Miners race for nickel as electric-car revolution looms

Mining updates

In remote northern Ontario, hundreds of kilometres from the nearest railway or paved road, the world’s largest mining group and an Australian metals tycoon are in a bidding war for a deposit containing millions of tonnes of nickel.

The battle between BHP and Andrew Forrest’s Wyloo Metals for the asset’s owner Noront Resources comes as miners race to meet surging demand for battery metals as electric vehicles go mainstream.

Demand for nickel, which is used in more powerful electric-car batteries and will be key to bigger vehicles such as electric trucks, is set to grow 19-fold by 2040 if the world meets the Paris climate goals, according to the International Energy Agency.

Yet most of the increase in supply this decade is set to come from Indonesia, a market overwhelmingly powered by coal-fired electricity where Chinese companies are building nickel processing projects.

That has prompted a race to secure new sources of supply as companies in rich nations are forced to drastically reduce their carbon footprints.

Australian miner IGO said last month that it was in preliminary discussions over a takeover of Australian nickel miner Western Areas, while Rio Tinto has backed a nickel mine in the US being developed by Talon Metals. Glencore-controlled PolyMet is developing a large copper and nickel project in Minnesota.

“We can see an increase in the M&A in nickel which is driven by the need for sustainable nickel and nickel that’s outside the Chinese supply chain,” said Steven Brown, a nickel consultant. “There’s been a bit of geopolitics that have influenced that — people are looking to de-risk the supply chain by reducing dependence on one country.”

BHP’s bid for Noront on July 27 was part of chief executive Mike Henry’s efforts to get more exposure to “future-facing metals”, following the company’s decision to sell its oil assets last month.

But Wyloo Metals, a company set up by Forrest, which already owns 24 per cent of Noront, countered last week with an offer 27 per cent higher than BHP’s C$325m (US$256m) bid.

“As we have shown from day one of this process, Wyloo Metals is fully committed to working quickly and collaboratively to formalise a binding superior proposal for the benefit of Noront shareholders,” said Luca Giacovazzi, head of Wyloo.

Shares in Noront have risen 146 per cent since BHP’s offer to trade at C$0.80 cents.

Alan Coutts, chief executive of Noront, said the sustainability of the mine was a key factor behind the acquisition interest. The company plans to dispose of its waste “tailings” underground, rather than behind a dam on land, and also relies on hydro and nuclear power rather than coal.

“I think the provenance is important, and Ontario is a very attractive jurisdiction, because the electrical grid doesn’t depend on carbon in any shape or form — all the coal-burning power plants were decommissioned,” he said. “It does give a competitive advantage.”

Coutts said the provincial government had committed to building a 300km road to the Eagle Nest deposit, in consultation with a number of First Nations communities, whose territory it will pass through. He said that he expected the road to be built by 2027.

Car companies are willing to pay a price premium for nickel sustainably produced outside of Indonesia, analysts say. From 2024 the EU has proposed that only batteries with carbon footprint declaration can be sold in Europe, making it difficult for them to rely on Indonesian supply.

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Tesla has already signed deals to buy nickel from BHP in Australia, Vale in Canada and a Trafigura-backed consortium in New Caledonia. Korean battery company LG Chem signed a deal last month to buy nickel for six years from Australian Mines, which is developing a project in North Queensland.

The administration of Joe Biden is also keen to develop a North American-based supply chain for minerals such as nickel, Henri van Rooyen, chief executive of Talon Metals, said. At the moment the only nickel produced in the US is sent to China to enter the battery supply chain, he added.

But western mining companies will struggle to compete with the volume of nickel coming from Indonesia, according to Jim Lennon, an analyst at Macquarie who expects Indonesian supply to make up 60 per cent of global supply by 2027, up from 30-40 per cent today.

“The difference is, China is actually building this stuff whereas virtually none of the projects outside of China are under construction,” he said. “These projects are part of the supply solution but the bulk of the supply will come from Indonesia. There’s no alternative.”

Brown said that Chinese companies involved in Indonesian projects, including stainless steelmaker Tsingshan and cobalt producer Huayou Cobalt, would also clean up their operations and switch to renewable energy if that was demanded by customers.

“It’s not impossible for Indonesian producers to move towards a greener product,” he said. “Once they do that green premium will disappear.”

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