Interview with Industry Commentator Mark Selby, CEO of Canada Nickel Company.
Is Nickel the new gasoline?
Selby does a great job in this interview of shining a light on the key drivers for Nickel. And interestingly we discuss financing HPal operations and how to pick Nickel juniors.
After touching on his soon-to-be public project, Canada Nickel Company, Selby delves into the nitty-gritty details of the nickel market. During his nearly 20-year tenure as a nickel market commentator, he has seen a few Super Cycles in the Nickel market. We ask about some of the lessons that investors can learn from. Nickel is a particularly volatile commodity in comparison to other base metals that moves in sweeping super-cycles. Traditionally, this volatility comes from the pricing model of stainless steel, the historical primary driver of nickel use.
Selby discusses issues pertaining to over-supply from low-quality Chinese pig-iron courtesy of rising nickel prices earlier this year. He predicted last month that year year and half of next year to be a tale of two halves. Prices are likely to fall further while the scrap inventory comes into the market, but once it is out of the way, restocking will occur and nickel should rise again.
Selby also touches on the specific geological conditions that nickel necessitates and how Indonesia’s recent halt on exports has affected the market.
He then moves into exploring the exponential nickel potential of the inevitable EV revolution and talks us through the specific structural components a junior nickel company needs to survive in a world of large Nickel producers.
Lastly, Selby moves into the field of mineralogy and gives us an insight into nickel types and classes.
What did you make of Mark Selby? Are you excited by the Nickel thesis? Is talk of the EV revolution cheap or it is going to make you a fortune? Comment below and we may just ask your questions in the near future.
- Overview of Canada Nickel Company
- Understanding the Nickel Market: Before and Now
- What are Super Cycles? Where are We Now and What to Expect From Prices
- What Drives Volatility?
- Stainless Steel & OPEC Affecting Nickel Prices
- Geopolitics of Nickel: On Indonesia and China
- HPLC Projects: Who Can Actually Put Them Together?
- Influencers of Supply to the Nickel Market
- Demand: Past and Present
- Junior Companies: Have They Got Any Chance of Surviving? What Experience do They Need? What Defines a Winner?
- Nickel Types and Classes: How They Differ and What Investors Should Know
Click here to watch the full interview.
Matthew Gordon: Hi Mark. So why are you in London?
Selby: With Nickel being a metal that’s on investors’
minds, we’re getting lots of attention.
Gordon: It very much is. And what sort of people are you seeing?
Selby: The full range of high net worth investors, institutional funds.
And even corporates who are looking for new projects to invest in.
Gordon: Please give us an overview of what Canada Nickel is. It’s a relatively
Selby: We are advancing the Crawford Nickel Project. It’s a brand-new
discovery. Nickel has very few new discoveries. And it’s very similar to a
project called Dumont, which in my previous life at RNC Minerals, we advanced
from a Resource, all the way to a fully permitted, full Feasibility Study (FS),
construction ready project. And I will be able to take all the learning from
Dumont and apply it to this deposit and advance it, we hope quite quickly.
Gordon: You have quite kindly said you’d give us a bit of time to understand
the Nickel market. You’ve been in the Nickel market a long time.
Selby: Yes. I was head of market research at Inco in 2001. And
continued to be a commentator on the Nickel market now for nearly 20 years.
Gordon: We’re starting a series where we’re helping people understand various
commodities as they hit certain points in the cycle. Nickel is complicated. So
why don’t we talk about some of the background to that prior to 2001. And then
we’ll get into some supply demand type conversations.
Selby: I literally joined Inco within a few days of the trough of the Nickel
price in October 2001, it hit about $2 a pound or $4,400 per tonne.
Gordon: The reason I ask is, because people need to understand the cycles to
understand how commodities behave. You came in at a particularly interesting
time. Was that tough?
Selby: Oh, it was. I knew what I was getting into. I got into mining at
that time, because I saw the rise of China and that it was going to transform
metals demand and we were going to go through a Super Cycle. I quickly realized
when I got in that role how important China was going to be.
Gordon: You mention a phrase, Super Cycle. It’s a phrase quite commonly
associated with Nickel. Can you explain to people what that means and maybe give
examples of some of those Super Cycles?
