Lithium – A Noble Investment Pursuit

“Lithium” is an opaque, nuanced and secretive industry. It is also quite small. To simplify, in 2019, lithium chemical sales approximated 300,000 metric tons at approximately $10,000/t or about $3B in revenue.

But, if you believe in the disruption of the transportation industry from electric mobility, and to a lesser extent the utility industry from wind and solar storage, “little lithium” could grow some 15-20% per year for as far as the eye can see. Over the next 10-years – by 2030 – demand for lithium could reach 2M metric tons per year, requiring approximately 1.7M new tons of production. At $10,000-$15,000 average lithium price, lithium industry revenues may growth 7-10X to $20-30B.

Lithium’s phenomenal growth trajectory is predicated on a “killer app” – the lithium-ion battery. First introduced in the early 1990s, lithium-power has proven its (base) mettle and is now ubiquitous in nearly every consumer electronic device and power tool the world craves. The lithium-ion battery has become a sufficiently cost-competitive technology that the vast majority of the world’s electric vehicle infrastructure – Gigafactories, and soon to be Terafactories — is being built up on it.

Source: Piedmont Lithium, Corporate Presentation, May 2020

Volkswagen, the incumbent auto OEM most determined post-Diesel-gate to catch up to Tesla and making the biggest bet on future e-mobility, has famously declared lithium to be the “irreplaceable element for our electric future”.

This article is geared to those in Tesla and VW’s camp. Those who fundamentally believe the transition to high EV penetration rates is a question of how fast, not if. And those who further believe that, despite some short-comings, the light weight, energy dense and abundant attributes of lithium – and the vast sunk costs, and long investment cycle of lithium battery manufacturing plants in operation and under construction – will ensure lithium will not be displaced in any portfolio equity investment time horizon that matters.

My purpose here is to argue that institutional and retail capital allocation and mindshare to the lithium investment thesis is as or more worthwhile a human endeavor as is similar time and money spent on gold, copper, oil or any other cyclical material extracted from earth. Profit-seeking providers of equity capital who also aspire to help save the planet with sustainable, impact and ESG-focused clean energy investment strategies, should view upstream lithium producers and developers as a means to play the emerging EV economy – in a similar way oil & gas investment was a means to play the century-old ICE age. A noble pursuit.

Specialty commodity lithium

Commentary about the lithium industry – and lithium equities – is filled with passionate proponents and determined detractors. Bears see it as just another “commodity,” like iron ore or coal, smelted copper or aluminum, or refined petrochemicals. And worse, one which is not scarce, hence there is no structural impediment to meet the massive new demand with abundant, low-cost supply. Hence, Economics 101 teaches us; there is no fundamental reason for lithium prices to rise beyond the marginal cost of production or producers to earn disproportionate economic returns. Countering “hair on fire” 2016/2017 lithium bulls (Lithium 2.0) – just like its 2009-2011 predecessor (Lithium 1.0) – loud, and bullying “Big Short” calls were made in 2018 by Alliance Bernstein, Morgan Stanley, BMO and Macquarie.

Meanwhile, white metal protégés parroted equally pungent protagonists – current and former lithium executives who toiled for years with the obscure “industrial metal” few cared about, bristled at commodity comparisons and sold instead “nuance” for their beloved “specialty chemical”. You can’t just dig up and ship lithium. It’s not easily refined to standardized specs nor stored for long periods in warehouses and tradeable on exchanges like the LME. Lithium industry professionals are highly skilled with advanced chemical engineering degrees. Unlike carbon-based organic chemistry, lithium scientists struggle with the flow sheet and processing challenges of hydrogeology and inorganic chemistry. It is lithium, one could argue, with its litany of PhD practitioners, that is more deserving than copper of the “Dr.” moniker. All true. But Mr. Market followed the “China spot price” these experts advised investors to ignore.

Lithium’s ascent from $5,000/t in 2015 to $25,000 in 2017 – albeit for tiny volumes but tracked as “China spot” – and the ensuing financing and M&A speculation it engendered, proved unsustainable. As will today’s low-quality China spot south of $6,000 – below most producers marginal cost. Those who “make the grade” i.e., Tier One lithium producers selling to Tier One cathode and battery makers selling to Tier One Western Auto OEMs who are guaranteeing their customers 8 to 10-year battery warranties, are getting today, and should continue in future to get $12-15,000/t long term for the privilege. Identifying those that can produce Tier One quality for Tier One customers for $5-6,000/t AISC is where the lithium (rubber) meets the battery (road) – and should stimulate hand-to-wallet reflex at today’s deeply discounted equity prices.

The bears miss this nuance, and their 2018 short stories were “right for the wrong reasons” – Trump’s 2018/19 trade war, China’s significantly reduced 2H/19 subsidies and now COVID-19 resulted in a sharp demand hiccup. This “under-demand” caused the price collapse, not a surfeit of low cost, qualified supply for western OEM EV batteries that the institutional sell-side predicted.

Of the 2Mt forecasted 2030 demand, the vast majority will be for higher priced “battery quality” chemicals – on balance, “specialty hydroxide” for range-conscious Europe, USA and Japan/Korea. “Commodity carbonate” will be primarily for China and India and other emerging markets whose consumers, often buying any vehicle for the first time, have little concept of “range anxiety”.

Professional equity market investors believing the specialty chemical narrative argue lithium shares should trade at higher EV/EBITDA multiples – say, 10-15X – than perhaps 5-7X for commodity copper and iron ore equities, for example. I pushed this thesis for many years assuming incumbents with quality assets and quality managements operating in a market in which they held Oligopolistic market power inherently understood their end markets and would deliver sustainable, high quality earnings from both steady volume growth and stable to rising prices enabling predictable, high 30/low 40’s EBITDA margins.

And yet. Little lithium proved to be just like Big Mining. A successful “trade”: 5-20 baggers in some names for the most astute timers. But a poor “investment”. Lots of pain and remorse for long-term buy and holders. Persistent operational failures and shareholder value destruction – on balance, euphorically overpaying for assets and/or delivering projects late, over budget and over cost. Mistakes by established players and juniors alike. By Western incumbents and their Chinese brethren. The jury is still out on what is the appropriate multiple that de-rated lithium equities should ultimately trade. Mr. Market lithium is messy. A roller coaster. Like other commodity equities. And non-commodity equities.

Long-time lithium equity investors, like me – have now experienced 2 cycles. After the joy and pain of Lithium 1.0’s false start in 2009-2012, it was easy to believe that a super-cycle began with 2014’s Gigafactory 1 in Nevada. Tipping Point Tesla and its S3XY vehicles would unleash a long Lithium 2.0 ride. And yet. Today, hair no longer on fire, but still standing on end, from a post 2016-18 electric shock.

But, as Rick Rule says so eloquently in his recent Crux Investor interview, in cyclical sectors – and lithium, whether commodity or specialty has proven without a doubt to be highly cyclical – the seeds of every bull market are sown during bear markets like that underway in lithium. For investors high on lithium, then high on cannibas, and now depressed by both, it’s time to revisit the former. If you’re looking at lithium for the first time, the below Mr. Market Lithium Scoreboard – RK Equity’s universe of publicly listed lithium equity plays – is a good place to start to evaluate the seeds of Lithium 3.0’s boom.

Before EVs, lithium was and still is used therapeutically – a treatment for bipolar disorder. But in today’s post COVID-19 EV world, in which supply chain resiliency is as big a tailwind thematic as is sustainable clean energy, equities and projects that counter today’s China/non-China Disorder Bi-Polar are paramount.

The Geopolitics of Lithium

Some 65% of lithium chemicals today are processed in China, including 80% of highest value battery quality lithium hydroxide. Much of this processing comes from hard rock spodumene supplies in Australia, though exports of lithium carbonate chemicals from Chile and Argentina also account for a significant minority supply.

Note. China, Argentina and Chile are “emerging markets” jurisdictions with attendant supply chain risks including poor infrastructure, coal-fired electricity, unpredictable macroeconomic and tax policy and high inflation. Additionally, draining South America brine ecosystems at low 30-50% recovery rates in dry deserts often conflict with tourism and indigenous population sensibilities. Each lithium brine is unique and technically challenging, challenges often exacerbated by rain events and operating at high altitude. Further, a lithium molecule travelling 5,000-25,000 miles around the world on fossil-fueled transport – whether from South America or Australia to China then Korea/Japan and then to Europe or USA – is not an ideal carbon footprint.

