Saudi Billions Ploughing into Battery Metals

Overview of Recent Nickel Market Dynamics

The nickel market has seen prices hovering near the top of the recent trading range between $20,000-22,000/tonne in July 2022, even briefly moving above $22,000.This continues the overall bullish sentiment for nickel amid tight supplies and solid demand.

In China specifically, nickel sulfate prices have remained relatively flat and stable over the past couple of weeks. This comes after a surge in nickel orders from China in June, which has not seen a similar follow-through into July at this point. However, more positively, nickel ore and NPI prices in China have been ticking higher in recent weeks.

There have been rumours floating around the Chinese nickel market that the state reserve bureau may have been stockpiling nickel, which could be contributing to some traders feeling comfortable restocking their nickel inventories at current prices if the government is also buying. Overall, the ore and NPI price rises, along with state stockpiling rumours, could signal improving conditions in the Chinese stainless steel industry over the coming weeks.

3.4 billion

Without a doubt, the most impactful recent news in the nickel space has been the announcement that Saudi Arabia's Public Investment Fund (PIF) has taken a $3.4 billion stake equivalent to around 10% of ownership in BHP's nickel assets. While $3.4 billion is a relatively small investment for an oil-rich nation like Saudi Arabia, this move signals the potential start of a massive capital rotation from the oil and gas sector into battery metals like nickel and copper. The logic is compelling - if nations like Saudi Arabia believe the energy transition away from fossil fuels is inevitable in the coming decades, then it makes strategic sense for them to start redeploying capital into the very metals and minerals that will be crucial for the clean energy shift.

Even if only a fraction of the trillions of dollars deployed in oil and gas starts flowing into metals like nickel, copper and lithium in the coming years, it could feel like a tidal wave for the still-nascent battery metals mining industry. Major mining companies hold over $100 billion in cash right now waiting to be deployed, but have very few acceptable projects to invest in. The entry of oil major capital could be transformative.

Australia Playing Catch Up on Critical Minerals

Shifting to company-specific updates, the Australian government has finally got around to adding nickel to its list of critical minerals, which also now includes copper. This is a positive development for an economy that already produces a meaningful amount of nickel, as it will allow companies developing nickel projects in Australia to be eligible for government incentives and programs offered for critical minerals.

Bringing Australia up to speed with most other Western nations in acknowledging nickel's critical importance for decarbonisation and EV's will hopefully spur further investment into nickel mining in the country. Australia has ample nickel resources, but has lagged other regions in recent exploration and development. The critical mineral designation will help change this trajectory.

Drill Results Show Resource Expansion Potential at Giga Metal's Nickel Asset

In corporate news, Canadian nickel developer Giga Metals announced a series of strong drill results from its Turnagain nickel-cobalt deposit in British Columbia. Highlights include an intercept of 1.7% nickel over 29 meters starting from just 88 meters depth, demonstrating high-grade near-surface mineralisation. Another hole hit 5 meters at 3% nickel.

These results showcase the potential for Giga to continue expanding the existing nickel resources at Turnagain, which already stand at over 2 billion tonnes. The grades and widths of these latest intercepts are highly encouraging this close to the surface. Giga acquired these assets in British Columbia's prolific mining district from much larger nickel major Sherritt years ago and could be positioned to eventually become a future supplier of class-1 nickel to the battery industry if development continues successfully.

Magna Metals PEA Showcases Potential But Disappoints on Key Metrics

Fellow Canadian nickel junior Magna Mining released a Preliminary Economic Assessment (PEA) for the past-producing Denison nickel mine project acquired from Vale. The study outlines a 15-year mine life producing around 10,000 tonnes per annum of nickel, with an NPV of $200 million CAD. However, the initial market reaction was somewhat negative.

Likely factors for disappointment include higher than expected capital costs, with $129 million required upfront over 3 phases. As well, the mine plan relies on a meaningful contribution from underground mining, whereas expectations had centred on a lower-cost open pit restart. Finally, head grades of 0.6% nickel were likely below what many hoped for, given the presence of some higher-grade intercepts. Additional drilling will aim to incorporate more of these zones.

Regardless, Denison still represents a meaningful nickel asset for a junior miner like Magna Metals, and further upside potential exists at their Shakespeare deposit. But the PEA shows there is still work ahead to optimise the economics and mine plan. The market appears to have gotten ahead of itself in valuing Magna above the project NPV before this study was finalised.

Russian Nickel Sanctions Could Tighten Market

Finally, further nickel sanctions on Russian producers are a possibility being discussed in Europe. However, much of this nickel has already been self-sanctioned or avoided by European consumers in the aftermath of Russia's invasion of Ukraine. In the near term, with stainless steel demand still recovering, the impact may be limited through the rest of 2022. But into 2024, if European stainless demand accelerates, the inability to access Russian nickel supply could represent another source of tightness in global nickel markets. It will put pressure on the substitution of supply from other regions like Canada and Australia to meet European nickel demand.

Conclusion

While the nickel market remains in a holding pattern currently, stronger demand from China appears likely while events like the landmark Saudi investment signal enormous capital flows on the horizon. Juniors like Giga Metals continue advancing resources while Magna's PEA shows there is still optimisation work ahead. With additional supply constraints possible from Russia, the nickel market overall still appears positioned for further gains in 2023 and beyond. These are exciting times for nickel exposure.