Selby: Nickel is a metal that has always been more volatile than a
number of the other base metals. It’s big, but not very big relative to say,
copper and aluminium and zinc and so forth. The other part of it is there are
some real structural issues in the market that have come to bear over time. If
you go back in history, Nickel has gotten to very high prices. In the late
1960s, Nickel got to the equivalent of $50 a lbs in today’s dollars. We went
through another Super Cycle in the late 1980s and again in the mid-2000s, so
with Electric Vehicles (EV) and everything like that and a decade of under-investment
in new supply, we’re on the verge of a new Super Cycle in Nickel, sometime
during the early to mid 2020s.
Gordon: You mentioned another word there, volatility. What has traditionally
driven that volatility? And is it something that you see happening going
forward? People talk about the EV revolution solving a lot of problems for a
lot of companies, apparently? So what is it going to do going forward? Let’s
start with where this volatility is going to happen and then why it happened in
Selby: For investors, that’s one thing to pay attention to. We are
going to go through some major swings as we go in a sustained upturn. But it’s
definitely not going to be a straight line. The things that are specific to Nickel
that enhance that volatility, is that historically stainless-steel is the
primary demand driver for Nickel. And they have a pricing model that basically
builds in the expectation of future price increases. So what happens is you get
buying behaviour throughout the chain where people anticipate prices going up,
so they stop buying. And then when they think it’s going to roll over,
everybody puts their hands in their pockets and wait for the price to come back
into the market again. We’ve seen evidence of it already this year. Nickel got
to $18,000 a tonne / $8 lbs in September. And as I said when we previously talked,
that by the end of the year, it’s going to come off, probably 15% or 20%. And
Gordon: Explain why.
Selby: Two reasons. As you get a new spike in Nickel prices, two things
happen. 1. Nickel Pig Iron (NPI) production. Basically, the Chinese producers
have a bunch of ore stockpiles and they turn that into cash at higher Nickel
prices. They take advantage of those surge in prices. ‘If I can make money
making NPI, I will make NPI’. 2. And the other piece of it is the stainless-steel
scrap chain, which is a massive source of feed. Scrap is something that isn’t
talked about. But it is a huge factor.
Gordon: What is scrap?
Selby: Scrap is a big component of stainless-steel production. For most
of the stainless-steel producers in the West, more than 2/3rds of their feed is
scrap material, Nickel containing materials. Now, it’s not exactly a bunch of stainless-steel
knives and forks. It’s actually a blended box of material that scrap makers
make to a specific specification.
Gordon: Literally from scrap yards?
Selby: Literally scrap yards. And then they take 10 of this, 5 of that,
4 of that, 2 of that, 1 of that, put it in a container and that container meets
the specifications that have been agreed with that stainless-steel supplier.
But what the entire scrap chain does is put a little bit away waiting for high-prices
to come and when it hits their number, that scrap comes flooding into the
market. So when we hit a price level this past Fall, that we haven’t been to
for 4-years. You basically have 4-years’ worth of people putting stuff in a
corner that all comes out into the market.
Gordon: Obviously Nickel has come off the last couple of weeks. That is
possibly what the cause could be or is?
Selby: Oh it is, because when lots of scrap become available, then
stainless-steel companies don’t need to buy primary Nickel. And so that takes
more demand out of the market. And you’ve got more Nickel Pig Iron in the
market, as the Chinese producers produce it.
Gordon: What is the size of each of those markets is? The pig iron and the
scrap markets… and how long is it going to remain at the current pricing?
Selby: Next year is going to be a tale of two halves. It’ll probably
take us most of the first half of next year to get through that extra amount of
scrap that’s come into the market. And that extra amount of Nickel Pig Iron. Prices
could go another 10% to 15% lower from here. But, once we work through that
scrap, work through those ore stocks, then we come out on the other side and I
think the prices start to move higher. Once that inventory is gone, it’s gone. You
end up with a big restocking phase that’s happened as people have to come back
out and say, ‘OK, well, I don’t have these stockpiles anymore. I need to go buy
even more primary material’.
Gordon: You’ve talked previously about the OPEC of Nickel. What does that mean?
Who are the players?