In combination, the current industry production spread for lithium is unsustainable. Fortunately for little lithium – like any toddler – it can grow up to be almost anything it likes, really, in contrast to aging copper, steel, aluminum and oil to name just four, that have entrenched constituencies and sunk costs that are hard to unwind. Localized lithium – in closer proximity to #2 and #3 North America and Europe end markets – is the future.

In the 1950s, similar to today, lithium became relevant for national security of supply considerations. Its use in the hydrogen bomb meant that importing lithium from Canada became untenable in Dwight Eisenhower-led America. It’s for this reason that North Carolina developed nearly 100% of the world’s lithium industry from hard rock similar to that currently produced by China and Australia. Before South America’s “Lithium Triangle” became a thing, The “Charlotte Quadrangle,” the “Carolina Tin-Spodumene Belt” was where lithium was at.

This legacy remains today with the #1 (Albemarle) and #5 (Livent) lithium producers globally processing the remaining 20% of the world’s battery-qualified hydroxide near the Queen City of the South, Charlotte. And a new, partially permitted PFS-stage developer (Piedmont) is focused on going “Back to the Future” recreating a Hard Rock to Hydroxide Hub in what is America’s #2 solar and seventh biggest mining state.

In addition to North Carolina, the USA and Canada have promising projects in Nevada, California, Utah, Arkansas, Alberta, Quebec and Ontario which could supply North American and European markets. Mexico, Brazil and perhaps Peru as well. Europe too, to a lesser extent, has some home-grown aspirants in Portugal, Spain, Germany and the Czech Republic, to name four that have attracted more attention and capital than others.

A sweet spot size for a battery quality lithium chemical plant is 10,000-25,000t capacity. Assuming 20,000t, more than 75 new plants will need to be built globally, alongside accompanying precursor lithium material that must be mined from conventional hard rock sources and new innovations in clay/sedimentary deposits. Likewise from evaporated brines from salt lakes, or using direct lithium extraction technologies, which can potentially unlock as well unconventional brine resources in which low concentrations of lithium are contained within geothermal power or bromine plants, or in old oil fields.

At an average capital intensity for mine and chemical plant of $25,000/t, 75 plants at 20,000t capacity will require nearly $40Bn in capital investment over the next 4-5 years to meet 2030 lithium demand forecasts. This is an enormous amount considering the collective equity market cap on the Mr. Market Scoreboard is less than $25Bn. But it is a trifling sum when juxtaposed to Big Oil companies like Exxon or Chevron with capex budgets for $25Bn PER YEAR, or Big Auto who each spend $4-5Bn each year on advertising alone. Those industries are suffering at present. Will Big Mining will step up to a good Li Fe? Or will it be Terafactory-talking Tesla “getting into mining” to cause lithium FOMO?

Listen to Dr. Lithium: it’s a great time not just to chase archaic relics, but to embark upon equally noble pursuits with the irreplaceable element – for a cleaner, more optimistic future.

If you want to find more on the lithium market from Howard Klein who publishes a newsletter at and on Twitter @LithiumIonBull. Howard Klein is a shareholder and paid consultant to Piedmont Lithium.

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

RNC Minerals (RNX) – Share Rollback Clearly Good for Retail Shareholders

RNC Minerals
  • TSX: RNX
  • Shares Outstanding: 608M
  • Share price C$0.57 (23.05.2020)
  • Market Cap: C$347M

Matthew Gordon Interviews Paul Huet of RNC Minerals, 14 May 2020

It has all been enabled by solid gold production numbers and the resulting cash. And it hasn’t happened by accident, or just because the price of gold has risen $500 in the last 8-months. This turnaround story, led by CEO, Paul Huet, has happened by design and rigorous planning.

Exciting Moves

The recent news flow is also by design and rigorous planning. Some exciting moves by the company; buying back of the entire Morgan Stanley Royalty; the acquisition of Spargos Reward; a name change; and a rollback. Shareholders are being asked to vote on these in June as they require shareholder approval.

Not that we can imagine why shareholders would want to contradict the companies recommendations, we thought we should look at the moving parts again.

Morgan Stanley Royalty

RNC Minerals has managed to eliminate the Morgan Stanley royalty that has stood for decades. This move is worth tens of millions to the bottomline, and this should have a truly transformative impact on the company’s ability to profitably fill the Higginsville Mill, which is the name of the game.

Spargos Acquisition

A group of four mining workers stand proudly in front of a huge hunk of gold ore.
Beta Hunt Coarse Gold

The Spargos acquisition is super smart. It adds higher-grade ounces to the RNC feed for their mill. It also signals to Maverix that the negotiation on their Beta Hunt royalty just got serious. RNC Minerals has all the feed it needs for several years and is happy to play the waiting game. Beta Hunt is a significant proportion of the Maverix revenue. And it hard to see how RNC Minerals makes money mining their under the current royalty agreement with Maverix Metals. Maverix needs to come to the table with a reasonable offer or be prepared to write down its revenue forecasts from Beta Hunt for the foreseeable future. Tough play by Huet, but absolutely in the interests of the company and shareholders as always.

Karora Resources

The name change is a no-brainer. Institutions and gold funds still think of RNC Minerals as the Royal Nickel Company. Why, I don’t know, but they do. We’ve had those conversations ourselves. I don’t care what the new name is and to focus on it is to miss the point. Huet has instigated wholesale change in the company. It is producing gold; it has a mill; it has c.$40M cash; it has removed a large royalty component to costs; it has replaced the operational team; reduced costs; reduced AISC; consistently delivered ounces through fires, floods and COVID-19; it has made cheap accretive acquisitions; I can go on and on. The point is it has been all-change throughout the company, and it’s time for Huet to put his stamp on the things. I’ll give him this one without missing a beat.

Share Consolidation

In addition, a share rollback is what investors have been waiting for. For savvy investors this isn’t a case of why, but why haven’t they done this sooner. This move, if voted through transforms the company from junior to mid-tier territory. It is especially good for long suffering retail investors. Why?

US Generalist Funds cannot invest in penny stocks. The roll back removes this barrier and opens RNC Minerals up to significant global trading accounts. Finally! And as a +100,000 oz producer, it gives the company a capital structure in line with the piers it aspires to compete with. Perhaps this next reason is a little forward looking, but not out of line with current aspirations for the company, should the company be in a position to look at M&A in the US, and potentially a listing in the US at some point in the future, it takes them past the required $3 barrier. But perhaps the biggest component which is often forgotten, by retail investors in particular, is the ability to use margin.

Prior producer consolidations have all been well received. Companies who have successfully consolidated: Americas Gold & Silver, Endeavour, Eldorado, Equinox, Golden Star, Leagold, Teranga, TorexGold. Verus Peers the average performance metrics look good:

+26% 6-month; +44% 12-month; +32% 24-month

Other important factors to consider in another article are:

  1. Improved per share metrics – greater analysis accuracy, better financing pricing, lower commissions for those charged on a share basis
  2. Institutional / Banker / Broker support – these guys want a rollback so they can support the stock
  3. Increased institutional investment eligibility – gets company out of the penny stock territory and into significantly increased liquidity
  4. Increased institutional investors should reduce shorting
  5. Current gold bull environment is positive

If you are a shareholder, first of all congratulations, this company is finally going places. And secondly, my take on the shareholder vote is show confidence in the CEO who has turned this ship around and vote with the company and its recommendations and look the future because it is bright.

Company Website:

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Getting Back In The Game: The Nuclear Fuel Working Group Report Is Out

“Uranium, the foundational element of the US nuclear industry, transcends treatment as a pure commodity… Uranium is the most powerful element found in nature.” US Department of Energy, Restoring America’s Competitive Nuclear Energy Advantage, 2020

The final chapter of the long-running section 232 saga has finally closed, with publication by the US Department of Energy of its report, Restoring America’s Competitive Nuclear Energy Advantage: A strategy to assure US national security. The long-delayed report contained recommendations from the Nuclear Fuel Working Group, which was established by President Trump when the White House released its findings from the s232 trade investigation into uranium imports.  The history of this trade investigation – and the  resultant Working Group – is summarised in this refresher article.

