5 Things You Need to Know about Class 1 & 2 and Intermediate Nickel (Transcript)

Nickel ore

Interview with Industry Commentator Mark Selby, CEO of Canada Nickel Company.

We catch up again with Mark Selby to get his take on investing in the Nickel market view our previous interview here. Fans of investing in the Electric Vehicle Revolution thesis will find this interesting. Some battery metals are on the up and others are not, why is that?

We discuss the Class 1 and Class 2 Nickel debate as well as the intermediate Nickel, and the amount of Nickel units required in the market. Investors new to Nickel may find the discussion around how to identify good investment vs. a lesser investment fascinating.

Do you know the difference between Laterite Nickel and Sulphide Nickel and why some investors won’t touch Laterite Nickel? And what HPAL plants actually cost and why some companies pushing that agenda may be about to fall off a cliff? As an investor you need to know what that entails.

Interview highlights:

  • 2:06 – Class 1 & Class 2 Nickel: Differences and Investor Concerns
  • 8:56 – HPAL Plants: Why Can’t They Be Built for Less Than $1B?
  • 12:39 – Red Flags and Differences in Grades: What to Look for When Investing in Nickel
  • 17:39 – Nickel Sulphate: What Should You Know?

Click here to watch the interview.


Matthew Gordon: I just wanted to say thank you very much for the piece you did last year, end of last year. We’ve had amazing feedback on that because it has helped clarify and expand people’s understanding of the Nickel markets and thanks for that, and you are probably seeing lots of different pieces of that now going out to the market too. I appreciate that. One thing we didn’t cover though was this Class 1, Class 2 debate. We said we would talk about it a little bit further. You kindly said yes to speak today. Why don’t we kick off – what is Class 1 and Class 2?

Mark Selby: Yes, so Class 1 and Class 2 refers to the type of Nickel product that gets produced. So, a Class 1 Nickel tends to be LME deliverable and meet a purity standard of 99.8%, or better. It gets used, you need it in applications like alloys, alloy steels, plating products, and then increasingly, that purity of Nickel will be required for Nickel sulphate into cars. Again, the key is the product, it doesn’t necessarily have anything to do with where it comes from, and I think that is one of the places where people get trapped up.

Class 2 is basically a Nickel-containing product that is less than 99%. That can still be used by a consumer and it doesn’t have a terminal market so the issue with that is, with an LME-deliverable product, if you can’t sell it to a customer, you can always drop it off at the LME and get the ‘LME  price’ that day for your product. Class 2 has to go to a consumer and so those products tend to have much more volatile premiums because there is not that terminal market like you have.

Matthew Gordon: So what do you mean by consumer? Because again, terminology in the industry is different.

Mark Selby: Sure, generally, Class 2 gets used in stainless steel and alloy steel applications where those processes have a robust refining step in the process so they can take materials that are less pure, or they are quite happy to have the iron that comes along with Ferronickel because they need iron to make stainless steel or make an alloy steel, anyways.

Matthew Gordon: Got it. So now we understand what they are, there’s a lot of conversation online and I think you alluded to the fact that perhaps people shouldn’t be expending as much energy worrying about whether it is Class 1 or Class 2, why do you think people are concerned first of all?

“The frustrating part for me is that there has just been so much air time on this Class 1 versus Class 2, and there are some really bad, to me, pieces of thinking that happen and get people distracted. What I think is the real issue is we need to make sure we have enough Nickel units, period, to meet the growth for stainless steel and to meet the growth for electric vehicles, going forward”

Mark Selby: Yes, I think where it has come down to is; yes, we will need lots of new Nickel to make Nickel-Sulphate batteries. And the Nickel that needs to go into those Nickel Sulphate, or the Nickel sulphate that comes with it, needs to have a very high Nickel purity to it.  That is true, but where people get tied up is that they then project that all the way back to that, okay, these types of deposits are only good for this type of application. At the end of the day, there’s basically three types of Nickel sources: there’s limonite ore, there’s saprolite ore, and then there is Nickel Sulphide ore. Limonite is what goes into the HPAL stream typically, Saprolite is used to make ferronickel and NPI, and then most sulphite ores, they make a Nickel concentrate and that then gets smelted and refined. The key piece of it is that each of those steps makes an intermediate product which can be smelted or refined into a whole range – it happens today and will happen even more so in the future because we are going to need a lot more Nickel Sulphate, so the Chinese are going to build way more capacity than the market needs, just like they do for every other product, and so there will be all this capacity to take an HPAL Intermediate, to take a Pyro-ferronickel Intermediate mat, or take Sulphide concentrate and turn it into 99.9% metal. Turn it into high-purity Nickel Sulphate. Turn it into Ferronickel if they need to, you know, again, you need to completely decouple the ore source discussion from the end product discussion.