Selby: Robert Friedland at the BMO Conference called Nickel the new
gasoline. Which I thought was a great phrase and reflects what is going to be
happening as the EV’s move forward. OPEC at its peak controlled about just over
50% of the market. And, we remember all the things that countries and companies
did to avoid that supply concentration at that point in time. In the Nickel
market, Indonesia, the Philippines and New Caledonia will control a very
similar amount of global Nickel supply. Those are 3 countries that have
intervened in their mining sector. Those are 3 countries that have financial
issues, revenue issues. The temptation for them to put some sort of export
duty, some way to capture additional value for the country, is going to be just
too tempting. And that will make Nickel assets outside of those areas much more
attractive. Was oil outside OPEC a good investment in 1971-1972?; that was a
pretty good trade for a good 20yrs or 25yrs. It’s going to create those kinds
of opportunities in the Nickel space.
Gordon: We can’t talk about supply and not mention Indonesia. The big news, 3-4
weeks ago… This Nickel Series is going to be for people of all abilities, a
lot of people will know about Indonesia. Some won’t. For people that don’t know
much about it tell us about their influence on the marketplace.
Selby: One of the things that’s unique to Nickel is it’s not found in
many places across the world. There’re some specific geological conditions that
have to occur to have Nickel deposits. So as a result, Nickel supply is
relatively concentrated in a few countries. In Indonesia, particularly the
island of Sulawesi, and some nearby islands, is basically the Saudi Arabia of Nickel
resources. There’s a substantial Nickel resource base that was tapped in the
mid 2000s as they mined the ore, shipped it to China to make Nickel Pig Iron.
And now what the Chinese producers are doing is building stainless-steel plants
on top of the ore body, because that’s the cheapest way to make stainless-steel.
And, we’ve seen a massive increase in capacity during that timeframe. And we
will need more capacity to come. That’s one of the only places in the world
where there’s substantial resource reserve available to be developed.
Gordon: But they also announced that they are halting exports. That’s had a big
impact. Sent shockwaves. Why did they do that? What is the impact of that’s
going to be short-term and medium-term?
Selby: They first started banning ore exports about 4-years ago.
Gordon: They’ve been stop-starting?
Selby: Yes, it’s come and gone into the market a few times. One of the
reasons why Nickel has been a difficult metal to invest in is because of some
of these dynamics. What is Indonesia going to do or not do as we move forward? In
2014-2015, they put a ban in place, because when you look at the price of ore,
as a percentage of the contained Nickel value versus the price of Nickel, when
you ship it in ore form, the country is only capturing 15%-20% of the value.
Indonesia has a finite amount of Resources. They wanted to see as much value-add
happen in Indonesia. So by putting the ban in place, it was forcing Chinese
companies to build their plants in Indonesia, as opposed to China. And that
plan worked very successfully. Indonesia has seen tens of billions of dollars
of investment in capacity. They then changed their mind, and allowed some more
exports to continue, partly because the local producers, including a state-run
company, PT Aneka Tambang (AnTam), was mining to provide high-grade ore to the
local Chinese plants. But they were also… you can’t just mine the high-grade ore,
you have to take some lower-grade with it. They were facing mountains of unsold
ore that they couldn’t do anything with. Indonesia then allowed exports for a
period of time. And this was supposed to continue until 2022. And what the big
announcement said ‘we’re going to bring that forward’. It got brought forward
to 1st January 2021. And then in the past month or so, there’s been
talk of banning, but they’ve actually now allowed some exports.
Gordon: This driven by what? There’s politics involved. You’ve talked about
Chinese companies building plants in Indonesia. They must hold some sway,
because of employment, building roads… What are the dynamics?
Selby: It does come down to local stakeholders who are mining ore, and
want to continue to sell ore to China and make money that way. And now you’re
going to lose that ability and that revenue stream. It comes down to balancing
off those local interests versus some of the larger Chinese companies that are
there, and trying to find that balance. When they banned it the last time, it
was hard fast rule. There is no leakage. And by 1st January of 2020,
it will be enforced. And we don’t expect any leakage going forward, because
they want encourage that next wave of investment. In terms of HPL plants as
well and stainless-steel plants.
Gordon: And that’s going to come from China?
Gordon: HPal is not cheap?
Selby: Not cheap at all. You’re looking at $30,000 – $35,000 per ton
of capacity that you want, at best. HPL plants built in other parts of the
world have faced massive overruns, and have ran up $60,000 – $100,000 per ton
of capacity that’s in place.