The Report confirms previously announced support for the flagging US uranium mining industry and is good news for the broader nuclear industry and uranium sector.  As well as ending a long period of uncertainty, it will support near-term uranium demand from the US nuclear sector, limit any further reactor shut downs and potentially drive longer-term demand from other markets as the US pushes its allies on nuclear reactors and re-engages with the merits of nuclear power in bi-lateral discussions.  These actions cannot be implemented without an escalation in geo-political tension, which will have important implications for the politically concentrated uranium mining sector.

I believe the Report is very positive for uranium demand in the immediate and long term.

Contained within the Report’s 30 pages are plenty of positives for the broader uranium sector, in the context of a frank recognition that the world’s largest economy has dropped the ball on the most strategically potent civil export industry.  It is a strong statement of intent for them to pick up that ball and get back in the game.

The Report emphasises the crucial importance of nuclear energy to the foreign policy goals of its rivals, Russia and China, and sets out a policy roadmap with a plan to:

  1. 1. Take “bold action” to revive uranium mining, support conversion, end reliance on foreign enrichment and sustain the US nuclear reactor fleet;
  2. 2. Regain global “nuclear energy leadership” from Russia and China; and
  3. 3. Recover the United States’ credibility and former position as a world leader in exporting nuclear energy technology.

The report described 18 key policy measures, the most relevant of which are below.

Reviving and supporting the US nuclear fuel cycle

  • The direct purchase, starting 2020, of uranium from “at least two” US producers by establishing a Uranium Reserve.  Whilst the FY2021 budget already allocates $150m for this purpose, further congressional approval will be sought to expand this initiative to acquire 17-19 million pounds of U3O8 over 10 years and conversion services from 2022 to generate 6,000 to 7,500t of UF6.
  • Ending the DoE’s bartering of uranium – an unhelpful source of up to 5 Mlbs per annum of secondary U3O8 supply that the Trump administration had already suspended.
  • Supporting uranium mining through streamlining regulatory reform and land access.
  • Extending the Russian Suspension Agreement, which limits the quantity of Russian uranium/enrichment that can be imported into the US.
  • Preventing any potential penetration of the US fabrication market by enabling the Nuclear Regulatory Commission to deny the import of fabricated nuclear fuel from Russia or China.

Regain nuclear energy leadership (starting at home)

  • Supporting the continued operation and growth of the US nuclear fleet by creating a level playing field for nuclear energy to compete in the US with subsidised renewable energy.

Recovering credibility as an exporter of nuclear energy technology

  • Enacting several technical and administrative measures to support the development and commercialisation of US Small Modular Reactor and Gen IV nuclear power technology.
  • Implementing various measures to enable the US to compete in the export of conventional and new nuclear technology.
  • Increasing the US nuclear industry’s ability to compete with Russian and Chinese reactor sales.
  • Ensuring U.S. financing institutions support civil nuclear industry to compete against foreign state financing.

There are several important implications for the global uranium sector

  1. 1. The publication of the Report concludes the s232 saga and removes uncertainty that has hung over the sector since January 2018, enabling US utilities to focus on their procurement strategies in light of COVID-19 uranium supply disruptions that have exacerbated a structural deficit in uranium supply and demand.
  2. 2. The Trump administration has outlined several potent policy measures that support US utilities and – perhaps subject to a return of the administration in November  – will boost their operating confidence and capacity to plan.  
  3. 3. The DoE uranium barter will be removed, eradicating a source of secondary uranium supply that had pushed as much as 5 million pounds per annum of price-inelastic uranium into the market.
  4. 4. The intended purchase of conversion services from 2022 lays down a path to restarting the Metropolis Works conversion facility, which will de-bottleneck the conversion sector and promote uranium purchases in the near term.
  5. 5. An escalation in geo-political tensions, particularly between the US, Russia and China, will emerge from the Report’s strong rhetoric and the implementation of the policy objectives.  This will have important implications for politically concentrated uranium production.  In particular, it will be highly beneficial for the Namibian uranium sector which is not politically locked into either the US, China or Russia and whom boasts positive trading relationships with all key nuclear fuel demand centres.

The Report was an assertive statement of bipartisan policy support for the US nuclear sector and its support of US foreign policy objectives.  However, whilst the Report pushes as hard as it realistically can on policy directives, it does not contain any new executive orders and many measures will remain subject to congressional approval and continued tenure of President Trump.  Further, US utilities will be wary of the potential for the domestic fuel cycle measures to increase their costs – so levelling the playing field becomes a first-order priority.

Whilst investors in domestic uranium companies may have hoped for more (in the form of specific financial outcomes that would generate immediate company catalysts), I believe the Report is very positive for uranium demand in the immediate and long term.  In the short term it helps with certainty and gives US utilities hope that they will be financially rewarded for the resilient, carbon-free attributes of their output.  If the policy measures are largely implemented, they will bolster nuclear fuel demand in the US and elsewhere as competition from Russia, China and the US boosts the viability and achievability of nuclear power penetration.

Brandon Munro is CEO of uranium developer, Bannerman Resources ASX: BMN, and regular uranium market commentator on CRUX Investor and CRUX Club. Bannerman Resources on Linkedin | Brandon Munro on Twitter

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Uranium Refresher: Recommendations from s232 Nuclear Fuel Working Group to be released today

Pinch yourself. It has finally happened. This time, it really will be released.  It will be – sniff –  over.

The US Department of Energy has announced  that later today they will release the report of the Nuclear Fuel Working Group, which was constituted after the s232 trade investigation into uranium imports.

The s232 saga started way back on 16 January 2018, shrouding the uranium sector in a mouldy wet blanket that has suppressed fuel buyer activity and tested the most resilient uranium investors’ patience. 

And now the final stanza in this long-winded ode is about to be told – at a media briefing starting at 10:50am (EDT) today.  An embargoed report will be provided to qualified media at 9:00am (EDT), with the embargo lifted at noon.  So, the time to start looking for media reports is 12:00pm EDT/Toronto, 5:00pm London, 7:00pm Moscow, 10:00pm Nursultan, 12:00am Perth and 2:00am Sydney. 

For investors new to uranium, here is a quick summary of s232 so you know what to look out for:

What is s232 of the Trade Expansion Act?

Section 232 of the Trade Expansion Act of 1962 is designed to protect national security industries that are under threat from imports or unfair trade practices.  It was introduced in the wake of the Cuban missile crisis, when lawmakers realised that many executive powers required for rapidly protecting US strategic interests could only be deployed in time of war.  Under s232, the Department of Commerce has a maximum of 270 days to investigate the complaint and, if the relevant actions threaten to impair national security, make recommendations to the White House. The President then has up to 90 days to decide whether to act on any recommendations, which must be implemented and announced publicly within a further 45 days. If the investigation confirms that (a) there are unfair trade practices and (b) those practices may put US security at risk, then the President has very wide powers that can be implemented without recourse to Congress.  

The last time a section 232 investigation was conducted into uranium was in 1989 – the US produced 40% of its uranium requirements at that stage so no remedies were enacted.  The Trump administration has since used s232 to impose aluminium and steel tariffs.

What started this s232 investigation?

Energy Fuels and Ur-Energy (the two largest US uranium producers) filed a petition in mid-January 2018 asking the Department of Commerce to initiate a s232 investigation into uranium imports. The petition argued that US uranium producers are under threat from “state-sponsored” producers which, although not specifically stated, would imply producers in Russia and Kazakhstan. The petitioners linked cheap Kazakh material to a decade-low uranium price that has forced almost all US uranium production out of business (in 2019 the US produced less than 1% of its uranium requirements). 

The petitioners sought a mandated requirement that US utilities purchase a minimum 25% of their requirements from US producers. The petition disrupted the procurement programs of utilities in both the US and elsewhere.  The utilities surprised the petitioners by pushing back hard, sparking a public debate that was, at times, vitriolic and disingenuous.  Many question how the petitioners will rebuild relationships with US utilities from here.

When did the investigation commence?

The Department of Commerce took six months to confirm, on 18 July 2018, that they would commence the s232 trade investigation.  The announcement was a relief after a protracted period of uncertainty and at least put a timeframe on the long process ahead.

The DoC provided a recommendation to the White House on 15 April 2019.  At no point was the recommendation made public, although Bloomberg reported on 21 June that DoC insiders had leaked the key recommendation, being an initial 5% quota that would escalate by 5% per year.

What did the s232 investigation find?

On 12 July 2019, President Trump announced the completion of the s232 trade investigation. 

