MAKING THE GRADE
The nickel market is in the midst of major disruption as two distinct commodity segments appear – nickel sulphate for the fast growing EV market, and the traditional stainless steel market, dominated by lower grade ferronickel. In Australia, Western Areas
IN early January, the Western Areas share price had climbed to a 52-week high of $3.53.
By late January, it was still 30 per cent higher on the same time last year.
Western Areas chief executive Dan Lougher said the positive share price surge mirrored a similar spike in January 2017 – with one key difference.
“Funnily enough, if you look back at Western Areas in January last year the stock had a hard run almost identical to what has happened this year,” he said.
“Except in January 2017 Indonesia started to relax their ban a bit and that caused chaos.
“We aren’t expecting any of that this year, so it looks like a good start.”
Western Areas is Australia’s second largest sulphide nickel miner, producing between 22,000 and 25,000 nickel tonnes per annum from its Flying Fox and Spotted Quoll mines —two of the lowest cost and highest grade nickel operations in the world.
The miner had another strong year of production in 2017 while advancing its key growth projects, including the construction of the Mill Recovery Enhancement Project (MREP) at Forrestania and the delivery of a pre-feasibility study (PFS) on the Odysseus project at Cosmos.
“At the end of the day the company has worked very hard at positioning itself where we are today,” Mr Lougher said.
Tapping an emerging market
Western Areas identified the emerging trend towards nickel demand for battery manufacture a few years ago, when it started seriously discussing the disruptive potential of the EV market.
“Nickel is a well know battery product, so it doesn’t surprise me that it has come out as a key component of the Li-ion battery,” Mr Lougher said.
“The new [lithium-ion battery] technology is going to be eight parts nickel, one part cobalt, one part manganese.
That product is going to become more and more common which is going to be a major demand driver, Mr Lougher said.
“I can certainly remember people telling us to get off the bandwagon, and I still get people asking me – ‘are you really buying into these projections for EV?’” he said.
“You just have to listen to what’s happening in some of the smaller countries already. Some European countries will be banning all internal combustions engine vehicles.
“History will show us that when these things take hold they run pretty hard.”
MREP: a product for the battery supply chain
In April last year, Western Areas gave the go ahead for the Mill Recovery Enhancement Project (MREP), which will create a product for the EV battery supply chain from a specific cut of the live tailings stream that was previously discarded.
This innovative process will generate high value product for sale directly into the battery manufacturing market.
Construction works have progressed on time and on budget with commissioning and production scheduled for late in the March 2018 quarter.
“The MREP project will be producing a very high quality material – you’re talking about a 45 per cent to 50 per cent nickel sulphide,” Mr Lougher said.
“When we are commissioning, which is very soon, we will mix it in with the existing concentrate.
“When we have the batching plant up and running, and producing to spec, that product will be sold separately.”
This material will be “high spec”, which means potential buyers in the EV precursor market will want to “test before they buy”, Mr Lougher said.
“We don’t want to give them samples until the plant is fully commissioned; then we will start the offtake conversation,” he said.
“We have already had a lot of interest out of Japan, Korea and now quite a bit of interest from China.”
A New Morning
The New Morning deposit is a medium grade nickel deposit, lying between the high grade Flying Fox and Spotted Quoll mines.
New Morning would have been economic at a higher nickel price, but Western Areas believes the MREP technology will fast track this development and several previously uneconomic or borderline economic projects.
With the construction of the MREP well underway, Western Areas has been re-assessing options for establishing an open pit operation at New Morning, producing additional high-value nickel product for the EV market using the company’s patented BioHeap process.
Western Areas has commenced a scoping study for an open pit, with an adjacent heap leach pad.
“Now we have the MREP plant it can actually take more product in the back end,” Mr Lougher said.
“[New Morning] would work at floatation at some point, but the MREP has allowed us to bring it on quicker and cheaper.”
Odysseus: a new mining centre
In 2015, Western Areas paid Glencore $24.5m for the Cosmos Nickel Complex, 370km north-west of Kalgoorlie in WA, with the aim to establish a second mining centre in the State.
A PFS indicated that the 12,000 nickel tonnes per annum Odysseys development at Cosmos could become a core growth asset for the company.
With definitive feasibility work now underway, Western Area’s December quarter report indicated that the ongoing Odysseus studies were pointing towards a larger project and longer mine life than previously envisaged by the PFS.
Based on preliminary modelling current expectations see mine life extending beyond 10 years from the initial 7.5 years.
“If you are positive about the EV market demand then [Odysseys] fits quite nicely,” Mr Lougher said.
“There will be a transition into Odysseys as a major producer.
“It’s going to be a good operation for us; Odysseus cost per tonne is cheaper than Spotted Quoll and Flying Fox.
“The other part we haven’t included in the feasibility study is the AM5/AM6 deposits which were partially mined by Xstrata [as] they come off the same decline as Odysseys.”
The AM5 and AM6 deposits represent upside of about 53,000t of nickel. The benefit of Odysseus is that the existing infrastructure means pre-production CAPEX can be done in stages.
“There’s a lot of things we can tweak with low CAPEX to get the project started up,” Mr Lougher said.
In WA, BHP Nickel West plans to become the world’s biggest exporter of nickel sulphate by initially producing 100,000t a year by April 2019, using existing infrastructure at its Kwinana facility.
A proposed stage two expansion to 200,000t a year would leverage off the initial investment in stage one.
Alpha Fine Chemicals has also completed its pre-feasibility study on an Esperance Nickel Sulphate Plant in WA, with a final investment decision pending this year.
Mr Lougher said this was a great sign for the future of the industry.
“Anything that uses up nickel products is good for the market, because it will draw down inventory stockpiles more quickly than we anticipated,” he said.
“The more people that use nickel, the higher the demand for the sulphide product.”
Still, some are sceptical that the bullish scenarios will play out, with EVs still a niche industry and nickel oversupply remaining a risk.
“There are still sceptics out there; there’s still a view that the projections are not sustainable, but if you play the 50 per cent rule that’s still a big market,” Mr Lougher said.
“My guess is that we will get a pinch point where stainless demand is also still growing.
“The value add for our products is only going to get better.”
Western Areas chief executive Dan Lougher.