Gordon: What does that mean, as a number? If you are looking at the CapEx for a
HPal plant, what number are you asking me for typically?
Selby: So if there’s a $30,000 tonne plant, the best example that has
been done, is by Sumitomo Metal Mining. They spent about USD$1.4Bn.
Gordon: These are big CapEx numbers upfront. There are very few people can do
that. Not only fund it, but very few people can put that consortium together. The
Chinese influence, or the China building plants locally and funding them. How
have they structured that? Is it build and operate model?
Selby: It’s different between the NPI and stainless-steel. What
they’re doing with the HPL. So the NPI and stainless-steel, you have several
large producers and some smaller ones in China, who take the same technology
that they put in place in China. Clearly building a carbon copy of that plant
in Indonesia. Cut and paste. There you’re looking at $10,000-$20,000 tonne of
installed capacity. All the way through to making stainless-steel in Indonesia.
So they have expertise in that particular area when it comes to HPL, that’s Hydro
Met technology. If you’re making stainless-steel there is no hydro metallurgy
involved. What we’ve seen in terms of the HPal plants that are being built in
Indonesia today is they are joint ventures between several different Chinese
partners, some of whom bring that hydro met technology, people who bring the
resources. And then people were able to bring the scope and scale of their
existing business to help deliver some capital in there to build the HPL plant.
None of them are operational yet. There’s going to be a big TBD to see how
quickly they ramp up relative to some of the other plants that have not done so
well. Typically, HPal has taken longer and costs more.
Gordon: We have talked to a few Nickel companies along the way and they drop in
very casually that the HPal bomb, the conversations without comprehending. Are
there many people in world who can put a HPal project together, not just
financially, but technically?
Selby: Sumitomo Metal Mining is the only company that has really done
it successfully, that delivered projects that have ramped up relatively quickly
and were delivered close to budget.
Gordon: So that’s important. Because all this is for the benefit of retail. High
net worth office investors. These are little red flags, which I’m interested in
getting and getting out of those conversations. Sumitomo. Noted. On the Supply
side of things, who are the other influences? Who are the other players in the
Selby: If you look at the supply today, you’ve got a handful of groups
that really control the biggest bulk of supply. You’ve got Indonesian
production that we’ve talked about in terms of NPI and to integrated stainless.
You have the Chinese Nickel Pig Iron producers that have been taking ore from
Indonesia. But we’ll have to get it from the Philippines and a few other
countries to continue to produce Nickel Pig Iron in China. You’ve got the
larger integrated historical producers. Vale, Inco from the past, Glencore with
Falcon Bridge from the past. And then the Russian producer, Norilsk. Each of
those are large integrated Nickel producers. AuraMet is a smaller integrated
producer and has again been around a long time. And then obviously BHP has
their operations in Western Australia. So that large base of integrated, multi-asset
producers who Nickel has just one of their commodities, is other important big
chunk of supply.
Gordon: The thing that those guys all have in common is they are vast. Big companies
with access to finance. Because Nickel not cheap to put together.
Selby: Yes, it is not.
Gordon: From investors point of view. You need to so understand when you’re
looking at companies you need to understand where they fit in the cycle. I think
we will get to the end of this conversation. But in terms of picking winners,
it’s good to understand that the thesis behind Nickel. And how companies can
actually monetize what they’ve got. So on the supply side, just as a first
conversation, thank you very much. Demand. It comes back to our lovely Super
Cycles. Demand at the moments is what sorts of levels?
Selby: Demand has continued to be quite robust. That’s one thing people
underestimate about Nickel. Nickel demand is grown at an average of almost 5% a
year over the last decade. For things like copper and zinc, the comparable
number would be 2-3%.
Gordon: What’s that been driven by?
Selby: Stainless-steel growth. Batteries are just 2% of the market
today. It’s a very small amount and is going to grow very quickly and very to a
very large number. All of that historical growth has really been driven by
stainless-steel and to another extent, alloys and Alloy steel. And the reason
it’s able to grow and will continue to grow is stainless-steel is a very small
fraction of the overall steel market. So stainless-steel has a lot of
properties in terms of long-life, highly recyclable, which are becoming more
valuable in today’s economy. Stainless steel continues to steal share from
other types of steels. We don’t expect any slowdown in stainless-steel demand growth
Gordon: Is that coming out of China as well?