President Trump decided to take no trade action, which lifted concerns that a quota, tariff or other trade action would be imposed under the broad power delegated to the President under s232.  Instead, President Trump initiated a review of the domestic nuclear supply chain (uranium production, conversion, enrichment and fabrication) in the context of the 2017 White House initiative to revive, revitalise and expand the nuclear energy sector.

What is the Nuclear Fuel Working Group?

Although President Trump did not agree that uranium imports threaten to impair the national security of the United States, he acknowledged that the United States’ uranium industry faces significant challenges in producing uranium domestically and that this is an issue of national security (because, for instance, the US Navy must use domestically produced uranium for its maritime nuclear power).  Accordingly, to address concerns regarding the production of domestic uranium and ensure a comprehensive review of the domestic nuclear supply chain, the President directed that a Nuclear Fuel Working Group be established.  The Working Group included the Secretary of State, Secretary of Energy and Secretary of Defence, amongst other key officials, and was charged with developing recommendations for reviving and expanding domestic nuclear fuel production (that is, uranium, conversion, enrichment and fuel fabrication). 

Why did it then take so much longer to resolve?

The Working Group was required to submit, within 90 days, a report to the President making recommendations to further enable domestic nuclear fuel production.

The deadline was initially 10 October 2019, although in mid October the deadline was extended by 30 days when the process was “in the final stages of the inter-agency process within the executive branch” according to Secretary of Energy, Dan Brouillette, who had only just replaced Rick Perry.  Nothing was forthcoming and in early December Bloomberg reported  a leak that the Working Group would recommend direct government interaction, in the form of either/both a Department of Defence contract to purchase uranium for military stockpiles or a Department of Energy contract to increase the DoE strategic reserves from current modest levels (approximately 7 reactor reloads).

Nothing further was heard until February, when the Trump Administration proposed its FY21 budget (commencing 1 October 2020) with the inclusion of $150 million per annum for a Uranium Reserve.  The budget notes stated that “Establishing a Uranium Reserve provides assurance of availability of uranium in the event of a market disruption and supports strategic US fuel cycle capabilities.  This action addresses immediate challenges to the production of domestic uranium and reflects the Administration’s Nuclear Fuel Working Group (NFWG) priorities.  The NFWG will continue to evaluate issues related to uranium supply chain and fuel supply.”

Since then Secretary Brouillette had made several comments about the Report being imminent, including telling a Congressional hearing on March 4 that “it is my sincere hope that later today you will see the final report.”  At the time he said the report “would also include other measures we will take to enhance the mining and capabilities… we have to have enrichment, conversion… the proposal will be all-encompassing and will address the entirety of the nuclear fuel cycle.”

Predictably, by then, the report was not forthcoming.  And then the US entered COVID-19 and the report was assumed to be back on the shelf for some time.

Brandon Munro is CEO of uranium developer, Bannerman Resources ASX: BMN, and regular uranium market commentator on CRUX Investor and CRUX Club.

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

BHP’s Olympic Dam uranium production down after poor operational quarter

BHP today released its March quarter results, which included disappointing production from Olympic Dam.  Whilst by-product uranium production at Olympic Dam is of no consequence to BHP – revenues from uranium do not even register as a rounding error – their production numbers are important to the uranium sector.  This is partly because OD is still a large producer of uranium, worth up to 10Mlbs U3O8 per annum, but also because of BHP’s rather unhelpful approach to uranium sales – which can best be described as “belt it out through the spot market”.

The upshot is a production disruption – sans COVID-19 effects – of between 5.8% and 17%

Plus, their numbers have taken on a more intriguing angle in the context of other major producers in Kazakhstan, Canada and Namibia losing production from COVID-19 disruptions.

OD’s uranium production for the March quarter dropped to 776tU (2Mlbs U3O8), which was 18% down on the previous quarter and 30% down on the March quarter last year.  The reduction was not due to COVID-19, but rather unplanned downtime at the smelter.

With one quarter remaining in BHP’s financial year, FY20 copper production guidance at OD was reduced to 170kt (previously 180-205kt).  Extrapolating this into uranium production, BHP hopes that Olympic Dam will produce 3649TU (9.5Mlbs U3O8) for the year ended 30 June 2020 (FY19:3565tU FY8:3364tU).

The upshot is a production disruption – sans COVID-19 effects – of between 5.8% and 17%. Given Ranger is down to processing stockpiles and could produce only 60% of its FY2018 guidance, nervous utilities and traders won’t get too much comfort that the gaping holes in 2020 uranium production in Kazakhstan, Canada and Namibia will be filled from Down Under.

And, as if uranium buyers aren’t nervous enough right now, BHP were careful to note that “All guidance is subject to potential impacts from COVID-19 during the June 2020 quarter.”

Brandon Munro is CEO of uranium developer, Bannerman Resources ASX: BMN, and regular uranium market commentator on CRUX Investor and CRUX Club. Watch our latest interview with Brandon where we discuss the implication of Uranium Supply shortages

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Picking Nickel Names: Thinking About A Framework For Investors

Anthony Milewski talks us through what he considers before investing in Nickel companies. A lot of the thought process is the same as regular investing, but as you will note from our Nickel Insight series, you need to know the backdrop to the nickel market, its cycles, the technology and how it gets priced.

He tells us why the follows components are important and why:

  • Exchange: ASX, TSX, LSE, JSE
  • Project Stage: concept, pre-discovery, discovery, feasibility, development, start up, production
  • Project Jurisdiction: North America, Africa, Australia, South East Asia
  • Project Type (what technology will be used to develop it): sulphide v laterite
  • Intended Product (who will buy it?): chemical industry (batteries) v nickel pig iron (steel)
  • Management: Has management been successful exploring/developing/building/operating?  
  • Capital Structure: Is there debt?  A convertible note?  What are the terms of the joint venture?  Are there any streams and royalties?  Is there an off take agreement in place?
  • Share Register (also liquidity): Who owns the stock?
  • ESG: Environmental and social licenses are becoming increasingly important.

So if you are interested in the battery thematic and want to understand the nickel space, Milewski gives you a heads up to the things you need to be be considering in this article (*Note* – To access the article, you will be asked to enter a valid email address – this is not a subscription to, or affiliates, and your email address will not be used in any marketing activities or shared with any 3rd parties).

In addition it is worth looking at the Nickel Series of interviews with Mark Selby and Anthony Milewski, where they talk in greater detail about some of the Red Flags and Green Lights when picking companies.

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Gold and the ESG Revolution

John Mulligan, Director, Member & Market Relations, World Gold Council

We are witnessing a seismic shift in the world of investing which is redefining how investors perceive and approach assets, companies and sectors. A clear and pervasive reality has emerged where investment decisions are increasingly driven by environmental, social and governance (ESG) factors. The ESG Revolution may, in fact, have been more of an Evolution, and some would argue has been a long time coming, but it is now definitely mainstream. And a substantial body of regulation is just around the corner that will catalyse further change, redirecting very substantial sums of capital towards sustainable investments.

This is not to say that practical financial and investment principles have been abandoned in favour of purely political, philanthropic or altruistic motivations. Rather, investors (and policy makers) are seeking to drive positive societal and environmental outcomes via investments underpinned by robust business cases. We may face a daunting range of challenges in moving towards a more sustainable global economy but, concurrently, very significant opportunities are also unfurling before us.

 … there are many common misperceptions regarding the nature of modern gold production.

Green bonds, for example, may still be a miniscule part of the overall global bond market, but funds are flowing into them at an accelerating rate; the year-on-year value of green bonds issued in the first half of 2019 rose by 48%.[1]

So why might this be of such significance for the mining sector, and gold mining in particular? Because I believe that the opportunities for positive action are such that, if grasped, they might hold the key to transforming societal perceptions of – and wider investor interest in – the industry.

For those not involved in gold mining, or those only aware of its past reputation or the negative social environmental impacts associated with the worst aspects of artisanal gold mining, there are many common misperceptions regarding the nature of modern gold production.

As investors have moved to embed a greater understanding of ESG-related risks into their thinking, similar considerations have been shaping the evolution of the gold supply chain. To ensure that gold is produced sustainably and responsibly, key market participants across the industry have evolved a range of initiatives and standards to give stakeholders, consumers and investors greater confidence in the provenance of gold as a responsibly sourced product or asset. And, of course, this all starts at the mine.

To guide and support this progress, World Gold Council recently launched the Responsible Gold Mining Principles (RGMPs)[2], a comprehensive framework through which gold mining companies can set out their position on a wide range of material ESG factors. The Principles acknowledge and consolidate several guidelines and standards that already exist to address specific aspects of responsible gold production[3], but integrate them into a single coherent and detailed definition of what responsible gold mining should look like.

