Nickel Market Dynamics Shift: New Opportunities Emerge as Major Producers Scale Back

• BHP announces closure of Western Australian nickel operations until at least 2027
• Nickel market shows signs of deficit despite earlier oversupply concerns
• EV demand continues to grow, driving nickel demand
• New nickel projects gaining importance due to the need for IRA-compliant supply
• Canada Nickel and other companies making progress on various nickel projects

The nickel market has been experiencing significant volatility in recent months, with conflicting narratives about supply and demand dynamics. However, recent developments suggest that the market for this critical metal may be more robust than initially thought, presenting potential opportunities for investors.

Market Dynamics & Recent Developments

One of the most significant recent developments in the nickel market has been BHP's announcement that its Western Australian operations will close until at least 2027. This decision has raised questions about the future of nickel supply.

Mark Selby, CEO of Canada Nickel and an industry expert, argues that BHP's closure reflects the high-cost structure in Western Australia rather than an indictment of the nickel market itself. He points out that if operations can't generate cash at current price levels (around $16,500 per tonne or $7.50 per pound), operational issues are likely at play. These issues stem from high labor and energy costs in Western Australia and a lack of investment in new mine production.

This closure and Vale Base Metals' recent strategy announcement indicating limited expansion plans have significant implications for the nickel supply landscape. It potentially creates opportunities for new, more cost-effective projects to fill the gap.

Nickel Demand & the EV Revolution

Despite earlier concerns about slowing demand, particularly in the electric vehicle (EV) sector, recent data paints a more optimistic picture. According to the latest figures, plug-in car registrations for May were up 23% year-over-year, with battery electric vehicles (BEVs) up 17% and hybrids up 37%. In North America, a crucial market for nickel-intensive batteries, registrations were up 18%. Year-to-date figures through May show a 25% increase, contradicting earlier predictions of a collapse in EV demand.

This sustained growth in EV adoption is crucial for the nickel market, as these vehicles require significant amounts of nickel in their batteries. As more countries and automakers commit to electrification, the demand for nickel is expected to continue its upward trajectory.

Supply & Demand Balance

Contrary to earlier predictions of oversupply, recent data from the International Nickel Study Group (INSG) suggests that the market has been in a slight deficit over the last three months. Year-to-date demand in 2024 is up 8%, while refined production has only increased by 6%, and mine production by less than 3%. This tightening of the market is partly due to limited ore supply growth from Indonesia, either through managed quotas or a lack of higher-grade supply. In fact, Indonesia has been importing nickel ore from the Philippines to meet its needs.

The Importance of IRA-Compliant Nickel

A key factor driving interest in new nickel projects, particularly in North America, is the need for IRA-compliant nickel. The Inflation Reduction Act (IRA) in the United States has created strong incentives for domestically sourced or processed critical minerals, including nickel. Companies are increasingly looking to source nickel that is not associated with the environmental and social concerns linked to some Indonesian and Chinese production, often referred to as "blood nickel." With the closure of BHP's Western Australian operations and limited expansion plans from other major producers, there's a growing opportunity for new, responsibly sourced nickel projects.

Company Updates

Several companies in the nickel space have made significant announcements recently, highlighting the ongoing activity and interest in the sector despite market uncertainties.

Canada Nickel

Canada Nickel has been particularly active, making two significant announcements:

• Bridge Financing: The company secured a 6-month bridge facility with Auramet. This is notable as Canada Nickel has used similar bridge facilities three times in the past, each preceding a significant event. The most recent instance was prior to the Samsung SDI financing deal.
• Creation of ExploreCo: Canada Nickel announced the formation of a new subsidiary called ExploreCo. This entity will take over the existing 80/20 Mann joint venture with Noble Minerals and incorporate Canada Nickel's Eastern properties. In exchange, the company received the remaining surface rights and other patents/claims around their flagship Crawford project. This restructuring simplifies the development path for Crawford, potentially making it easier to begin construction.

The company is also advancing on multiple fronts:

• Exploration: seven drill rigs are running, with results expected to flow steadily throughout the year. They're preparing to publish a resource update on their Deloro property.
• Engineering: The front-end engineering design for Crawford is progressing well, with some cost optimizations identified and no major negative surprises.
• Permitting: The company is on track to deliver its impact statement in September, with positive feedback from both federal and provincial governments.
• Financing: Canada Nickel reports making good progress with Scotiabank and Deutsche Bank on the JV equity side, as well as with debt agencies for the debt funding package.