Selby: Yes, China has
been the massive source of demand growth, but it continues to grow in a lot of a
lot of other countries.
Gordon: What are the other common demand drivers for Nickel at the moment?
Mark Selby: The other big one is high Nickel alloys. That’s one of the things with China is that it moves up its economic development curve. You start with carbon steels, you move to stainless-steels. And then when you get into other sectors of your economy that become more important, you start to use Nickel as Nickel, and things like high Nickel alloys that, are used in jet engines, gas turbines. Nuclear power plant alloys. There’s another big chunk of about 15% to 20% of Nickel demand that goes into those types of applications. And every time you’re sitting on a plane, if you look out a window, there’s several tons of Nickel in every one of those jet engines. So as tourism becomes a big part of the Chinese economy, and Chinese tourists start to fly everywhere, they’re ordering thousands and thousands of planes. That’s helping drive Nickel demand globally for those airframe manufacturers.
Gordon: So you going to stick with the Super ~Cycle because it sounds
terrifying and exciting at the same time to me. Where do you think we are in
relation to the next Super Cycle? We know the price is today. Where do you
think it’s going to get to?
Selby: I think we’ve completed leg one. It’ll be three or four legs. You
have a set of conditions that sort of have to unfold over a period of time. What
set the stage for Super Cycle today is and when what historically has happened
the past is, you end up in periods of underinvestment. To your point on supply,
in supply you’ve got a lot of large companies. Well, they chose not to allocate
capital to non-Nickel projects over the last decade or so. So most of the
existing production has shrunk over the last decade. The existing mines are
deep underground mines, or larger scale processing plants. Those are things
that you can’t, add something and 12-months and be in production. It takes multiple
years to do it. 2 underground projects. Vale finally approved the Voises Bay underground
project a couple years ago, but that was announced in 2017 – 2018. First Nickel
is not till 2021, and it doesn’t ramp up until 2023. 5-years from announcement
to full production. Glencore and Sudbury again new mine in Sudbury called Onaping
Depth. The first production won’t be for 3-years, because they’re sinking a several
thousand metre shaft, and then it won’t ramp up fully for another few years
after that. So with that under-investment, supply can’t be flipped on quickly
again. So that’s starts the set the basis for it. And then there’s, a demand
surge that comes out of somewhere. So, in the late in the 1960s, when we had
the big spike, it was Japan that was growing very quickly. And there had been
some underinvestment in Nickel, and they couldn’t catch up quickly enough. They
then overbuilt in the 1970s. And in the 1980s, you had Korea and Taiwan
industrializing. And so that was driving a significant amount of new growth.
And we’d come off 10yr or 15yr of low Nickel prices under-investment as people were
rationalizing vastly. That was overbuilt in the early 1970s in response to the
big spike in the 60s. And in the 2000s, through the 1990s, Nickel had to absorb
the collapse of the Soviet Union. So that was a big Nickel producer and
consumer and their consumption of Nickel dropped by 80%-90%. And you had this
huge amount of new supply introduced into the market and huge amount of scrap
that came into the market, as basically the Russian economy got torn down and sent
its scrap to the West. That time period leading up to the early 2000s had seen
a significant under-investment in Nickel capacity, and then China came along
and set the spike. So in this case, we’re coming off a decade of under-investment
in other capacity outside of Indonesia. And we see now electric vehicles on the
horizon. Then a big lump of demand that’s coming from the EV story.
Gordon: It’s fascinating because you’ve seen the replications and so therefore
there are patterns, with these emerging economies, as they grow, get ever more
demanding consumers. China at the moment is. Where are they in the phase of development?
Because if you look at some of the cities and its hugely sophisticated. 1.3Bn
people. They don’t all live in the cities.
Selby: And that’s it. The thing that’s important about China is it’s
not just one country. You’ve got several different areas that are going through
a different stage of industrialization. So the Eastern coastal cities are
probably all very up the curve. And then as you moved into the Western Centre
of the country, you get less and less developed. So there’s, other parts of the
regions that are moving up the curve. And then China’s got its Belt and Road
policy. They’re extending that infrastructure build out into their neighbouring
Gordon: We were there last year, Chengdu, Sichuan… And it’s exciting. There is
a notable difference. But it’s coming. That wave is still there. They still
have a way to go. This is so much of it. So the demand side of things for China
is still encouraging for Nickel suppliers. And that’s not just the EV.