Matthew Gordon: Right. Okay, so when I’m reading about people having discussions, debates, sometimes heated, online, about well; ‘I won’t invest in Laterites, I’ll only invest in Sulphites’, what you’re saying is that it doesn’t matter.

Mark Selby: Yes. It does not matter. There are today, more natural homes, and today, Nickel Sulphide processing has actually been a bit of an oligopoly between the very small number of Nickel smelters that exist, but the Chinese will build lots of capacity. Again, I’ve talked about, again, real world examples; in the Cobalt space, in 2003, China was 3% of finished Cobalt production. In 3 years, they were 30% of production, and in 5 years, they were 50% of production and that was basically taking bags of Intermediates and dirt, sometimes dug by children in the Congo, and turning it into a usable Cobalt product. It was a various range of Cobalt salts. And again, people get all excited about this Nickel salt premium, well, in a Cobalt market, because there is so much capacity to make salts in China, salts tend to trade at a discount to the metal, not a premium.

Matthew Gordon: That’s fantastic. That’s helped me understand it, certainly. There have been in the past, discussions about premiums on one versus the other, but you are saying, the way the market is setting itself up means that that is going to take that issue away as a concern.

Mark Selby: Yes, yes. And part of the reason that got some traction was because about 18 months ago, 2 years ago, yes, Nickel Sulphate prices at that time were trading at a about a USD$2,000 tonne premium to metal in China because, again, you had this surge in demand that started and the supply just hadn’t had chance to get going, you know?  Today, Nickel Sulphate premiums are recently, I haven’t looked this week, but Nickel Sulphate premiums in China were 0.  And that’s where I encourage investors again, don’t get caught up; if something is trading at a short-term very high premium or a short-term big discount, don’t extrapolate 3 months or 6 months and say that’s the long-term sustainable value for that premium discount.

Matthew Gordon: Well, hence, talking to people like you; you have been through a couple of cycles and understand the machinations of the sector, I appreciate that. Can we talk about HPAL? We’ve had so many people come back about your comment around HPAL, okay? Because some companies set themselves up and say we are HPAL ready – to use that term. You made a comment to us that the cheapest, well, the only and therefore the cheapest builder of an HPAL plant – it has cost them over USD$1Bn. So anyone who is telling you that it has cost them less to build than that, they need to have a pretty good reason as to how they justify that going forward, right? So that has obviously been what some companies, a handful of companies are saying about the market. It’s quite a big statement from you, and people have asked; where’s your certainty coming from? Why are you so confident that going forward, people aren’t going to be able to deliver a HPAL project cheaper than, say, USD$1Bn? 

Mark Selby: Sure. Okay. So where this comes to is, if you think about it, this is about USD$40,000 per tonne of installed capacity. So that is…the only company that has successfully done two HPAL plants is Sumitomo Metal Mining, and their costs to build those plants were between USD$30,000 and USD$40,000 per tonne of capacity, just to make an intermediate product that they shipped to their existing factory in Japan. So they are not going all the way to a pure Nickel Sulphate or a pure metal or a pure briquette, which is just additional costs that have to be built into it.

So this is the best case performer – number 1.  Number 2 -they are building these in the Philippines which is about, you know, lots of companies build modules in the Philippines because the construction work there is the highest productivity, lowest cost place in the world to build those things. So again, relative to Australia, relative to Europe, relative to Canada, the Philippines is a very low-cost place to build these types of operations. Unless the operation has higher grade than the operations that Sumitomo Metal Mining have built which is, you know, in the 1.3 to 1.4% range. And the reasons they built those ones were because the grade was pretty good. Two – unless it’s in a place that’s cheaper to build stuff than the Philippines, then, or that they have way more infrastructure, that may be one thing that may exist in those places relative to Sumitomo Metal Mining built their operations. But, that’s what you need to ask yourself to say, okay, do I believe this company’s capital cost number or not?

