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Nickel Mines eyes ASX 300 as new electric vehicle battery opportunity looms

Nickel Mines Ltd. is on its way to entering the S&P/ASX 300 thanks to its profitable partnership with Tsingshan Holding Group Co. Ltd., and the Chinese group's battery material plans in Indonesia could see the ASX-listed company realizing further upside in the electric vehicle supply chain.

Tsingshan produces stainless steel from the Indonesia Morowali Industrial Park in Sulawesi, where it is also building a high pressure acid leach, or HPAL, operation in which it has a 21% stake. The HPAL plant will aim to produce 50,000 tonnes per annum of nickel hydroxide intermediates, among other battery-grade materials.

In announcing a memorandum of understanding in December 2018 whereby it will supply limonite ore to the HPAL plant, Nickel Mines said the agreement also "contemplates the potential" for its own future equity participation in the plant.

Nickel Mines Managing Director Justin Werner told S&P Global Market Intelligence on the sidelines of the Diggers & Dealers conference in Kalgoorlie, Australia, on Aug. 6 that he rarely mentions the company's potential to participate in what many at the conference referred to as the "electric vehicle revolution," with his firm focus on feeding nickel pig iron material to Tsingshan.

Yet given Tsingshan's plans to both expand its furnace lines and to produce battery-grade material for China's growing electric vehicle market, Werner sees upside for his company.

He also believes Nickel Mines has already reached the market capitalization needed to be accepted into the S&P/ASX 300, but will not know officially until September whether it will be accepted. Its valuation stood at A$778 million on Aug. 7.

SNL Image
Nickel Mines Managing Director Justin Werner addresses
Diggers & Dealers Aug. 6.
Source: Diggers & Dealers

"So we're really a growth vehicle for [Tsingshan], a way to monetize some of their investments," Werner said in an interview of how Tsingshan sees his company. "It's not something we go out and promote, to sell people on the dream of being in the battery market."

Added to this, Werner also said Tsingshan believes China's electric vehicle adoption rate will be much faster than most market players believe. China's electric car sales topped 1.1 million in 2018, representing 55% of global sales.

However, Accenture noted in June that China's electric car sales growth had plummeted from 126% year-on-year in May 2018 to 1.8% in the same month this year, ahead of the government halving subsidies for the sector.

Werner said much of Tsingshan's electric vehicle battery materials will likely end up in China, where the government plans to sell 4.6 million electric vehicles by 2020 and ban cars with traditional internal combustion engines longer-term.

Nickel Mines is viewed by Tsingshan as a significant nickel resource on its doorstep, as the Sulawesi park also hosts Nickel Mines' 60% owned Ranger and Hengjaya rotary kiln electric furnace plant project. The company is thus strategically an important partner, he said.

Price upside

While Werner emphasized that Nickel Mines is "making good money" regardless of nickel prices and how fast China adopts electric cars, others at the conference expressed bullishness.

Producer Panoramic Resources Ltd.'s Managing Director Peter Harold told delegates later on Aug. 6 that while nickel prices have soared more than 20% since June, he believes it will go significantly higher given the "quantum shift" he is witnessing in the move from stainless steel, which currently comprises some 70% of demand, to batteries.

Harold cited CRU's forecast that nickel use in batteries will grow by more than 9% by 2023 due not only to the number of electric cars expected to be produced, but also in the nickel intensity of individual batteries.

While UBS forecasts nickel will reach US$8 per pound by 2021, Harold believes it could shoot significantly higher.