Mark Selby: That’s just 5% demand growth that we’ve seen in Nickel and will continue to see for long time. We don’t see that slowing down anytime soon.
Gordon: How do companies work out where they fit in to the mix? So you’re
looking at these Super Cycles happening and these growth patterns. And, all the
numbers point up, the pricing points up, but it takes a while to get into
production. It also takes a lot of money to get into production. But before you
get anywhere near production… how does a junior company establish itself in a
world of giants? You mentioned super huge companies with big balance sheets and
access to cash. How does a small company get into the market and establish
Selby: So one of the opportunities and this is actually going to be a
fundamental shift, that’s going to happen over the next 3-4yrs. Nickel
processing, historically was an oligopoly controlled by Falconbridge, Vale. Norlisk.
Glencore. The problem for small miners was, you could build your mine, but then
you had to sell your concentrate to somebody. And unlike, copper and zinc,
where there’s benchmark terms, they’re negotiated very competitively every
year. There was, some fairly, take it or leave it pricing, which transferred a
significant amount of that value to the smelter refiner, and away from the
miner. Mining is hard. But when you end up having to give up a fairly
significant share of that value to the smelter. What’s now going to be changing
in the Nickel space? It’s we’re not there now, but over the next 2-3yrs is the
Chinese and every other semi-finished, semi-processed material goes ahead and
builds way too much capacity to meet the market demand. And then they bid up
the price of the feed to a break-even number. With Nickel sulphate for EVs, a
massive amount of capacity is required in Asia. They will build capacity to
take various Nickel intermediates and then process them into the products that
the EV market is going to need. So it’s opening up the door now for smaller sulphide
mines to be able to come into production and have competitive pricing for their
product in 2-4yrs. It will create the opportunity for some smaller producers to
more easily come to market. In terms of laterite ore suppliers, China is going
to need ore supplies, because Indonesia is now not going to be supplying it.
There’s not a lot of places where you find laterite ore in coastal deposits
that you can ship out of the country. But there are some places.
Gordon: Can you explain the difference between those types of ores.
Selby: Yes. There are two primary types of Nickel deposits. Sulphide
is what you think of in Sudbury and so forth. And so that the issue there is
generally the mining is expensive. You have to build a deep open pit. Now there
tend to be deeper underground mines or bigger open pit operations, processing
low-grade Nickel. Once you make a concentrate, because you upgrade it from
anywhere from 0.3% to 3% Nickel, up to something that’s 10%-15% Nickel. The
processing of it from there is relatively uncomplicated, smelter refiner and it
gets them. The tricky part for a laterite project is it is much easier mine.
It’s basically a rock that’s been converted to dirt, over time. And in that
process, the Nickel and Cobalt gets concentrated in the soil. You literally are
just digging dirt. These mines in Indonesia, that ship ore to China, literally
just dig it up, put it on a boat. The mining part of its quite simple and cheap,
and the processing the mineral that’s the Nickel is in is a very complicated
minerals so you have to use a lot of energy either through electricity to melt
it all. And that’s how Nickel Pig Iron works. You take all that soggy dirt,
dump it in a furnace and melt it and make Nickel Pig Iron ore. You have to use
energy in the form of acid to break the bonds, to liberate the Nickel and Cobalt.
That’s the HPL process. Those are big, complicated, expensive plants to do
that. So one’s easy to mine. One is harder to mine. One’s much easier process,
one’s much harder to process.
Gordon: And while you’re explaining the technical detail, cause there’s lots of
talk in the market about Class 1 and Class 2 Nickel. For the audience can you
explain what the difference is.