Matthew Gordon: Okay. That’s fair enough. What you have said to me and what I have heard there is that; don’t worry about Class 1 or Class 2, there’s an intermediate solution which is going to be coming into the market, it’s coming thick and fast. You are saying, worry about Nickel Units: there’s not going to be enough Nickel to cope with the demand for Nickel. So that’s a selling message. I want to help retail investors understand what are their red flags: so there’s a lot of…come on – mining is mining – people go around: there’s promoters and brokers and intermediaries, and they all go and loudly trumpet their story around the marketplace and it’s not always true and it doesn’t always come to be. So, what are the red flags around Nickel? What do companies need to have, or need not to have in place, because not all Nickel stories will work out. They are not all going to be economic. So, what do you look out for as an investor?

Mark Selby: So yes, as an investor, I think you know, one of the key things is scale and grade; you need, ideally, if you have got both those are fantastic.

Matthew Gordon: So what does scale mean? What do you mean by scale?

Mark Selby: That you can produce a sizeable amount of Nickel for a reasonable period of time, say, 20,000 to 30,000 tonnes minimum for at least 10 to 20 years. You know, that very quickly gets rid of a bunch of potential opportunities. You need to have, because again, there is the rare project that is at an extremely low capital cost, but at the end of the day, there is a chunkier enough amount of capital that is required to get into these operations. Now, if the grade is high enough, you can get away with smaller operations; so that’s the thing you need to look at. If you have both, so things like Nova-Bollinger, that was why it got acquired for USD$1.5Bn.

Matthew Gordon: Right.

Mark Selby: That’s why Voisey’s Bay was acquired for USD$5Bn. Because it was a big deposit that had a very high grade.

Matthew Gordon: So let’s talk about grade; you talked in the previous discussion about what is grade. What is low grade, what’s okay and what is high?

Mark Selby: Yes, so again, you would have to split that between underground and open pit. For underground, you know, 2 to 3% plus would be high grade and anything less than that would be low grade. For open-pit, high grade would be anywhere from 0.7 to 1%. Again, it depends on the strip ratio, anything lower than that would be lower grade.

Matthew Gordon: But lower grade can work if there’s enough scale to it?

“That’s what you need to ask yourself to say, okay, do I believe this company’s capital cost number or not?”

Mark Selby: Enough scale to make it work; which is what Dumont and then what we have at Crawford, that’s the key there, that there are just very large deposits in places with lots of infrastructure.

Matthew Gordon: So what else makes you nervous? You’ve got scale, you’ve got grade, what else is there?

Mark Selby: Yes, so the nature of the deposits – one. The other in terms of part 2 – the location of the project, so you know, again, political risk and infrastructure, right? Again, it is much easier and faster to build the mine if all the infrastructure you need to build it is actually already in place. So,   there are a lot of locations that are very remote that you have to spend money and time building the infrastructure before you can start building the mine. So that’s where you look at big Copper projects in the Andes, they cost USD$3Bn to USD$4Bn because you have to spend USD$1 to 2Bn to out in all the infrastructure and then you spend another USD$1 to 2BN just to build the plant, in places where there is infrastructure in place. So the benefit in a place like Dumont, or what we have at Crawford is that all the infrastructure is in place so you can just build the plant and the mill.

Matthew Gordon: Right. Without promoting your own company too much, just more generally, what do you think investors, when they are looking at the Nickel market, when they are hearing this EV story, what else should they be looking to avoid or what should they look for?

Mark Selby: Again, I think the market today is still tough for exploration and development stories. You really do – like where you are getting the premium valuations, if you look at some of the companies in Copper and Gold, in Columbia and Ecuador, is that they have this scale that will attract, that the Majors are willing to bid for, right? So they are really breaking out as a value category so again, as I think that investors are looking for opportunities as you want to look at, is it of a scale that is going to attract the bug guys that are going to write the big cheques that are going to make you, as an investor, a lot of money, right? That, I think, is key as you are looking for opportunities. If someone has been around for 30 to 40 years, unless there’s a really new take on it, again, the Majors probably looked at 10 years and then 20 years ago, 30 years ago, and they didn’t but it then.  So unless there is a really compelling reason as to why they should buy it now, they are really, probably not going to get there.

