The Rising Fortunes of Nickel Mine as a Result of EV Battery Demand

By any measure Nickel Mines, of Australia, is an interesting story of a turnaround situation.

It is said necessity is the mother of invention and the Indonickel miner is the prime example.

Back in 2014, Nickel Mines was forced to shut its Hengjaya mine in Sulawesi, only a year after Joko Widodo’s Indonesian Government brought in tough new laws banning the sale of unprocessed ores.

That setback was the making of the Australian company, which started shipping high grade unprocessed nickel from Hengjaya only in February 2013.

It led Nickel Mines to play a major role in the development of Indonesia’s Chinese backed nickel pig iron industry.

While the rise of supply from Indonesian nickel producers has until now been a price threat for Australian producers of the stainless steel and electric vehecle battery metal, for Nickel Mines it has been a window of opportunity.

Partnering with Shanghai Decent, part of Tsingshan one of the world’s largest stainless steel and nickel businesses, Nickel Mines leveraged a $200 million IPO in 2018 to build a 60% stake in the Hengjaya rotary kiln electric furnace plant.

It now owns 80% of Hengjaya and Ranger in the Morowali Industrial Park, with a nameplate capacity of 24,000t of nickel metal in NPI on an equity basis (30,000t 100%), backing regular dividends since mid-2020. They consistently perform above nameplate, delivering 32,328t for NIC in 2021, or 40,410t on a 100% basis.

Growth is coming and fast

Its next growth project, the four line Angel project at Weda Bay Industrial Park is just about up and running, delivering first NPI production in January, while the firm rattled the tin yesterday for US$225 million ($314 million) to fund an initial 30% stake in the Oracle RKEF project, which will grow to 70% before the end of the year with first production due in 2023.

Highlighting the remarkable pace of its growth, Nickel Mines could be a top 10 global nickel producer once Oracle is in full flight, producing as much or more of the metal as BHP’s Nickel West, a business that dates back to the first nickel boom during the Vietnam War.

While Australian miners produce the scarcer “class 1” nickel sulphide, the nickel of choice for EV batteries, experts say rising electric vehicle demand means we could need as much as 2Mt of additional production this decade.

That means Indonesia’s nickel laterite mines could be needed to help fill the shortfall by selling both “class 2” NPI into the stainless steel industry and “class 1” nickel matte and mixed hydroxide into the battery space.

Nickel Mines represents a rare opportunity, especially with nickel prices touching 11 year highs of US$24,000/t last month.

The rise in production in Indonesia seems to strike so much fear in the Australian miners, but it looks like Nickel Mines made the right choice.

According to Nickel Mines’ Managing Director, Justin Werner “Indonesia is well endowed with nickel laterite resources, you know, it contains the largest known resources globally.

“It’s on track in the next five years to producing sort of 40% of the world’s nickel output, close to 50% will be coming out of Indonesia.

“So if you look at all of the new nickel capacity that’s come online, pretty much all of that has coming from Indonesia, and quite rapidly. You’ve seen since 2013 around 400,000-500,000t of capacity that’s come online in Indonesia. It has the resources, it has the support of the government, you may have seen our most recent announcement.

“We get a 10 year tax holiday, zero tax for 10 years, and then a further two years at about 11 or 12%.

“So that’s obviously fostering the development (of the industry). Because of the relationship we have with Tsingshan, who’s the world’s largest stainless steel producer, and has a lot of experience in in the nickel space we’re able to do deals where they provide us with capex guarantees.

“And we’re more of an industrial nickel producer rather than a mining story. So we don’t have large sustaining capex. We don’t have mine life considerations or geological complexity that drives our decision making.

“We really are an industrial business that produces low cost nickel units for the stainless steel market.”

Before Nickel Mines listed there was the initial export ban that complicated things for the business. Now, we’re a few years on from that and soon you could actually be a larger nickel metal producer than BHP. It’s quite an incredible transition in only eight or nine years since those bans came into place.

“It’s been a meteoric rise and look I think it’s still set to continue. We have obviously a very strong relationship with our largest shareholder Shanghai Decent.

“If you look at the size of the deals they continue to get larger and larger. We’re unique, there’s nowhere else in a world where the nickel units we bring on come with a CapEx guarantee and a nameplate guarantee in terms of nickel production.

“So it’s completely de-risked, low cost nickel units that we can bring on just by writing out a cheque.”