Selby: There’s been a massive amount of airtime about this particular
discussion. And the issue is more should be more about how many total Nickel
units we have. At the end of the day, you can take a sulphite intermediate and
you can make a range of products with it. You can make Nickel Pig Iron, Ferro
Nickel via the roasting approach that we had a Dumont. You can take that to a
smelter and to make finished Nickel products, and the same thing through the
laterite source-based material. Most of that does go to make NPI today, but
there’s no reason…there are producers, PT Inco, AuraMet that have produced for
a long time that make a product that does go to a Nickel refinery that gets
converted into finished Nickel and cobalt products that can be used for the
battery sector. I think it’s very important for investors to not get caught up
in that particular discussion. The Chinese are going to build lots of
processing capacity to process intermediate’s junior mining companies, having
processing plants at a location to make a product. That specification as we go
to have more Nickel in batteries that the specification for that sulphate gets
stricter and stricter and stricter. Are you going to build a sulphate plant and
then continue to improve that plant to be able to make that product? You should
just focus on making high quality intermediate and then you will have a market
to sell that into in the future.
Gordon: You are saying Class 1 & Class 2 is a distraction for investors,
because the market will resolve the economics around that.
Selby: Exactly. There will be short-term dislocations. So, don’t say,
today the premiums X, but Nickel sulphate premiums were $2,000 two years ago
They’re down to zero today.
Gordon: So back to our small company. You think it’s going to be easier for
junior Nickel miners to actually get into market, be able to, not just find Nickel,
dig it out the ground, but actually get it processed in market.
Selby: At a competitive price.
Gordon: It’s got to be economic. Do you think mining Nickel in the past is
advantageous, or do you think Nickel is a relatively easy type of commodity to mine?
Selby: Generally mining is. The bottom line, the technologies,
processes that are used are similar. If you’ve run a copper mine, you should be
able to run an underground copper mine; should be able to run an underground Nickel
Gordon: We’ve talked to some CEOs of commodities and who have not mined in this
space, who say you don’t know what you don’t know.
Selby: I would say it’s consistent with the other base metals. Each
metal does have its specifics. But you can find the expertise and put it in the
Gordon: I said earlier in the conversation, we’re going to try and work out how
we can spot winners. So on a no names. I don’t want to pick any companies out.
I want to understand the profile a little a little bit. There are bulk plays. And
slightly higher grades. And they each have different challenges. So bulk for me
is a little bit below 1%.
Selby: No, it would be below 0.5%.
Gordon: What are the higher-grades?
Selby: Higher-grades would be 3-4% Nickel. You get some massive sulphide
Nickel, smaller players in Western Australia, and then you get another sort of
bucket sort of between 1-3% that you could mine underground on a larger scale.
Again, the biggest challenge with Nickel, is there’s not many new Nickel
discoveries. If you look at the project pipeline of most metals, there’s
literally hundreds of gold projects. There are dozens and dozens of copper
projects. In the Nickel space there really are a very limited number of projects.
And, there’s been a very limited number of new discoveries. When investors
start to look at it, there isn’t a big universe of Nickel opportunities with
which to invest in.
Gordon: And we have the pleasure meeting a few people with large-scale . This
is a bottom up in terms of resource. But they’re all struggling at the moment,
because the money’s just not there for them. But if you talk to institutions or
banks, what are they feeling about this? But given the Super Cycle component, how
does a financier put together a package based on what they’ve seen go on in the
past? Or does it not matter to them?
Selby: Dumont for the first 7-years, Nickel was an out-of-favour metal.
There were concerns over the long-term price. It was very hard for people to
get their head around building a big $1Bn Nickel project at that point in time.
But with the shift over the last 2-years, the thing that’s been fascinating
with the EV sector is they want the Nickel now. And they keep asking when can we,
how quickly can you double it? Can you double it a second time? They have such
massive growth requirements that discussion is starting to change. And I think
one of the things, that’s to me is fascinating is you’re seeing literally tens
of billions of dollars of investment in battery capacity. But they haven’t
necessarily done that for the metal that they’re going to need yet. They’re
going to wake up to that reality soon, that if you’re not also building the
capacity to provide the raw materials that you’re going to need. It’s going to
make it more challenging to make the battery if you don’t have this stuff, to
make the battery out of this.
Gordon: It’s quite confusing for investors, because almost every company that
we speak to is pitching the EV revolution …’that’s going to change our fortunes’
and therefore invest in us. Whatever the pitch is, some are more believable
than others. We’ve had people talk about the timing of all of these things. The
reality is a couple of years away. And realistically not going to be impacted by
the EV revolution or price in the market, etc.. Demand in the market at the
moment. But the what they what they will say is. ‘Get in cheap, our stock is
cheap today. Get in ahead of the crowd’. How do you pick winners? What should
we be looking for specific to market? What sorts of what are the sorts of
things that should be avoided?
