Canada Nickel (CNC) - $3Bn of Carbon Credits with Nickel By-Product?

Canada Nickel Corp. is advancing the next generation of high-quality, high-potential nickel-cobalt projects to deliver the metals needed to power the electric vehicle revolution and feed the high-growth stainless steel market. The company possesses industry-leading nickel expertise and is focused on low-risk, well-established mining jurisdictions.

Matt Gordon caught up with Mark Selby, Chairman, CEO, and Director, Canada Nickel. Mark previously served as the President and CEO at RNC (Royal Nickel Corporation) Minerals where he successfully raised over $100M to advance the Dumont nickel-cobalt project from an initial resource to a fully-permitted, construction-ready project. He has held a number of senior management roles with Quadra Mining, Inco, Purolator Courier, and was a partner at Mercer Management Consulting. Since 2001, Mr. Selby has been recognized as one of the leading authorities on the nickel market. He graduated from Queen’s University with a Bachelor of Commerce (Honors) and has also served on the boards of multiple junior mining companies.

Company Overview

Canada Nickel is advancing the new 100% owned Crawford nickel-cobalt sulphide discovery with large-scale potential located in the established Timmins mining camp adjacent to major infrastructure. The company was founded in 2019 and is headquartered in Toronto, Canada. The company is listed on the Toronto Stock Exchange (TSX-V: CNC). In 2020, the company was one of the best performers on the TSX.

Canada Nickel is advancing the Crawford Nickel project and unlocking one of the world’s great nickel districts in and around the city of Timmins, Ontario. The company is currently working on a lab scale and has successfully demonstrated the project’s potential. Notably, several companies have been working on the different ultramafic deposits within the region. Canada Nickel is focused on the deposited tailings and is looking to devise methodologies that allow the tailings to absorb more carbon over time. The company is working to get carbon into the entire processing plant as early as possible. Carbonated rock offers several benefits.

By taking the tailings out from the flotation cells and enriching them with carbon for a short time period, it was found that within 36 hours, the tailings absorb enough carbon to achieve net zero emissions. Within 6 days of this process, the company was able to get over 20t of carbon dioxide per ton of nickel produced. This process usually takes several months, but the company was able to achieve it within a few days. Previously, the company tried to achieve passive carbon absorption in the tailings area.

Carbon Credits

The Canadian government recently put forward carbon prices.  Currently, the carbon credits are at $50/t. The company anticipates that this number would grow to CAD$170/t carbon by 2030. Taking into consideration roughly 21t of carbon credits per tonne of nickel, and assuming that the company acquires the full value of the credit, it is looking at $3,500/t in carbon credits. This comes out to $120M a year for the average life of mine and over $3Bn over the project’s lifetime.

Canada Nickel is cognizant that there has been a lot of greenwashing in the industry. The company’s project is based in Ontario, a jurisdiction that offers low-carbon electricity. This has allowed the company to design a low carbon footprint mine from the very start. The nickel is hosted in rocks that can spontaneously absorb carbon dioxide. The company has devised ways to accelerate the absorption process, unlocking exceptional value.

Canada’s carbon pricing has enabled the company to tap into the pricing through appropriate market mechanisms that will be set up in the near future. Since there is only 400 ppm (parts per million) carbon in the air, the passive tailings approach is a major challenge. The company is looking for a highly concentrated carbon dioxide source for the process, which is expected to come from downstream production. It is also looking at the possibility of cracking methane which is known to produce hydrogen and a carbon stream.

There are various types of industries that generate a high carbon dioxide stream. Canada Nickel is looking to transform the Timmins area into a real zero carbon industrial cluster. Within the Timmins area, the company has Crawford nickel-cobalt sulphide discovery along with 42 square kilometres of ultramafic rocks.  The company has plans to propose an arrangement to the government. Here, the ultramafic rocks can capture carbon, while the low-carbon electricity would further reduce the emissions, essentially making Timmins a zero carbon industrial cluster. This proposal, if accepted, has the potential to transform the region’s economy.

In terms of the downstream, the company is looking to reach class 3 carbon neutrality. Nickel produces a massive carbon footprint, which has been a long-standing problem, especially in countries such as Indonesia. In recent times, the auto industry and an increasing number of consumers have shown interest in carbon-conscious operations.

Carbon Classification

There are different categories of carbon. Class 1 carbon is directly generated from the operation. Class 2 carbon is generated from the electricity sources that feed the operation. Class 3 carbon is the final category where the carbon is generated by end users in the next stage of transformation. The majority of the companies are only focused on Class 1 and Class 2 carbon. Canada Nickel’s ultramafic rocks give it the ability to achieve carbon neutrality on all three levels.

In order to achieve this, the company is looking to utilise existing industrial processes in a mill and add extra equipment. The company is looking for ways to take the 36-hour carbon absorption and accelerate it on multiple levels. It seeks to further improve and refine the process over the course of the next few months. Within the mill facility, the company will take the tailings and carry out a few additional steps as it makes its way to the final tailings facility.

Notably, the faster carbon absorption process is quicker in the total quantity of carbon captured and can be easily built into the mill processes. It allows the generation of highly bankable carbon credits through an easy and measurable process. While this can be achieved with a passive approach, direct carbon dioxide injection in the mill requires additional processes, resulting in a robust approach. This process allows the measurement of carbon that comes out of the pipe before it goes into the tailings. The measurable carbon credits are going to be highly valuable moving forward.

The company anticipates that the tailings carbonation process will help it rank highest in terms of carbon credits. It is important to measure the carbon from the beginning and continue monitoring it til the end. This enables the measurement of actual carbon soaked during the process.

