Nickel might be one of the more abundant metals in the Earth’s crust, but it’s not all about just nickel, we want class one battery grade nickel. Could you explain the difference between the class one high-grade nickel that you need for batteries and the more common nickel that goes into stainless steel alloys?
EVs have burst onto the scene over the last few years. In 2012, there were less than 50,000 EVs sold globally. This year we should exceed 2 million and if our indications are right, by 2030, we should be around 20-25 million units, so they are going to become more and more mainstream.
There are two main features that consumers want in an electric vehicle, which is generally to match what they have today in a petrol car. They want range and they want recharge time. In range they want between 650 to 900 kilometers. And for recharge time they want about five or six minutes, which is how long it takes to refill your car.
For this type of range, batteries need to have nickel. So, you have a cathode and you have an anode and a battery where the electrons go back and forth. The cathode is where the nickel lies, and the electrons hook up with the nickel. There is also some cobalt, manganese, and aluminum, depending on the chemistry, which is there to stabilize and make sure things don’t get too carried away (overheat). But the more nickel you can put in there the better. As we become better and better at making batteries, what we’re finding is the nickel quality needs to be finer and finer, so from two nines to three nines to four nines.
The specs for nickel cannot be more than one or two parts per billion, so it has extremely tight tolerances, and there is only so much nickel that can be refined and re-refined by the cell manufacturers to get such a tight tolerance. That nickel, that we believe can be relatively easily refined into a cathode, is considered ‘class one’. The other types of nickel, particularly the ferro nickels that are quite high in iron are more difficult and costly to try to purify them over and over to get down to that state. We call these ‘class two’. We believe this material will continue to be used for the stainless steel industry.
Is it just the impurities that you want to get out or are there other things to avoid?
There are about 15 different detriments that could be in the nickel, in the lithium, or in other areas. You really need as pure a pathway between one side of the battery and the other, reducing the chances of anything getting in there. There are all sorts of contaminants that could potentially get in, like sodium potassium or copper. And if copper is in the wrong part of the battery cathode, it will reduce the quality of the battery over time. So the battery will seem pretty good to begin with but will deteriorate quickly. As we move between chemistries, we see around a 30% rejection rate in the first year or so of new batteries because the raw materials are not pure enough and are not configured perfectly for that battery. The raw material providers need to provide this higher purity metal that we need.
How much class one nickel is required and how much is currently being produced?
This depends on who you believe and where this industry is going. Tesla’s Battery Day was so important because Tesla believes that by making these batteries and by mass marketing their product, they can drop the cost by about 56%, which would roughly equate to $53 a kilowatt hour versus $100 a kilowatt hour, which is the best we have now. The more we can drop the costs, the more the market will accept electric vehicles, therefore the more batteries we’ll see produced, and the more nickel we’ll see being used.
If we use Tesla numbers, the nickel needed for their batteries will be around two to three times what is produced in nickel markets today. So we’re looking at a massive increase in nickel. We’ll probably see a doubling in nickel demand over the next decade, which is quite significant. And almost all of that will be in that class one space. We think we have plenty of class two nickel and scrap for the stainless market. However, for the class one nickel that you need, this makes up only 10 to 15% of the market today.
As that market grows, as the battery packs get bigger and bigger, and as stationary storage becomes very large, and we need a lot more nickel in those batteries, we are going to have a real problem trying to find the supply.
Battery manufacturers are saying they want environmentally and sustainably sourced nickel. What are the standards they’re looking for and how do those aspirations compare with the way that nickel is produced today?
These are brand new ideas and there really isn’t a standard yet for what is clean nickel and what is not. However, we have very vocal companies such as Tesla and we have the European Union, which is also trying to set some standards around clean nickel. They’re telling the OEMs to list how much CO2 is needed to make all the materials in a vehicle, SO2, how much water is being used in the manufacture of all the raw materials, and they’re going to calculate all of that. Nickel is actually one of the highest CO2-producing parts of the battery and the battery is the most CO2-heavy part of the car, so it’s really being focused upon.
There are other red lines that you cannot cross, particularly looking at cobalt from the DRC and ocean tailings dumping. One EV manufacturer told me that it’s more important to see companies committed to major changes in emissions reduction rather than an X number. Since there is no X number to target, as long as they can show that they are actually reducing the environmental impact, then it’s viewed positively.
The EV industry is just asking for the mining industry to rethink things and come up with better operating models which fit better with ESG standards
Looking at issues such as tailings dumpings and child labor, does that mean that we will see people favoring certain jurisdictions over others?
That would be interesting. I do think this could be a problem for blockchain to solve, where mining companies can set standards, and their material will be tracked from the mine through the LME or other exchanges, to the end-user so they can have a certification. I don’t think it has to be jurisdictional, where there’s a good jurisdiction or a bad jurisdiction. I think companies need to have a lot of transparency. They’ll really have to understand what it is they’re doing, and we’re going to find that there will be a lot of extra costs, because the OEMs are going to be forced by the regulators to have this supply chain information available.