So that would be number one and then number 2, again, I think there is low capital, low, very quick kind of restarts, kind of Brownfield things, that you know, again, there was a track record of prior action, you don’t have to worry about, will the mine work? It’s worked a bunch of times before. And again, with the right team that has the experience to actually deliver it and has delivered it in the past, because they can generally get to free cashflow and use that to build the business as well. Those, to me, those are the two real paths to have a look at.

Matthew Gordon:  That’s really interesting. We have spoken to a few Gold companies, a few Silver companies, even a few Uranium companies who are employing that model. So you have got to have been there and done that before, as is the case in all of these individuals, but they are looking to get into production early.

Mark Selby: One of the things that again, in terms of this Class 1 and Class 2 and really around Nickel Sulphate, I think what investors need to be careful about is, you know, there is a lot of this talk about, ‘Oh, we’re just going to make Nickel Sulphate.’ I think there are a couple of important characteristics of Nickel Sulphate that people really need to be conscious of: so, Nickel Sulphate, you take a product, even that’s only 22% Nickel, so a lot of producers are taking a pure product and then making Sulphate which is a 22% product, or even most Nickel intermediates have a Nickel content that’s higher than 22%. So, you are downgrading the Nickel content and what you are shipping is a bunch of Sulphate molecules and some water. So, do you really want to do that 4,000 miles away from your nearest customer, right? Because all you are doing is you are adding a whole pile of costs to transport that material to the battery consumer.

Matthew Gordon: Okay. So you are saying –

Mark Selby: It’s better to ship the Intermediate closer to the market, and then process it close to where it is going.

Matthew Gordon: Got it. So it is Sulphates that are not necessarily as cost efficient, people may say. You need that all-in cost, as it were?

Mark Selby: Yes. Exactly. And so, and the other part of it too is that when you make Nickel Sulphate, one of the biggest cost components is to take the Sulphate molecules that are in solution and dry out the solution so that you crystallise it. So that requires a lot of energy, and again, in a lot of locations, energy is not cheap. Particularly because the first step, when you send it to the person that is going to upgrade it and turn it into a usable battery product, the dissolve it again. So, in terms of the overall value chain, it is a pretty stupid process to crystallise it, ship it and then re-dissolve it again. I mean, that’s what Nickel Iron integrated Stainless Steel was all about; they used to make Ferronickel, they would cool it, ship it, and the first thing the stainless-steel plant would do it melt it again, right? So the Chinese said, oh, that’s stupid. And I think you are going to see the same thing happen in the EV space; a lot of the downstream players are going to find a way and I know because we had discussions with them when I was at  RNC, they are going to look for ways to build onto their front-end plant so they can take a Nickel Intermediary directly into their plant, dissolve it once and make a final product that goes to the battery maker, car consumer who or however far down integrated they are.

The only time it really makes sense to make Sulphate is if you are already getting it in to solutions. So in an HPAL project, if you have leeched it, you haven’t built your plant yet to make it a high-grade product, in that case, maybe, if you are close enough to somebody, that might make sense to make Sulphate rather than a pure product. The other piece that all of these companies are going to deal with is that the purity restrictions on Nickel Sulphate are going to get stricter and stricter because all the car companies want to use more Nickel, because that’s what gives it the energy density. That’s what gives it the range.

Matthew Gordon: Right.

Mark Selby: The problem is that the Nickel is also the thing that makes the battery, in combination with a couple of other things, catch fire.

Matthew Gordon: Combustible, yes.

