In the post-COVID-19 global economic recovery, unprecedented stimulus plans by governments look to accelerate the emerging “Green Economy”.
This approach will ultimately pivot on the metals used to make batteries, and specifically lithium-ion batteries – the current and next generation battery chemistry of choice.
Ironically, lithium-ion batteries actually comprise anything from 30% to 80% nickel, with only a minute proportion being lithium. As a result, it will be nickel mining that plays the leading, mission-critical role.
With the affordability of electric vehicles racing towards parity with internal combustion-driven cars, there is dawning recognition that a wall of demand for battery-grade nickel is approaching. These demand projections should have existing and near-term producers scrambling to position themselves. However, recent moves by China have muddied the waters.
In March, the nickel market was rocked by the announcement that Chinese nickel giant, Tsingshan, had agreed to supply 100,000 tonnes of nickel matte to battery midstream majors CNGR and Huayou Cobalt. It scuppered the market optimism that a nickel supply crunch was imminent, and the London Metals Exchange price has fallen by about 14%, with prices yet to recover.
Unlike traditional smelting of sulphide concentrates, Tsingshan’s matte will be created by converting lower-quality nickel pig iron (NPI) – a cheap alternative to pure nickel for the production of stainless steel. Matte production from FeNi and NPI is energy intensive and high in GHG emissions – a stark contrast with more environmentally-friendly nickel sulphide ores processed into matte, which can then be refined into battery precursor materials, such as nickel sulphate.
However, although nickel sulphides provide a much more environmentally acceptable option, supply has been declining due to a lack of new, large and high-grade discoveries. Prior to the Tsingshan move, this was the primary reason for a projected bull market.
It will be nickel mining that plays the leading, mission-critical role
ESG – A Ticking Timebomb?
In its quest to dominate the global battery supply chain, China has set a course to construct substantial HPAL plants in Indonesia, where major laterite deposits will ultimately fuel the nickel demand required for the lithium ion battery industry. Thus, China appears poised to flood the market with battery-grade nickel and have, at least for now, paralyzed Western companies and investors. However, as these expensive and complex plants near completion, sometime between 2021 and 2024, a massive question overshadows them: where will all the waste, or tailings, go? Miners have dealt effectively and safely with tailings for decades, so why is this now a big deal?
Consider this: if you are mining a laterite nickel ore grading 1%, and you want to make 60,000 tonnes a year of nickel, you need to mine at least six million tonnes of material. With HPAL, you have to place all of that mined material into an autoclave (think of a submarine-sized pressure vessel), adding heat, adding sulphuric acid, and dissolving the ore inside.
Once you have extracted the usable nickel (and cobalt), you’re left with a highly acidic solution containing iron, aluminium, magnesium, and other elements that were present in the ore. You can’t just dump that back into the active mine; it needs to go into a tailings management facility or tailings pond. And not only do you have to store a huge volume of acidic waste that increases with each day of production, but you also have to treat and dispose of the water that’s flowing in.
Regions such as Australia, with its massive nickel deposits, have the advantage of vast land tracts and a climate that has a net evaporative effect on tailings ponds. The water evaporates, the material shrinks, and you’re left with reduced complexity, risk and cost. You are also located in an area with very low seismic risk and a location that is not typically near the ocean or a population base.
Contrast that with the tropics, whether it be Cuba, Brazil, the Philippines, New Caledonia, or Indonesia, where rainfall is greater than evaporation every year and seismic activity is a definite consideration, and you have a serious tailings puzzle to solve.
Many miners in these locations use massive tailings ponds that are built up over time, utilizing waste soil from the area and treating and discharging the water that accumulates. While viable, these massive ponds typically contain a “sludge” of waste material that must be contained for decades before it can be covered and rehabilitated. Even then, water management of these legacy ponds is an ongoing issue as the run-off can be acidic for years.
Other miners discharge tailings into the ocean. This is not necessarily as environmentally problematic as you might imagine. It can be done in a controlled way if the proper circumstances are present – usually involving an ocean canyon greater than 2km in depth that lies close to the coast. It requires the right bathymetric conditions to ensure tailings are discharged at a point of depth below the ocean’s surface and will continue to sink to the bottom rather than well up and mix with the top layers of the sea and marine life. It is also dependent on the material being discharged and whether it is treated before discharge or simply disposed of.
Papua New Guinea has an advantage as it has several deep canyons around it, and several of their mines can dispose of their tailings into the ocean through deep-sea tailings placement. Cuba and the Philippines also have deep ocean canyons within mining area coastlines. However, no deep sea disposal has been installed in these countries yet.
On the other hand, Indonesia is surrounded by shallow seas, and is not amenable to this option and many of the operating nickel mines are located in what people consider the “coral triangle” – the global centre of marine biodiversity.
This means the HPAL operations will be forced to store tailings on land and treat solutions before being released to the environment (and eventually the ocean). Considering the seismic and climate issues, there is no question that this route exposes miners and surrounding communities to an increased risk of structural failures and potentially catastrophic damage to the environment and nearby communities.
And the cost of failure in terms of environmental and social governance (ESG) could be very high indeed.
The fact is, ESG has become a huge point of concern for most investors. Put simply, they want ethical and clean production – partly because it’s the right thing to do for the planet but largely because of risk and the consequences of ESG failure.
The spotlight will be shining ever-more-brightly on clean tech
A perfect example can be seen in the case of another crucial battery metal – cobalt. In 2017, word spread amongst consumers that artisanal producers in the Democratic Republic of Congo made use of child labour. Public outrage resulted in tech giants such as Google and Apple cutting off such producers and forced all remaining DRC suppliers to track and deliver an ethically clean product.
So where does that leave nickel?
A major consumer backlash in response to “dirty nickel” in their cars, laptops, and phones is very easy to imagine. It has the potential to force Western manufacturers to act and demand a clean supply.
However, Chinese producers in Indonesia – set to flood the market with “dirty nickel” once their behind-schedule HPAL operations or NPI to matte conversion comes online – show no signs that they will employ best practice for their tailings and GHG emissions. Instead, they seem to be gambling on the fact that, with so few “clean nickel” operations in production, manufacturers will be utterly reliant on their product.
It makes for a high stakes gamble. There are far cleaner nickel sulphide mines in operation, and there are some massive nickel sulphide projects in North America which could be put into production given funding. These projects could produce nickel with a fraction of the environmental footprint of HPAL or NPI operations in Indonesia.
However, China’s Tsingshan move has paralyzed Western investors who fear a repeat of events in 2007 when China KO’d the price of nickel using a flood of cheap NPI production to meet the needs of its stainless steel industry and as a result render most of the new projects under construction by Western producers as “uneconomic” (Vale’s Goro, Sherritt’s Ambatovy, Glencore’s Koniambo, Anglo’s Barro Alto, and Vale’s Onca Puma were all constructed in this time period and have all failed to meet the profitability expected when approved).
It is hard to say how it will play out. Will China be able to produce its stated volumes in the timeframe it claims and hook global manufacturers on cheap supply? Many experts – including the Nickel Institute – believe not.
What will happen if consumers boycott companies that use dirty nickel?
With governments aggressively pushing the green economy as a way out of the pandemic-driven economic woes, the spotlight will be shining ever-more-brightly on clean tech.
If such boycotts occur, what options are even available to manufacturers? We could very easily see a scramble of epic proportions for the sources of clean nickel that are available. In such circumstances there will be some clear winners and losers, not to mention huge price spikes in nickel.