World Gold Council’s Responsible Gold Mining Principles

Independent validation of company conformance to the RGMPs should provide further confidence to investors and stakeholders that the gold production process adheres to high ESG standards, reinforced by external assurance on performance, which should help minimise the risk of “greenwashing”.

The World Gold Council’s Member companies[4], which together represent over half of all annual corporate gold production, have committed to adhering to these principles and, over the next few years, we hope the wider industry will join them in embracing the opportunity to demonstrate its ESG credentials.

There is also often a common misunderstanding regarding the nature of the gold value chain and, specifically, of mining’s role in creating and distributing value in host countries and communities.

Gold mining companies are often a major source of income and economic growth and can play an important role in stimulating and supporting local socio-economic development. Contrary to the assumptions of many, the vast majority of gold company expenditure typically remains in the country in which an operation resides, with 70% of that money paid to suppliers, contractors and employees. Typically, in most regions, over 90% of the employees at gold mining operations are from the host country. The economic value from employment and gold company payments to local suppliers, with associated tax revenues for local governments, create far more value for gold producing countries than they obtain from direct royalties on land use and minerals extraction[5].

Deriving societal benefit from the revenues created by gold mining will, of course, also depend upon responsible host governments and, for the development potential of the gold mining industry to be realised, all stakeholders need to work together in partnership. But arriving at a shared understanding of the potential value of a vibrant, responsible and sustainable gold industry might help us move from the transactional type of relationship that often exists between many industry, government and community stakeholders, towards more collaborative partnerships.

… gold mining in particular, might be in a constructive position to … make a positive contribution to achieving net zero carbon targets.

As investors seek to focus on longer-term socio-economic development outcomes, they often orientate their objectives around the United Nations’ Sustainable Development Goals (SDGs); 17 goals focusing on key social challenges that range from ending world hunger to increasing access to clean and renewable energy. Importantly, in defining these goals and the possible paths to their achievement, the UN explicitly acknowledged the major role to be played by private companies. Financial firms are therefore increasingly looking to identify or develop investment opportunities in the private sector that might address global needs and meet the goals outlined by the SDGs while also attracting investors of scale.

Mining has a very significant role to play in addressing many of the SDGs and, while this potential has been much discussed by academics, policy advisors and civil society, it might also be to the advantage of the global mining community to consider in more detail the practical and investment implications of the goals.

Perhaps the most obvious example of how the mining sector might contribute to a specific development goals is its current and possible future role in facilitating the transition to clean energy and a low carbon economy.

Last year, the World Bank launched its Climate-Smart Mining[6] initiative, drawing attention to the strategic role metals and minerals will play in the manufacture of cleaner energy technologies. The move to these technologies is likely to significantly raise the levels of demand for many metals, requiring both more mining and more minerals recycling. While gold was not identified in the World Bank report as a ‘climate-smart’ mineral, there are some promising signs that gold as an industrial product or input may play a useful role in technological advancements needed to help mitigate climate change.

And broader recognition of climate-related risks and potential impacts has undoubtedly been the galvanising force and key driver behind the widespread escalation of ESG factors in investment decision-making and the regulatory landscape.

There is no more pressing challenge facing humanity than that of climate change. The concentration of carbon dioxide (CO2) in the atmosphere caused by human activity is already wreaking havoc with environmental systems and weather patterns.  

The science is irrefutable and alarming. Atmospheric CO2 reached a high of over 415 parts per million in May of this year, a level not seen for 3 million years. According to the World Meteorological Organisation, the past 4 years have been the hottest on record (the 20 hottest years have occurred in the past 22 years).  Wildfires have raged across Siberia, Alaska, California and Australia and these fires appear to be getting larger and more intense. (The intensity and scale of destruction of the recent Australian bushfires has pushed the country to what has been described as an “absolutely seminal moment” in its history[7].)

Sadly, these fires also further exacerbate climate change – all that carbon literally goes up in smoke!

Last August, we also witnessed Hurricane Dorian, the most powerful storm ever observed in the North Atlantic. And over the last three years, the US has suffered three floods previously classified as once-in-500-year events. The global rise in floods is directly correlated with rising global temperatures.

Climate-related impacts threaten ecosystems, accelerate extinction trends and soil erosion, and contribute to greater food and water insecurity.  They are also a very major threat to public health, increasingly the likelihood of famine, and infectious and non-communicable diseases.

If we are to reduce these physical risks and stabilise the climate we need to act immediately and commit to actions that might curb global warming to a limit of no more than 1.5C above the pre-industrial average – we are already 1.1C degrees above that average! – by the end of the century.  This will require us to achieve net zero carbon emissions by around 2050 and, to do so, will require radical changes across all corners of the economy and society, including the restructuring of energy, land use, transport and buildings, with unwavering support from governments, businesses and individuals. These changes represent very substantial transition risks and some sectors will undoubtedly struggle to adapt.

In the World Gold Council’s recent report, ‘Gold and climate change: current and future impacts’[8],  we presented evidence that the gold supply chain, and gold mining in particular, might be in a constructive position to embrace these changes and make a positive contribution to achieving net zero carbon targets.  Overall, gold’s carbon footprint is relatively small, estimated at under 0.3% of annual global greenhouse gas (GHG) emissions. The vast majority of these emissions are generated by the mining and milling of gold and, more specifically, from the electricity and fuels used in powering these processes.

Fortunately, there are already a range of options, increasingly accessible and cost effective, to allow gold miners to move away from fossil fuels and decarbonise both their electricity and transportation. Many gold mining companies are already moving in this direction and our research indicates how, over the next few decades, renewable energy sources, such as wind, solar and hydro power, and complementary technologies might prove more cost effective for miners than the existing carbon-intensive options.

Illustrative potential emissions reduction and transition pathway for gold mining

As I have described, these are no longer peripheral issues for investors, bracketed with philanthropic CSR programmes and narrow sustainability specialisms, as was often the case in the past. At the risk of repetition, I think it important that the gold mining sector embrace the fact that consideration of climate-related risks is now a mainstream issue, core to business interests and increasingly at the heart of basic asset evaluation and selection processes.  Acknowledging this new reality, gold miners might now grasp the opportunity to demonstrate sectoral leadership in taking concerted action to further reduce their emissions and impacts, in line with science-based targets, to help curb the current climate trajectory and its potentially destructive consequences.

However, in addition to the question of how a company or sector might impact climate change, a key issue for potential gold investors – and, indeed, investors of all asset classes – is how possible climate-related risks and future scenarios are likely to impact the value of their investments and the overall performance of their portfolios.

Mercer, the world’s largest world’s largest institutional investment advisory firm, have been proposing that investment strategists integrate climate change risks into their asset allocation models for a decade or so[9]. More recently, the Task Force on Climate-related Financial Disclosures (TCFD) has been prompting organisations to implement effective climate-related financial reporting, emphasising the importance of transparency in evaluating climate-related risks to support efficient capital-allocation decisions. Only two years after its launch, nearly 800 organizations, including global financial firms responsible for assets of over US$118 trillion, have declared their support for the TCFD and its objectives.

Our findings suggest a relatively robust outlook for gold in the face of a wide range of climate-related risks.

This trend is mirrored by increased regulatory scrutiny and rising pressure from activist shareholders wishing to influence the environmental and climate policies of public companies. A very notable example of this trend is the investor group, Climate Action 100+, consisting of over 300 institutional investors who collectively manage more than $34 trillion in assets. The organisation’s stated aim is to “engage companies on improving governance, curbing emissions and strengthening climate-related financial disclosures.” They have already negotiated strategy changes from some very major GHG emitters.

With this context in mind, the World Gold Council’s research on climate change seeks to not only outline a credible path for the gold mining sector to move towards carbon neutrality, but to also offer insights regarding how gold’s value as an asset might be impacted by climate risks.

Collaborating with global sustainability consultancy Anthesis, we adopted a methodology broadly aligned with established analytical frameworks for institutional investors and focused on assessing the robustness or vulnerability of asset returns in the context of specific climate-related risks and scenarios. We considered how gold and a range of mainstream assets, representing a substantial proportion of current institutional portfolio holdings, might perform in relation to four different climate temperature scenarios: 1.5C, 2C, 3C; and 4C (above the pre-industrial average), and the potential impact on asset returns to year 2030, 2050, and 2100 (in comparison to our current, i.e. 2019, expectations).