Mark Selby: So they are pretty concerned about catching fire. And so they have a bunch of systems that doesn’t happen. If you have random iron atoms or cobalt atoms, or other elements that are in the product, that complicates things. So, as we go from 33% Nickel to 50%, 60%, 80%, 90%, 95% Nickel, they want stuff that is as pure as possible into the process. So do you as a mining company want to continue to invest to meet the increasing quality standards that are going to exist going forward, and I think the answer to that is no. So there is Terrafame in Finland, they leach Sulphide ore and make a profit, and they were shipping an intermediate, for them to make a Nickel Sulphate plan to supply battery manufacturers in Europe – excellent idea, right? They have already got a very complicated chemical planet, making a chemical product out of the complicated chemical plant, that is okay because you need that expertise. For that scenario that made sense, but there are literally tens of other things I have heard of that just make zero sense to me. And again, to underscore with real world, not just Mark Selby’s opinion on stuff. Glencore runs Murrin pressure leach plant, you know, it’s an option for them and Glencore hasn’t talked to them about making Nickel Sulphate directly. They are quite happy to ship 99.8% briquettes to the end consumer who pays the premium for the briquette and then they don’t have to worry about the rest of the downstream process.

Matthew Gordon: I’m going to pick you up at a later date to talk about when you see things or companies that will worry you. I won’t get you to name names but I want to understand more about those. But, Mark, thank you very much for going through that with us. We have been reading with interest, people’s responses to your last piece. Thanks for that and thank you for today. Stay in touch. We should catch up soon about Canada Nickel because that is…when is that actually going to hit the market?

Mark Selby: Yes, we are in the final stages of the regulatory approvals.

Matthew Gordon: That’s always fun.

Mark Selby: We should be – oh yeah – we should be, we’re looking at hopefully the end of next week.

Matthew Gordon: Okay. Soon?

Mark Selby: We’ll be in a position to do that. We are in the final stretches there so next week or the week after, and again, we still need the very final from the regulators, but we are making good progress on that front. So hopefully, sooner than later.

Matthew Gordon: Well, we will look out for it; I’m sure there will be a press release on it and people will be able to start trading Canada Nickel in the next couple of weeks by the sounds of it.

Mark Selby: Yes. It will be a very exciting point in time.

Matthew Gordon: Well, come and give us an update. Sounds like a great project. I’d love to hear more. And thanks very much for your insight. Beautiful.

Mark Selby: Thank you, Matthew, glad to talk about Nickel.


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.

Nickel ore

HPAL Plants & Nickel – The Facts

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.

Feel free to check out some of our recent nickel-related interviews or one of our informative nickel-related articles.

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.

A diagram of an HPAL extraction process.
Source: Caldera Engineering

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.

An HPAL flowsheet diagram
Source: Mascot Industrial

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.

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.

Nickel – 5 Things You Need to Know Before Investing (Transcript)

Interview with Industry Commentator Mark Selby, CEO of Canada Nickel Company.

Is Nickel the new gasoline?

Selby does a great job in this interview of shining a light on the key drivers for Nickel. And interestingly we discuss financing HPal operations and how to pick Nickel juniors.

After touching on his soon-to-be public project, Canada Nickel Company, Selby delves into the nitty-gritty details of the nickel market. During his nearly 20-year tenure as a nickel market commentator, he has seen a few Super Cycles in the Nickel market. We ask about some of the lessons that investors can learn from. Nickel is a particularly volatile commodity in comparison to other base metals that moves in sweeping super-cycles. Traditionally, this volatility comes from the pricing model of stainless steel, the historical primary driver of nickel use.

Selby discusses issues pertaining to over-supply from low-quality Chinese pig-iron courtesy of rising nickel prices earlier this year. He predicted last month that year year and half of next year to be a tale of two halves. Prices are likely to fall further while the scrap inventory comes into the market, but once it is out of the way, restocking will occur and nickel should rise again.

Selby also touches on the specific geological conditions that nickel necessitates and how Indonesia’s recent halt on exports has affected the market.

He then moves into exploring the exponential nickel potential of the inevitable EV revolution and talks us through the specific structural components a junior nickel company needs to survive in a world of large Nickel producers.

Lastly, Selby moves into the field of mineralogy and gives us an insight into nickel types and classes.

What did you make of Mark Selby? Are you excited by the Nickel thesis? Is talk of the EV revolution cheap or it is going to make you a fortune? Comment below and we may just ask your questions in the near future.