Selby: The things to focus on are… because most projects are
expensive. Vale’s new underground mine Voises Bay $1.5 billion. Glencore’s new
mine $1Bn. Most Nickel projects are going to require $1Bn or so of CapEx To be
able to fund that kind of investment, you need large companies to be
interested. I think that’s one of the one of the things to look at is, is the scale
of the resource that this company has got going to be attractive to one of the
majors who say, ‘I want to grow in the battery material space and I can do that
through Nickel’. If in attracting investment from the EV companies, they’re not
going to fund 62 little mines to come into production. No, they want larger,
long-life, large scale assets that can hopefully grow with them as they grow
Gordon: So what is large scale?
Selby: Nickel is a 2.4Mt market. And if you can produce, 20,000 to 30,000
tonnes a day. That’s a decent size mining operation. So roughly 1% of global
Gordon: And if you can’t?
Selby: I’d say that’s one class of investment. I think the other
opportunity again would be smaller scale, that is produce a concentrate. Just
make sure that, they’re using realistic operating cost assumptions and
realistic capital cost assumptions, in terms of if they’re restarting a small
scale mine. There are some of those opportunities out there today. Some of them
are good, and are at a good price. They’ll be able to come to market relatively
quickly and participate in the cycle as the Nickel market rebounds. When we were
at RNC, we did the joint venture with Waterton. The cash-pool that we did was
to sell down part of Dumont to be able to pick up some of these smaller scale
restart opportunities. So you could participate in the cycle more quickly. As
opposed to having to build a big project for 2-years. I would say that it’s the
world scale asset, the sort of small-scale restart or small-scale resource that
you can bring into production relatively quickly and cheaply. But again, make
sure they’ve got realistic operating capital cost numbers.
Gordon: You talked about Sumito and HPal earlier. If someone’s pitching to the
market, they can build a HPal operation for less than $1Bn. You’ve got to ask
does that makes sense to me.
Selby: There’s been one successful person, and that’s the cheapest. They’ve
built multiple plants. They built it in the Philippines, which is a very low-cost
place to operate. If you use that as a benchmark. And then scale it up from
there. If you’re in a higher cost country than the Philippines, then that cost
should go up. They only made an intermediate, they shipped an intermediate
product that went to their existing refinery in Japan. If someone’s going
downstream and going to a final product, that should be another chunk of higher
cost. Because some of the less successful plants, if you look at some of the
CapEx numbers, they ballooned to $7Bn-$10Bn before they started to work even
close to properly. So that’s the upper end.
Gordon: So the answer is, you would be suspicious of someone saying HPal
operate, if you’re spending less than $1Bn, that would be a red flag. Thank you
Selby: I would say justify to me why you think you can build a better
than Sumitomo Metal Mining.
Gordon: Coming back to small companies. They are going to have to find
strategic investors. Because with the balance sheet to be able raise the money
to be able to invest in a Nickel project. How should companies structure those
relationships? Obviously, you don’t want them coming into Pubco, because
there’s going to be nothing left of the company. They tend to come in at asset
level typically. What do those relationships look like?
Selby: The Nickel projects that will get advanced this cycle are
similar deals to what you saw in the copper space. You have an Asian either off-taker
or a strategic who wants access to that material? And do they come in on a
joint venture basis. They provide a big chunk of the equity capital that’s
required and provide the balance of the financing to get that in place, we just
haven’t seen it in Nickel yet. But it will be coming.
Gordon: I’m going to just to thank you because it is. Mark, thanks very much
for your time today. Really enjoyed that. I learned a lot. I hope everyone else
does too. We’re going to talk about your Canada Nickel company maybe when you
when you’re back in Canada. So after that would make you look forward to
hearing about that. But thank you very much for helping us learn a little bit
more about the Nickel market. If we can talk to you again, some future date
with some questions which do come in from a lot of the viewers and subscribers
Selby: Oh, very much glad to do it. I think this is a metal that
people haven’t had a chance to invest in very in very many ways. So, the more
educated investors are, the better decisions are going to make.
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