In general, lower temperature scenarios (1.5C and 2C) will require rapid transition and therefore impacts will be more prominent in earlier timeframes. Physical risks, however, are more prominently borne out in the later higher temperature (3C and 4C) scenarios where direct tangible impacts overshadow transition aspects.

Our findings suggest a relatively robust outlook for gold in the face of a wide range of climate-related risks. Gold may face some initial headwinds in a rapid transition scenario due, in part, to the urgent diversion of investment to either build net zero carbon infrastructure or from a severe erosion of consumer confidence which would hit discretionary spending. However, many of these risks are perceived as a lower probability, and of less magnitude or duration, when applied to gold; compared with their likely impact on other assets.

Looking at possible outcomes for other key asset classes, transition risks may soon start to impact US equity valuations as the US economy appears to be less prepared for decarbonisation than, for example, the European markets. At the other extreme, inaction on climate change and consequent higher temperature scenarios will be very challenging in the longer-term for agriculture, food and soft commodities. Energy and utilities will also struggle as physical impacts become more frequent and destructive.

Gold’s relative resilience is broadly compatible with the World Gold Council’s wider research on gold’s role in contributing to optimal portfolio performance. We have repeatedly demonstrated gold’s potency as a diversification asset and its relative outperformance of many mainstream assets when specific risk factors impact their valuations. The wide-ranging nature of climate-related risks suggests heightened volatility and potentially destructive disruption across a range of markets and these conditions will likely bolster gold’s utility as a safe, stabilising asset and as market insurance. This suggests gold may increasingly come to be recognised by investors as having a positive role to play in balancing and moderating climate-related impacts on their portfolios.

The technicalities of institutional investment portfolio construction in the face of climate change may, admittedly, seem somewhat far removed from the perspective of an investor looking at a particular gold mining asset or company. But these factors are highly relevant if gold is going to continue expanding its role as a financial asset, and if gold mining is to reassert its credentials as a credible and attractive sector for a wider set of investors.

And there is cause for optimism; the whole gold supply chain, from mine to market, is now in a strong position to demonstrate high ESG standards and contribute to climate change mitigation. If the industry seizes these opportunities, then all its participants, investors and stakeholders should be able to face the future with greater confidence. Whether it’s a Revolution or an Evolution, now is the time to commit and act!

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

[1] Source: Climate Bonds Initiative


[3] United Nations Guiding Principles on Business and Human Rights; the OECD Due Diligence Guidance for Responsible Business Conduct; the Extractive Industries Transparency Initiative; Guidelines for Multinational Enterprises and the International Council on Mining and Metals’ (ICMM) Performance Expectations


[5] The socio-economic impacts of gold mining, World Gold Council, 2015


[7] Sydney Morning Herald, January 10, 2020


[9] See, for example, Investing in a Time of Climate Change; The Sequel (2019), Mercer.

Nickel Class 1 & Class 2 – Why Does It Matter For Investors?

Nickel is a commodity that has got investors raising their eyebrows. Diverse properties like a high-melting point (1453°C), resistance to corrosion and oxidisation, ductility, usability in alloys and an increasing significance to the EV market have turned nickel into one of the most fashionable investment opportunities. Investors in the nickel space likely already know about the two classifications nickel can find itself falling into, especially given the massive amount of coverage it has had from investment news outlets and individual strategists. However, for those who haven’t had access to the right information yet, here’s a quick breakdown.

Class 1

Nickel products that fall into Class 1 comprise of electrolytic nickel, powders and briquettes, as well as carbonyl nickel. These products are typically LME deliverable and have a nickel purity of a minimum of 99.8% Roughly 55% of total nickel mining output relates to Class 1 products.

Class 2

Nickel Class 2 is a group that comprises of less ‘pure’ nickel products. Examples of these are nickel pig iron (NPI), a version of nickel created using low-grade laterite ores and blast/electric furnaces, ferronickel, nickel oxide, utility nickel, Toniment, mixed hydroxide  and other <99.8% products. Both have a reduced nickel content and are often utilised in stainless steel and alloy steel production, where a high content of iron becomes beneficial. Class 2 products contribute the remaining 45% of total nickel mining output.   These products are not LME deliverable and must be sold to an end customer

So, what’s the history?

SOURCE: Trading Economics

After looking at the behaviour of nickel’s spot price, it is not hard to see why it has been branded as a boom/bust metal that moves in giant super-cycles.

The reasons behind this were touched upon in a recent article by a Crux contributor, stating that a primary factor behind nickel’s ascension to a high of $54,000/t in May 2007 was the rapid expansion of Chinese demand in the 2000s. However, this soaring price, driven by the need to ration available supply to meet demand, resulted in nickel becoming a victim of its own success. As prices rose, China began seeking more affordable options, thus turning to 200-series stainless steel (1-2% nickel) rather than 300-series stainless steel (8%) nickel.  As well, it began to pursue alternative sources of supply leading to the widespread production of nickel pig iron (NPI) in China using ore imported from Indonesia and the Philippines.  With this compression of demand and new source of supply, spot prices fell through a trap door.

Class 2 nickel rose to prominence at a time nickel was performing well in the market, but the consequential oversupply generated by tonnes and tonnes of NPI flooding the market created a supply/demand imbalance, crippling the spot price for many years. Nickel ore export bans from Indonesia, and proposed bans from the Philippines, didn’t help in the price discovery department.

Nickel’s most recent low was in February 2006 (do you mean 2016 ?); (NTD: there was one in last 5 years that got pretty close to the price of US$8000/t left 80& of the industry in a negative cash flow.

There has been a reduction in supply of over 200,000tpa (primarily Chinese NPI) in the last 3 years, and an increase in worldwide demand, driven by the EV narrative, has aided the nickel market in its recovery.

What does all this mean for you NOW?

If you have already settled on nickel as a potential investment opportunity, you likely have a bounty of good reasons, be that a projected 782,000t per annum increase in total nickel demand by 2030, or LME forecasts placing nickel’s spot price at US$17,000/lb (in constant terms) by 2024.

I think it’s very important for investors to not get caught up in that [Class 1 Vs Class 2] particular discussion.

The truth of the matter is that Class 1 and Class 2 nickel, as concepts, are mere distractions for investors, because laws of supply and demand and the Chinese ability to quickly respond to any market arbitrage opportunities,  will render the chemical differences fairly irrelevant in an investment context. Instead, total tonnage of nickel should be what investors are looking at today. The division of Class 1 and Class 2 simply doesn’t matter that much to investors anymore.

It’s important for investors to understand why and how Class 1 and Class 2 nickel have found themselves conglomerating into a singular quantity of nickel supply. In a recent interview with Crux Investor, nickel market commentator, Mark Selby, weighed in.

Class 1 & Class 2 Debate. Should It Matter To Investors?


There are two primary types of nickel deposits:

Nickel Sulphide

Expensive to mine, cheap to process.

Historically, mining nickel sulphide required underground mining in increasingly deep (and more expensive) mining operations . Nowadays, even deeper underground mines are utilised, with only a handful of open pit operations , but these are typically expensive to construct and operate. In 2018, 2 new projects were commissioned – Glencore began construction on their Onaping Deep operation which will cost $US[800] million and won’t fully ramp up until 2023

However, producers then make a concentrate from the sulphide ore,  upgrading the material from anywhere from 0.3-3% nickel to 10-15+% nickel for relatively little additional cost. This process is relatively uncomplicated and inexpensive; it needs to be smelted, refined, and then the process is complete.

Nickel Laterite

Cheap to mine, expensive to process.

Laterite projects are much easier to mine because the material itself is rock that has been converted to dirt over time, and as part of the process nickel and cobalt becomes concentrated in the soil. All mining companies have to do is dig up dirt and ship it off; this is a ubiquitous practice in Indonesia, amongst other regions.

However, this is where the simplicity ends. The processing of a material with complicated mineralogy requires significantly more time, technology and money. Costs include the large amount of electricity to melt the laterite to create NPI, or energy in the form of acid to break bonds, liberate the nickel/cobalt and create a US$1Bn+ HPAL process.


Individual nickel classes aren’t the main thing investors should be focussed on.