Interview highlights:

  • Overview of Canada Nickel Company
  • Understanding the Nickel Market: Before and Now
  • What are Super Cycles? Where are We Now and What to Expect From Prices
  • What Drives Volatility?
  • Stainless Steel & OPEC Affecting Nickel Prices
  • Geopolitics of Nickel: On Indonesia and China
  • HPLC Projects: Who Can Actually Put Them Together?
  • Influencers of Supply to the Nickel Market
  • Demand: Past and Present
  • Junior Companies: Have They Got Any Chance of Surviving? What Experience do They Need? What Defines a Winner?
  • Nickel Types and Classes: How They Differ and What Investors Should Know

Click here to watch the full interview.


Matthew Gordon: Hi Mark. So why are you in London?

Mark Selby: With Nickel being a metal that’s on investors’ minds, we’re getting lots of attention.

Matthew Gordon: It very much is. And what sort of people are you seeing?

Mark Selby: The full range of high net worth investors, institutional funds. And even corporates who are looking for new projects to invest in.

Matthew Gordon: Please give us an overview of what Canada Nickel is. It’s a relatively new company.

Mark Selby: We are advancing the Crawford Nickel Project. It’s a brand-new discovery. Nickel has very few new discoveries. And it’s very similar to a project called Dumont, which in my previous life at RNC Minerals, we advanced from a Resource, all the way to a fully permitted, full Feasibility Study (FS), construction ready project. And I will be able to take all the learning from Dumont and apply it to this deposit and advance it, we hope quite quickly.

Matthew Gordon: You have quite kindly said you’d give us a bit of time to understand the Nickel market. You’ve been in the Nickel market a long time.

Mark Selby: Yes. I was head of market research at Inco in 2001. And continued to be a commentator on the Nickel market now for nearly 20 years.

Matthew Gordon: We’re starting a series where we’re helping people understand various commodities as they hit certain points in the cycle. Nickel is complicated. So why don’t we talk about some of the background to that prior to 2001. And then we’ll get into some supply demand type conversations.

Mark Selby: I literally joined Inco within a few days of the trough of the Nickel price in October 2001, it hit about $2 a pound or $4,400 per tonne.

Matthew Gordon: The reason I ask is, because people need to understand the cycles to understand how commodities behave. You came in at a particularly interesting time. Was that tough?

Mark Selby: Oh, it was. I knew what I was getting into. I got into mining at that time, because I saw the rise of China and that it was going to transform metals demand and we were going to go through a Super Cycle. I quickly realized when I got in that role how important China was going to be.

Matthew Gordon: You mention a phrase, Super Cycle. It’s a phrase quite commonly associated with Nickel. Can you explain to people what that means and maybe give examples of some of those Super Cycles?

Mark Selby: Nickel is a metal that has always been more volatile than a number of the other base metals. It’s big, but not very big relative to say, copper and aluminium and zinc and so forth. The other part of it is there are some real structural issues in the market that have come to bear over time. If you go back in history, Nickel has gotten to very high prices. In the late 1960s, Nickel got to the equivalent of $50 a lbs in today’s dollars. We went through another Super Cycle in the late 1980s and again in the mid-2000s, so with Electric Vehicles (EV) and everything like that and a decade of under-investment in new supply, we’re on the verge of a new Super Cycle in Nickel, sometime during the early to mid 2020s.

Matthew Gordon: You mentioned another word there, volatility. What has traditionally driven that volatility? And is it something that you see happening going forward? People talk about the EV revolution solving a lot of problems for a lot of companies, apparently? So what is it going to do going forward? Let’s start with where this volatility is going to happen and then why it happened in the past?

Mark Selby: For investors, that’s one thing to pay attention to. We are going to go through some major swings as we go in a sustained upturn. But it’s definitely not going to be a straight line. The things that are specific to Nickel that enhance that volatility, is that historically stainless-steel is the primary demand driver for Nickel. And they have a pricing model that basically builds in the expectation of future price increases. So what happens is you get buying behaviour throughout the chain where people anticipate prices going up, so they stop buying. And then when they think it’s going to roll over, everybody puts their hands in their pockets and wait for the price to come back into the market again. We’ve seen evidence of it already this year. Nickel got to $18,000 a tonne / $8 lbs in September. And as I said when we previously talked, that by the end of the year, it’s going to come off, probably 15% or 20%. And it has.

Matthew Gordon: Explain why.