There is a growing focus too on keeping thing localized, because one of the big contributors to carbon emissions is transporting things around the world. Being locally produced can help reduce your carbon footprint and your ESG metrics. Tesla has spent a lot of time saying they want to buy from North American sources for their North American cars. It is pretty hard for them in Europe because there are not too many sources there, particularly when you look at lithium, but European companies are saying they should head in that direction.
Who is in the race to produce class one nickel and how do their technologies compare in terms of environmental impact and economics and what are the technological challenges of getting these systems to work?
Because batteries are becoming the cheapest form of electricity in the world, maybe mining companies should switch their machinery and their operating over to battery. There are multiple ways to try to meet corporate ESG metrics without coming up with something new. From Tesla’s perspective, and I think from the EV battery industry perspective, they’re just saying that we need to rethink things and that there are relatively good opportunities out there.
Often what we see is that when companies reduce their environmental footprint, they lower their costs. I think it used to be that when you implemented ESG metrics then costs would go up and as well the amount of PR work involved in disseminating your ESG actions.
We can use artificial intelligence to be much more efficient in the processing of materials, which lowers your environmental impact. Using electrified mines is one good option which lowers your costs and also makes the local community happier because they don’t have diesel smoke or trucks coming through the community. There are so many different parts of the puzzle that actually fit. And I think that the EV industry is just asking for the mining industry to rethink things and come up with better operating models which fit better with ESG standards.
Using electrified mines is one good option which lowers your costs and also makes the local community happier because they don’t have diesel smoke or trucks coming through the community.
How is the HPAL technology in Indonesia progressing? Are they working out all the kinks and getting the economics that they were promising at the beginning?
That’s the billion-dollar question. I think we have two camps. One camp says the Chinese did a fantastic job with pig nickel, really transforming the stainless industry, reducing costs, and sending nickel prices from $50,000 down to $8,000. They will make many of these HPAL plants and will soon be pumping out high class nickel for the EV industry.
The other camp sees that these HPAL plants are not easy to start up. Every HPAL plant seems to have different issues. Every nickel deposit, even in the same country, seems to have some sort of different detriment, and processing is very tricky to begin with. Even the best cases have had all sorts of hiccups, environmental or otherwise.
We believe that some of the HPAL plants in Indonesia will be somewhat successful. We already have seen a number of the capex numbers rise pretty dramatically. We have seen the nameplate capacities that were announced a couple of years ago start to come down. And we think that we’ll continue to a point where they will be somewhat successful, but it won’t be the panacea. There will be other nickel assets around the world that will need to be developed.
We get to this bull and bear case. Where does the technology go versus how quickly can the nickel industry react? And remember, Musk said that he’s gone to major nickel miners around the world, and they generally have come back to him and quoted $16,000 nickel. There’s no real incentive for us to go and spend wildly on nickel. So, I think at the end of the day, the industry told Musk you need to get prices much, much higher for us to be interested to invest massively. And I think that’s where we sit today.
What is currently the best ore to be mining in order for that to be processed into class one nickel in the most simple and environmentally sustainable way?
We tell miners that as important as their geologists are, so is their marketing department, because what those in the nickel industry are going to want to do is get together with the LEMs, with the cell manufacturers. The miners will need to ask the manufacturers how they need their nickel processed – if they need an MHP, if they need fine, pellets, or powder. Miners will need to customize their ore and refining processes to what their customers need. Miners are used to producing as much as they can to meet a general quality standard that they could sell to an exchange or to a customer. What we’re seeing with EV materials is that they’re much more bespoke.
Many EV companies are trying to structure deals with the nickel industry to ensure supply. When you talk to the mining companies, they look at the current price and say that there’s no problem. It looks like there’s oversupply for next year. When you talk to the technology and the EV companies, they’re petrified that there isn’t enough material out there, and they’re scrambling to secure supply. Miners who provide this material should get a premium for their product on a long-term basis.
Do you think there is going to be enough class one nickel produced moving forward?
Over the last six years, the EV industry has consistently lowered costs and improved battery performance more than anybody thought possible. For example, the movement to 8-1-1 chemistry came about five years earlier than we originally expected. Now Tesla says that they are going to take something we didn’t think would happen for 10 years and do it in 24 months. From that standpoint, I’m very optimistic on where the technology is heading. That means we’re going to need an awful lot of nickel.
This will be very difficult for the nickel industry to respond to. My concern for the nickel industry would be if we see huge price breaks over the next three or four years, this would force the battery industry to move away from nickel. The most likely candidate to step in would be manganese. There are a lot of issues with manganese, but even Tesla said they’re looking at a two thirds, one third nickel manganese battery up from the 10% manganese today.
The cure for high prices is high prices. We saw that in cobalt. We saw that in lithium. I think the worst thing long-term for the nickel industry would be if we saw record high nickel prices.