  • Companies can take intermediates of nickel sulphide and create a wide range of products, such as NPI and ferronickel (exemplified by the roasting process at RNC Minerals’ Dumont asset).
  • Nickel sulphide can also create finished nickel products via a smelter and refinery
  • EXACTLY the same can be said of nickel laterite. While the majority of it is currently used for NPI, there is no reason the material can’t be processed, refined and used for a wide range of alternative purposes. Specifically, laterite can be converted into finished nickel and cobalt products that can be used for the battery sector. Several companies are doing this right now, and as the industry evolves, we only expect to see this cycle grow.

Therefore, it is crucial for investors to avoid allocating too much focus to this debate. Chinese companies will likely build many facilities to process intermediates, while junior mining companies may also go down the same route, by having their own processing facilities on location to process products.

As we continue down the road of the EV revolution and the quantity of nickel in batteries increases, the specification for the sulphate will continue to become stricter. Therefore, building a processing plant to create sulphates appears to make little sense, because it would require continual improvements in order to keep up with progressively restrictive customer requirements.

Instead, it is likely companies will focus primarily on making high-quality intermediates, because the market will exist in the future for such materials as the nickel processing infrastructure continues to develop. This is further evidenced by the value of nickel sulphate premiums falling from c.US$2,000 two years ago to zero today. There are always lots of moving parts to different investment classes and commodities, but the message from industry insiders appears to be clear. Investors need to keep their eyes on the prize and view the market holistically the majority of the time. Reviewing things in microscopic detail may sometimes become more obstructive to gaining an overall view of a situation.

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Naked Banking – Exposed

“You should not be naked”, laughed the General. His men looked over, their AK47’s slung over their shoulders, and smirked. I smiled. It had been a long day that began 23 hrs earlier in London, and despite the 40-degree heat and my sweat-stained shirt, I had no intention of being naked. But without resolving my predicament relatively soon that was a distinct possibility.

We had been contacted by a French consultant, the French Fixer, as we referred to him in the office. He wanted to know if we could structure a sovereign-backed bond for an African country utilising its oil and minerals as collateral. Not something that a London boutique merchant bank was asked for every day of the week. After some research, I was sent off to investigate. I was to meet the relevant Ministers and then the President to get an idea of what exactly he had in mind.

It is impossible to fly there directly from London, so I had an 8-hour stop-over in Kenya. The flight left late afternoon, which I prefer with long haul, as I can get a couple of hours sleep. I arrived at 5am at Jomo Kenyatta International Airport, as it is now called. It’s a small and primitive airport; long corridors of food stalls and local craft stores. They were closed, as was the business lounge. Not a coffee to be had and just the cleaning crew and I occasionally nodding in acknowledgment of each other. Time passes slowly at first as I pace the softly lit mud-red walled corridors, but gradually the bustle of staff opening the shops and queuing travellers bring the warmth and breathes life into the milieu.

As I trying to squeeze my carry-on bag in to the narrow over-head compartment of the Being 737-700, I can’t help but note that I am surrounded by busy chattering monks wearing bright yellow and maroon robes trying to do the same thing. And there nestled serenely amongst them, the Dalai Lama. He sees me observing this bizarre scene and smiles at me. I settle in to my chair behind him oddly content.

When we land the monks and his Holiness are ushered off the plane and cram into a sparkling mini-bus, by-passing the airport security and disappearing from view. Does the Dalai Lama have a passport? As I start to disembark a microwave like heat hits me and a skin-peeling sun blinds me. My choice of chinos and a white long-sleeve shirt with linen jacket would have been perfect in June for the South of France. Here it was less so. I started to sweat before I got to the bottom of the mobile stairs. I patted my pockets in the vain hope that I had remembered my sunglasses and am guided towards what looks like a shed, but turns out to be the main hall of the airport. I note a concrete husk of a building in the distance, which a Chinese contractor had started to build, but had not finished. More of that later.

My friend, we need to get you some ‘clothes’es’, as he pronounced it, You should not be naked.

In the shed, we are greeting by U-shaped barricade of office desks flanked by armed military personnel. The room is no bigger than an average Starbucks. My co-passengers stare at each other hoping someone will take the lead. No-one says anything. Liberated by my encounter with his Holiness, I step forward and ask a tall lithe soldier, the friendliest looking, where we should go. He points to a crooked hole in the wall. We stare. A tractor, pulling a trailer with our luggage mounted, pulls up, and bags are lopped through the hole. We can’t reach them. Now the system becomes clear. The military personnel pick up a bag each and throw them on the desks, open the bags and search the contents. The owners rush forward, slightly alarmed, but necessarily respectful of the AK47s. When cleared, your suitcase was marked with a large white-chalk cross and you are allowed to leave through a narrow crack in the office-desk defence system. The hall started to empty rapidly until I was the last one left. No luggage! My irritation aside, this was deemed suspicious. ‘Why was I travelling without luggage?’ I wasn’t before I got here. ‘But you have no luggage.’ I know. I was requested to present a specific type of visa (which to my knowledge does not exist, nor therefore could it be required) and the relevant insurance papers or pay ‘a fine’. It is a way to supplement their poor pay. A bit mafia like and understandable, until the fine becomes unreasonable. I had danced this particular dance many times across Africa and in The Stans (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan) and India. If you look like you have money, and would pay to remove an inconvenience, there are many scenarios which I have been forced to experience to extract my cash. And I don’t mind offering some travel advice. If the dollar amount being asked for is small, then pay it. If it is too much, for me that’s anything over $100, then ask to see their boss.

So there I am in a police cell, waiting for the boss to turn up. Never listen to my travel advice. An hour later, a soldier collects me and brings me in to a small room. I look around to see 4 armed-guards and there at a desk is the boss, a sergeant, his pistol in front of him. He asks why I am not agreeing to pay the fine. I say that $400 is too much. Well how much do I want to pay? Nothing, I say. He is unhappy with this answer. At this point I should mention my trump card (no not that guy). Remember the General at the beginning of this rambling story. I was his guest. One short phone call later, I am being driven high-speed in a military convoy, including motorcycle outriders, sirens blasting, cars being kicked in to touch, into the heart of the City to meet with the General.

“Matthew, where is your luggage?”, he shouts across the air-conditioned room as I stride towards him. I shrug. “My friend, we need to get you some ‘clothes’es’, as he pronounced it, “You should not be naked.”. But first some water and a local tea. I am tired, but grateful for his offer. My clothes’es have been on me for 30 hours now and I imagine the people unfortunate to be around me were even less keen than I was to be still wearing them. We all know that claustrophobic feeling as your clothes stick to you.

Do you remember the eighties? Starsky & Hutch, Dukes of Hazzard? Well it turns out the owner of “the best shop for men’s clothes” did. Bell-bottom trousers and long collars on shirts were de rigueur that season in the City, and I suspect many seasons before that one. I felt I could deal with the fashion faux-pas as I wouldn’t look out of place, but the strong, and at times over-powering odour of mothballs on all the clothes’es was, as the Dalai Lama said to me with his smile, to be endured.

But back to business. I met with the Minister and the President and indeed the Vice-President. They needed money. Money to build infrastructure for the people. And as we later learned, money to line their own pockets. They could offer oil, gold, copper, you name it they had it…under the ground. Whatever we wanted. I asked about unfinished airport building.

‘That was the Chinese. They promised to build an airport in exchange for oil.’

What happened?

‘They could not do the oil project because of the fighting.’

The fighting? What fighting?

‘Just some tribal issues.’

Will the Chinese be back?



‘We do not know.’

Without getting in to too much detail the UN, the US, the French, the Germans and two Asian governments all had some say on the financial affairs of the country, each with their own business interests to protect. And rightly so. Promises had been made. Agreements had been signed by a succession of under-qualified Ministers and in some cases illegally.

When I first got in to banking, my boss said, understanding the jurisdiction into which you are thinking of investing our money is important. You need to understand how it works, because even the best assets in the world will not work if there is political or civil unrest, legal and regulatory uncertainty, terrorists operating near by, money laundering, exchange risk, lack of infrastructure, operation difficulty, geographic, ethical….the list is long.