As per the company, carbon credits streaming will be similar to the streaming of various metal productions. The carbon credits stream sale will help the company finance a big portion of the project’s equity over the next few years. It anticipates that there will be multiple ways to monetize the carbon credit streams, one of them would be an increase in the number of buyers. These aspects make carbon measurement an invaluable tool.

The company would need a concentrated stream of carbon dioxide in order to make the process work. The generated value will be shared with the carbon provider. Since the carbon generated is essentially a waste product for most companies, Canada Nickel anticipates that it will generate massive value from its plant by permanently sequestering the carbon dioxide.

The company already has a PEA (Preliminary Economic Assessment) in place, and it is looking to conclude a Feasibility Study by the end of 2022. Based on the $170/t Canadian carbon price, and 21t credits per ton of nickel on average, the generated revenue is estimated at $3,500 per ton of nickel or $1.60 per pound. Based on the average production and life of mine, the carbon credits are expected to generate $120M annually or $3Bn in terms of total revenue. The company is currently working on determining the additional capital and operational costs required to capture the carbon. Depending on the source of the carbon dioxide, the company would need to share some of the value with the carbon provider.

Resource Update

Canada Nickel published a resource update via a press release a few weeks back. Based on the PEA, the company has about 900Mt of material in the mine plan. In the Feasibility Study, the company is targeting between a 1.3Bn - 1.8Bn ton resource, which is a 50%-100% increase. Each additional ton of nickel is expected to generate 50%-100% more carbon credits.

The company’s nickel operation will have a carbon credit by-product generating significant value. Since the nickel will be a zero-carbon product, it will attract sizable premiums, especially since the global nickel supply is associated with a massive carbon footprint.

The company has an additional 20 targets in the Timmins area. It recently announced a 2Bn ton resource. With Crawford, the company has 40 times the material footprint which it is planning to drill over the course of the next few years in order to unlock value. Timmins is expected to be a big nickel district. It is one of the few regions in the world that has low carbon electricity, a robust infrastructure, and a sizable industrial population along with piles of ultramafic rocks that can capture vast amounts of carbon.

The Mining Landscape

Mining is looked upon as a negative activity in many parts of the world. In order to address this issue, the company has engaged with the First Nations community in the Timmins area. As a result of the meaningful impact on carbon, the company expects the mindset toward mining to change over time.

In addition to the Crawford discovery, additional nickel ultramafic deposits such as the FPX, Giga, and other projects in British Columbia can produce zero carbon nickel products. These deposits are expected to drive demand for the next 100 years. Sudbury has a few big sulphide deposits that will cater to the growing demand for the first 100 years. Indonesia’s big laterite deposits have fulfilled the nickel demand for the stainless steel industry over the past 2 decades in China and other parts of Asia. As per the company, the next generation of nickel is going to be centered on ultramafic deposits that have the potential to produce zero carbon products.

If Canada Nickel is able to use carbon credits to reduce per pound nickel cost by $1.50, it will result in a significant premium, leading to strong incremental margins. Currently, Carbfix in Iceland is the leader in the carbon capture space. Carbfix is working with Climeworks AG, a company that is taking the 400ppm carbon dioxide from the air and concentrating it into high-strength carbon dioxide. Carbfix has drilled deep holes underneath Iceland and is pumping the concentrated carbon dioxide into the holes. The high pressure and temperature allow the reaction to take place.

Meanwhile, Canada Nickel is taking advantage of the massive surface area at the asset. Here, the tailing stream is already ground into very fine particles, and it is being injected with carbon dioxide at the right time. This process also involves a few additional steps. Overall, the process is much simpler and cheaper as it takes advantage of the historical work done on the material.

Given the volume of generated carbon credits, it would serve as an attractive opportunity for companies within the space. As Canada Nickel has multiple deposits, it can use them to create multiple opportunities to generate value through carbon capture.

Canada Nickel anticipates that it might attract interest from private equity companies for capital deployment. Even the companies that haven’t been in the space might be looking to invest. Additional information should be available in the next few weeks.

Targets 2022 and Beyond

Canada Nickel is already working on the tailings along with the metallurgy work. Since this is a simple experiment, the company does not require a lot of complicated capital or operating costs to reach its goals. It is confident that a number of enhancements can be introduced in order to speed up the process. These enhancements will be tested over the next several months. Based on the test results, the company will start operationalizing the carbon stream and gain insight into the final result. As per the company, there may be three or four different types of carbon streams that could be available through an industrial partner. A Feasibility Study is underway and is expected to complete by the end of 2023.

Net zero carbon is an integral part of Canada Nickel’s business model. The company trademarked net zero nickel cobalt iron early on as it realised the potential of the Crawford discovery. Crawford will be a high-potential project given the jurisdiction and ultramafic nickel deposits. A mine can be designed with a relatively low carbon footprint at the start and over time, the rocks will soak up all the additional carbon to reach net zero. The company has been focused on achieving this since day one.

Interestingly, the carbonation process involves similar steps as flotation in a mill, where nickel is liberated and carbon is injected. Even though the process is currently at a lab scale, the company is confident that it can be scaled up to an industrial process without a lot of additional investment.

Macquarie, one of the leading commodity analyst houses recently ran an exercise to determine the premiums generated from the carbon credits. This exercise is based on the forecast that by the middle of this decade, European Union will be placing carbon taxes on material imports which will also allow net zero materials to fetch a premium.

As per the calculations, nickel is expected to fetch a $2,000 premium. Over the next few years, the industry will start to see real premiums emerge for low-cost, zero-carbon products. The carbon credits would be tradable. The future pricing was calculated based on the price trends over the past few years.

To find out more, go to the Canada Nickel website