.
“We saw that with thermal coal. People diagnosed that as a structurally troubled commodity. And in reality, so far we’ve had another another cycle out of it.”
Nickel players fight back
The plight of the nickel industry was largely framed by Diggers presenters as an opportunity for the humming gold market, where prices have just hit record highs.
Stung by labour pressure and cost inflation in recent years, miners like Northern Star Resources (ASX:NST), Genesis Minerals (ASX:GMD) and Ramelius Resources (ASX:RMS) all suggested the challenges faced by other commodities could alleviate pressure as they look to grow production and open new mining fronts.
Nickel, on the other hand, has fallen from over US$30,000/t at the end of 2022 to US$16,385/t yesterday, below the cost structure of a large proportion of nickel miners outside Indonesia and Russia.
But a handful of juniors are continuing to fight the good fight.
Centaurus Metals (ASX:CTM) rose ~26% yesterday as MD Darren Gordon suggested a final investment decision on its Jaguar nickel sulphide project in Brazil would come in Q2 2025, with the exec saying first quartile costs would support mining even in the current price environment.
Ardea Resources (ASX:ARL) pitched its Kalgoorlie nickel and cobalt project, where major Japanese traders are on board to potentially bring it into production by funding a $98.5m DFS, while Chalice Mining (ASX:CHN) is also hoping to sign up Mitsubishi to help develop its Julimar nickel and PGE project near Perth.
Gold Fields-backed Lunnon Metals (ASX:LM8), which is also searching for gold prospects in the shadow of its major shareholder’s underfed St Ives plant to add a string to its bow, is looking to establish a potential site for a new concentrator to enable miners in the Goldfields to process nickel ore after the mothballing of BHP’s 57-year old Kambalda concentrator.
“I don’t think it’s uninvestable,” Lunnon MD Ed Ainscough said.
“I made the point in my talk that if you found Nova-Bollinger today, it would still get built.
“It’s about grade. If you’re going to compete, and the commodity price is what it is, and you’ve got those external, structural changes that may or may not be long term, you need grade.
“And as we’ve demonstrated, our assets make really good profit, even at the current nickel price that everyone keeps telling you is terrible.
“So I don’t think the nickel sector is dead in WA, but what it might become is quite focused. It might be focused very specially on grade.”
Dead parrot sketch
IGO’s (ASX:IGO) acquisition of Western Areas, its Cosmos Nickel Complex and Forrestania mines feels like the Monty Python parrot sketch.
IGO: I’m sorry, I have a cold. I wish to make a complaint!
Western Areas: We’re closin’ for lunch.
IGO: Never mind that, my lad. I wish to complain about this [nickel mine] what I purchased not half an hour ago from this very boutique.
Western Areas: Oh yes, the, uh, the [Odysseus]..What’s,uh…What’s wrong with it?
IGO: I’ll tell you what’s wrong with it, my lad. ‘E’s dead, that’s what’s wrong with it!
And now … back to your regularly scheduled programming …
IGO has now booked ~$1.35bn of impairments related to the transaction and flagged a non-cash impairment on its exploration assets including Cosmos’ Mt Goode deposit.
Construction of the Cosmos complex’s Odysseus underground mine has been paused, though Vella told media at Diggers and Dealers the lithium and nickel producer remains keen to find more and refine the cost profile at Odysseus to make it work.
Having spent hundreds of millions on exploration since acquiring the Nova mine in 2014, IGO has been unable to make a major nickel discovery since. Vella says it will zero in on more targeted exploration to find something with the scale and grade profile to work on its greenfields targets.
There’s no magic number at Odysseus, Vella said, but IGO’s Nova mine remains strongly cash generating at current nickel prices (at least until the end of its lift in 2027), giving a sense of the cost base required to make it sing.
“We know there’s a resource there. What we need to do is understand it better and we’re doing a study on that sort of from a clean sheet, building upwards, and trying to understand how low we can get the costs to extract that resource,” Vella said.
“If we can get that into the right territory, then we can bring that back online. So it’s a fantastic option to work through, but I’m just going to let the team work it through step by step and not getting too overexcited too early.”
Playing the cycle
Nickel’s collapse has come despite hopes demand from electric vehicles and storage applications powered by lithium ion-batteries would transform the market.
Stainless steel, closely linked to the currently soft Chinese economy, remains the bulk of the demand side.
But two things have occurred to squeeze demand to at least some extent on the battery end.
Firstly, Indonesian laterites that were previously only extracted for lower quality stainless in the form of nickel pig iron have been converted into class 1 deposits through Chinese-led tech advancements.
Secondly, cheaper but lower range LFP (lithium, iron and phosphate) battery cars have grabbed market share from nickel rich cathode chemistries in China.
Barrenjoey’s Morgan said he was not sugarcoating the challenges facing the nickel market.
“In nickel’s case, what has been troubling there is the emergence of LFP batteries, which don’t use nickel in the cathode. That has meant that the growth in EV sales we’ve been seeing, which is still positive by the way, not all of it has been translating into nickel demand,” he told Stockhead.
“The fact that the Western world EV market is much weaker than the market in China also is bearish for nickel because you’re more likely to have a nickel battery in a Western EV, than you would in a Chinese EV.
“So yeah, there’s a lot of negative things that have occurred. In nickel, and I’m not sugarcoating that but I wouldn’t call it… I still think it’s a cycle.”
Morgan says either demand needs to ramp up or mine shutdowns need to accelerate to trigger a more optimistic view on the nickel market.
“We have seen quite a few shuts. Even Indonesia, which is the source of rampant supply growth, there are signs that supply growth there is easing and there is a cost there that is important,” he said.
“But then on the demand side what we need as well, we need a sounder global economy, stainless steel demand needs to be on a firmer footing than it is.
“And we need western world electric vehicle demand to be lifting back to what we saw about a year or so ago.”
Ainscough believes his high-grade Kambalda assets, which sit nearby the mines shut in May by Andrew Forrest’s Wyloo Metals, could be revived with stable prices of $27,500-30,000/t Australian.
“I think the nickel sector, or the demand, is still very much driven by steel – that is cyclical – and year on year that continues to grow,” he said.
“Don’t underestimate the ability for a black swan event out of Indonesia in terms of some regulatory change, some clamp down, realisation that maybe they’re not making quite so much money out of it.
“Within my horizons, timewise, I think we’re at what $24-25,000 now? Another 10% on top, that’s not unreasonable to expect.”
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