In short, to our wonderfully inquisitive readers and viewers, if you or the company that you are thinking of investing in cannot clearly explain how they mitigate these risks, just walk. Keep your money in your pocket, because the good news is that there are always other deals. FOMO is not part of any investment strategy. After all no-one wants to lose the shirt off their back, no, matter how sticky 😉

I <3 geology, I <3 Ecuador

In June 1991 I was unlocking my bicycle after my last first-year exam in geology at the University of Manchester when a bubbling surge of happiness stopped me in my tracks and made me look up and smile and just take it all in. I couldn’t believe that I had gone through my life until then without knowing what I had been taught in my first year of geology. It had opened my mind to new concepts of time and space, fascinating processes of rock and mineral formation, and also of how geology had influenced human activity through millennia. It had been a revelation, hard work, and a lot of fun. For me, the study of the science of the earth had shone a light onto politics, economics, the environment, climate change and of course the role of mineral deposits in the development of man. As I stood there, bicycle lock in hand, I thought how amazing the world was, and how much I loved this subject that I had come across by chance when I had mistakenly started an engineering degree.

Twenty-nine years later I am happy to say that my love of geology is still there. While the digital age thunders on, with apps and memes, full of ideas on a high-tech future, full of concerns about sustainability and climate change, geology is as relevant as ever and it still captures my imagination. As it was in my revelatory moment back in Manchester, so it seems to me that many of the key issues of the age are met in the exploration and development of mineral deposits. Is this too gushing¸ a case of hyperbole?  I argue that it is not an exaggeration, and that a look at the extraordinary events in Ecuador will help you share my appreciation.

The Ecuador national flag

Ecuador has it all. All of the issues, all of the challenges, all of the opportunities and all of the natural resources it might need to make a transformation. And I see this on a daily basis as I am a director of Salazar Resources, a proudly Ecuadorian Gold-Copper exploration and development company.

Ecuador is a traditionally socialist country that until recently had economic policies that deterred foreign direct investment in the mining sector. In 2007 the country trumpeted its eco-tourism and promoted a green economy, which was all well and good, apart from the fact that the country soon ran out of money. And in a dollarized economy (since 2000), printing is not an option which just leaves borrowing, inward investment or foreign export earning as potential sources of US dollars. In 2008, Ecuador borrowed $6.5 billion from China, with repayments partially based in Ecuadorian oil and terms negotiated at times of historic high oil prices.  While the oil price was strong, everything seemed fine, but commodity prices are cyclical and the cycle turns as inexorably as the arrival of taxes and death. Oil prices to 2014 had covered up the multiple sins of an inefficient public sector, large macroeconomic imbalances, and limited private investment, but eventually the oil price fell. As the new oil price reality bit, and growth opportunities in Ecuador (oil, agriculture, tourism) were remarkable by their absence, the government reassessed its attitude towards mining.

Maybe the 2008 moratorium on all mining was overkill? Maybe a subsequent imposition of a 70% windfall tax and mechanisms for 50% national ownership were deterrents on investment? Maybe the rampant illegal mining sector that paid no taxes and was completely unregulated in areas of environmental monitoring safety or any degree of social governance, should be brought under control? Maybe it would be better to have foreign direct investment to build a regulated, responsible mining industry that employs thousands, grows domestic economic capacity, pays royalties and taxes and earns hard currency? Maybe the mining sector in Ecuador should be nurtured not shunned? Maybe the remarkable geological endowment should be used to help build a better nation for the people?

An ineluctable truth emerged. Ecuador needed a modern mining industry to pay for its social and infrastructure agenda.  There were no other options, no other cards to play. And so reform was embraced.  Consultants helped create a plan for the Ecuadorian mining industry that led to bidding rounds by metal and by region, and critically the development of a new mining code.  The government introduced similar conditions to other countries, including incentives such as a fiscal stability agreement, VAT reimbursements and investment recovery before taxes kicked in. The results were astonishing.

A photo of copper-gold ore.
Copper-gold ore

Geology is apolitical, and copper-gold mineralisation doesn’t necessarily stop at a political border. Ecuador straddles some of the most prolific copper-gold geology on the planet and since the dawn of modern mineral prospecting it has experienced negligible systematic exploration. Almost uniquely for a peaceful country there are still walk-up large-scale high-grade deposits sitting at surface. When the government signalled it was serious about developing a modern mining industry, the world’s resources companies responded.

Almost overnight, Ecuador became a global mining investment destination. Foreign direct investment (“FDI”) surged to more than $250 million per year in 2017, with a projected $1 billion per year for the next four years. Over 200 new mining concessions were granted in 2017, accompanied by investment commitments of nearly $500 million of exploration expenditure in the first four. Since 2018, twenty-eight internationally renowned mining companies have established entities in Ecuador to pursue investment opportunities. Not only that but in 2019 two billion-dollar investments were completed, and the country now has two well-regulated, carefully monitored mines, employing thousands of local people, and generating vital foreign exchange earnings by producing copper at Mirador, and gold at Fruta del Norte.

Unsurprisingly there has been a backlash to this level of activity. A prominent anti-mining activist Carlos Perez has changed his name to Yaku Perez (Yaku is the Quechua word for water) and is vehemently opposed to foreign investment in the Ecuadorian mining industry, even though he turns a blind eye to the devastatingly destructive illegal mining in the country. Yaku regularly calls for referenda on the future of mining projects in Ecuador and he will continue to delay and obstruct the industry where he can as he persists in his argument that Ecuador should be pro-water and anti-mining. Incidentally, most professionals in the mining industry are supporters of clean water, responsible employment, wealth creation, the sustainable supply of vital raw materials and are not supporters of water pollution, environmental degradation, dangerous working conditions, tax evasion and all of the problems associated with illegal mining.

Another factor is that the population of Ecuador is split between those wanting jobs and those experiencing a very human resistance to change. What does a large mine entail? Will dastardly miners raze mountains, and bury villages under toxic waste? Some fear the rapid introduction of a new industry; others have the luxury of working closely with some of the many in-country professionals and learning first-hand about the industry. Suddenly the Chamber of Mines in Ecuador went from a clubby outfit to needing to assist the government and a population learn about the role and importance of a well-regulated mining industry in society.

Predictably, some of the mining companies gamed the system. Companies bid to spend $250 million on a single exploration licence (a ludicrously large amount) over four years, only to load the vast majority of the spend into Year 4 and then make it conditional on material success in the under-funded years 1-3. Companies committed to investing multiples of their market capitalisation in early-stage exploration within a 4-year period. Stuff and nonsense perhaps, but given that it seems easier to find a near-surface deposit in Ecuador then other parts of the world, many companies were enable by the vagueness of the new mining code to put placeholders on title in the rush.

Stunned by the whirlwind of real and promised FDI, protest referenda, the arrival of most of the major mining companies, and by the general pace of events, the government closed the Mining Cadastre in 2018. The commitment to a modern mining industry is as strong as it has ever been, supported by public pronouncements, progressive changes to process and structure within the mining ministry, and of course, the stark reality of ongoing national budget deficits. But it was a case of too much too quickly. The cadastre is still closed as the government is redesigning the mineral title permitting process to make the exploration expenditure more accountable, transparent and digital. No new licences have been issued for eighteen months and although in that time wrinkles in environmental permitting and water use permitting have been ironed out, there has been a knock-on delay in exploration activity. It does mean, however, that those companies that already have a licence portfolio are at an advantage over new entrants looking to build a presence in-country.

Which brings me full circle, to that moment when I was standing outside the exam hall in Manchester so long ago. The study of the science of the earth continues to shine a light onto politics, economics, the environment, climate change and of course the role of mineral deposits in the development of man. I am just as excited and fascinated by the interdisciplinary nature of my subject as I was as an undergraduate, and each of those competing and complimentary aspects are manifest in the gloriously complex reality of the mining industry today in Ecuador.

Companies, such as Salazar Resources, that already have mineral title to explore have a wonderful opportunity to continue the discovery journey (discovery of an economic resource is always much more of a process than a single moment in time). Community relations and environmental stewardship are critically important, and those enterprises that can bring its local and regional population along the discovery journey with them will succeed where companies that fail to engage, encourage, and educate its neighbours will face protest and delay. The government understands the vital developmental and economic role that a responsible mining industry offers and it is working as fast as it can to create the framework for that industry to grow, and yet it is weighed down by the responsibility of having to make decisions now that will have long-lasting effects. It is no exaggeration to say that the fate of the nation depends on it. The officers and directors of companies that I know are genuinely excited about the positive transformation that a single well run mine can make to individuals, families, a community, a region, and the contribution that it makes to nation-building in a relatively small economy. And within it all there are the pure geologists among us, thrilled at the prospect of being part of a team that will make the next big discovery and bring vital commodities for our future needs to market.

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