The case for nickel has been conveyed to the market well in the last few years. However, there are certain components of the nickel industry that are nebulous. In this series of articles, we seek to shine a light on the intricacies of a commodity with some of the most exciting projections around.
HPAL – What Is It?
High-Pressure Acid Leach (HPAL) is a process used to extract nickel and cobalt from laterite ore bodies. HPAL uses high temperatures, c. 255 degrees Celsius, elevated pressures, and sulfuric acid, which enables the process to separate both nickel and cobalt from the laterite ore.
Why Should I Care?
Investors should care for a variety of reasons. HPAL has numerous advantages over traditional leaching methods, chiefly of which is the significantly reduced timescale and largely increase percentage recovery rate; this is why it has become the most commonly used approach for leaching laterite ores containing nickel and cobalt.
That Sounds Great. So What’s The Catch?
HPAL is a much more complicated process to ramp up and operate than pyrometallurgical processes used to make nickel pig iron (NPI) or ferronickel. Well, in terms of the logistics of an operational HPAL process, there isn’t one. HPAL is clearly the optimal solution for producers looking to get the best bang for their buck in the nickel space, but there are only a handful of successful HPAL operations globally: Moa Bay in Cuba run by Sherritt, and the Coral Bay and Taganito operations in the Philippines operated by Sumitomo Metal Mining. Why?
Many HPAL plants have had massive cost overruns and have approached US$10 billion in costs: a multiple of their initial capital estimate. Because of the challenges caused by trying to operate many plants at design capacity, unit operating costs also end up high in many instances. In a perpetual debate, it seems most industry experts claim a 30+ktpa HPAL plant can’t be constructed for any less than even the most conservative figure of US$1B, and that’s if things go well from the off. We recently interviewed widely heralded nickel market commentator, Mark Selby, and he reinforced this argument.
US$1Bn might seem a monstrous figure, but it’s actually quite optimistic. Taganito was constructed in the low-cost jurisdiction of the Philippines at a cost of ~$US 1.4 billion. Already, we’re looking at a scaled-up cost for companies who want to build in alternative regions, but we’re just getting started.
Taganito is only equipped to produce an intermediate product, which requires shipping to an existing refinery in Japan before going into the market. For a company to create an HPAL process capable of churning out the finished article, this would create another cost increase. Some unsuccessful HPAL plants have seen their CAPEX balloon to US$7-10Bn, courtesy of the difficult nature of optimising an HPAL process. One might think they’d have been better off not spending at all.
Lastly, there’s the complexity of the construction process itself. Because this technology is far from prevalent, it seems likely that issues could arise left, right and centre during the building process. Companies will need to source the right contractors, with the right experience, at the right price, and given the performance to date for many projects, this may be too risky for many investors.
The Big Problem
We’ve heard from the CEOs of some nickel companies in recent months, and without naming any names, several have touted a potential sub-US$1Bn HPAL plant as a near-term target for their business. This seems to be a worryingly common theme running through the industry and can mislead retail investors who perhaps appreciate the technical prowess of HPAL, without being fully informed of the cost.
To conclude, if nickel CEOs are telling you they can build an HPAL plant for some US$1Bn, they have a big question to confront: why do they have the capability to construct a plant better than market-leaders Sumitomo? We heard in the Horizonte Minerals investor call that they feel that it is possible with new technology, citing that the Sumitomo technology is 30-years old. Hopefully, they will expand on this and give clarity to the market.
If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.
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