Chalice Mining

Chalice announced a Memorandum of Understanding (MOU) with Mitsubishi Corporation. This agreement sets out a framework for ongoing collaboration and assistance concerning the development of Chalice's Gonneville Project. Key points include:

• The aim is to explore the possibility of further joint engagement, including a potential binding partnership.
• This collaboration will follow the completion of the Gonneville Pre-Feasibility Study, expected by mid-2025.
• The involvement of a major company like Mitsubishi is seen as an endorsement of the project's potential.

Centaurus Metals

Centaurus released its feasibility study results for its nickel project, showing promising economics:

• Net Present Value (NPV) of US$700 million
• Internal Rate of Return (IRR) of 31%
• Initial capital requirement of US$370 million
• Life of mine capital of US$600 million

Additional details from the study include

• Life of mine nickel recovery of 73%
• Open pit operation with a 5:1 strip ratio
• Production of a 12% nickel concentrate
• Projected C1 operating costs of $2.30/lb ($5,000/ton)
• All-in sustaining costs just under $8,000/ton

These figures suggest the project could be highly profitable at current nickel prices, demonstrating the potential viability of new nickel projects in the current market environment.

SPC Nickel

SPC Nickel reported positive results from their infill drilling program:

• The drilling focused on near-surface areas within planned open pit zones.
• Results included intervals close to 1% nickel that are open-pittable, which is considered excellent for this type of deposit.
• These results are from a property that SPC recently consolidated, having acquired the remaining interest from Vale.

Magna Mining

Magna Mining also announced encouraging drill results:

• The results came from their 109 Footwall (109FW) deposit.
• Highlight intercepts included 5% copper, 7% nickel, and nearly half an ounce of platinum group metals (PGMs) over 15 meters.
• While footwall deposits in Sudbury are typically more copper and PGM-rich than nickel-rich, these results still show significant nickel content.
• Magna has begun development of a bulk sample, which will allow them to start mining and generate some revenue to offset exploration costs.

Talon Metals

Talon Metals made a significant financing move:

• The company sold an additional 1.67% royalty to Triple Flag, a well-regarded royalty company.
• This transaction raised US$8 million for Talon.
• The involvement of Triple Flag is seen as an endorsement of Talon's project.

Alaska Energy Metals

Alaska Energy Metals, which has a bulk tonnage project with high-grade potential in Alaska, made several announcements:

• The company raised an additional C$3 million to fund their operations.
• They also made several changes to their board of directors, likely to strengthen their team as they advance their project.

These company updates demonstrate the ongoing activity in the nickel sector, with companies at various stages of development making progress on their projects. Despite broader market uncertainties, these developments suggest continued interest and investment in the nickel space, from exploration successes to positive feasibility studies and strategic partnerships.

Despite market uncertainties, these developments highlight the ongoing activity and interest in the nickel sector.

Challenges & Opportunities

While the nickel market presents significant opportunities, it's not without challenges. The closure of BHP's Western Australian operations highlights the importance of cost management in nickel production. Future successful projects will need to focus on operational efficiency and cost control to remain competitive.

Additionally, the evolving battery technology landscape could impact nickel demand. While current trends favor nickel-intensive batteries, ongoing research into alternative chemistries could potentially alter the demand outlook in the long term.

However, the growing emphasis on responsible sourcing and the need for IRA-compliant nickel present significant opportunities for well-positioned projects, particularly in North America and other politically stable jurisdictions.

The nickel market is at an interesting juncture. While there have been concerns about oversupply, recent data suggests a tightening market. The closure of major operations and limited expansion plans from some producers, coupled with growing demand from the EV sector and the need for responsibly sourced material, create potential opportunities for new, well-managed nickel projects.

For investors, the key will be identifying companies that can deliver cost-effective, environmentally responsible nickel production to meet the growing demand from the green energy transition. While challenges remain, the overall outlook for nickel appears more positive than recent narratives might suggest.

The Investment Thesis for Nickel

• Growing EV demand driving long-term nickel consumption
• Supply constraints due to major producer closures and limited expansion plans
• Increasing emphasis on responsibly sourced, IRA-compliant nickel
• Potential for new, cost-effective projects to fill supply gaps
• Opportunities in politically stable jurisdictions like North America
• Diversification potential within mining and battery material portfolios

The nickel market is showing signs of tightening, contrary to earlier oversupply concerns. Major producer closures and limited expansion plans, coupled with growing demand from the EV sector, are creating opportunities for new nickel projects. The emphasis on responsibly sourced, IRA-compliant nickel further enhances the potential for well-positioned projects in stable jurisdictions. While challenges remain, including cost management and evolving battery technologies, the overall outlook for nickel appears positive, particularly for investors who can identify efficient, environmentally responsible producers