Mark Selby: Two reasons. As you get a new spike in Nickel prices, two things happen. 1. Nickel Pig Iron (NPI) production. Basically, the Chinese producers have a bunch of ore stockpiles and they turn that into cash at higher Nickel prices. They take advantage of those surge in prices. ‘If I can make money making NPI, I will make NPI’. 2. And the other piece of it is the stainless-steel scrap chain, which is a massive source of feed. Scrap is something that isn’t talked about. But it is a huge factor.

Matthew Gordon: What is scrap?

Mark Selby: Scrap is a big component of stainless-steel production. For most of the stainless-steel producers in the West, more than 2/3rds of their feed is scrap material, Nickel containing materials. Now, it’s not exactly a bunch of stainless-steel knives and forks. It’s actually a blended box of material that scrap makers make to a specific specification.

Matthew Gordon: Literally from scrap yards?

Mark Selby: Literally scrap yards. And then they take 10 of this, 5 of that, 4 of that, 2 of that, 1 of that, put it in a container and that container meets the specifications that have been agreed with that stainless-steel supplier. But what the entire scrap chain does is put a little bit away waiting for high-prices to come and when it hits their number, that scrap comes flooding into the market. So when we hit a price level this past Fall, that we haven’t been to for 4-years. You basically have 4-years’ worth of people putting stuff in a corner that all comes out into the market.

Matthew Gordon: Obviously Nickel has come off the last couple of weeks. That is possibly what the cause could be or is?

Mark Selby: Oh it is, because when lots of scrap become available, then stainless-steel companies don’t need to buy primary Nickel. And so that takes more demand out of the market. And you’ve got more Nickel Pig Iron in the market, as the Chinese producers produce it.

Matthew Gordon: What is the size of each of those markets is? The pig iron and the scrap markets… and how long is it going to remain at the current pricing?

Mark Selby: Next year is going to be a tale of two halves. It’ll probably take us most of the first half of next year to get through that extra amount of scrap that’s come into the market. And that extra amount of Nickel Pig Iron. Prices could go another 10% to 15% lower from here. But, once we work through that scrap, work through those ore stocks, then we come out on the other side and I think the prices start to move higher. Once that inventory is gone, it’s gone. You end up with a big restocking phase that’s happened as people have to come back out and say, ‘OK, well, I don’t have these stockpiles anymore. I need to go buy even more primary material’.

Matthew Gordon: You’ve talked previously about the OPEC of Nickel. What does that mean? Who are the players?

Mark Selby: Robert Friedland at the BMO Conference called Nickel the new gasoline. Which I thought was a great phrase and reflects what is going to be happening as the EV’s move forward. OPEC at its peak controlled about just over 50% of the market. And, we remember all the things that countries and companies did to avoid that supply concentration at that point in time. In the Nickel market, Indonesia, the Philippines and New Caledonia will control a very similar amount of global Nickel supply. Those are 3 countries that have intervened in their mining sector. Those are 3 countries that have financial issues, revenue issues. The temptation for them to put some sort of export duty, some way to capture additional value for the country, is going to be just too tempting. And that will make Nickel assets outside of those areas much more attractive. Was oil outside OPEC a good investment in 1971-1972?; that was a pretty good trade for a good 20yrs or 25yrs. It’s going to create those kinds of opportunities in the Nickel space.

Matthew Gordon: We can’t talk about supply and not mention Indonesia. The big news, 3-4 weeks ago… This Nickel Series is going to be for people of all abilities, a lot of people will know about Indonesia. Some won’t. For people that don’t know much about it tell us about their influence on the marketplace.

Mark Selby: One of the things that’s unique to Nickel is it’s not found in many places across the world. There’re some specific geological conditions that have to occur to have Nickel deposits. So as a result, Nickel supply is relatively concentrated in a few countries. In Indonesia, particularly the island of Sulawesi, and some nearby islands, is basically the Saudi Arabia of Nickel resources. There’s a substantial Nickel resource base that was tapped in the mid 2000s as they mined the ore, shipped it to China to make Nickel Pig Iron. And now what the Chinese producers are doing is building stainless-steel plants on top of the ore body, because that’s the cheapest way to make stainless-steel. And, we’ve seen a massive increase in capacity during that timeframe. And we will need more capacity to come. That’s one of the only places in the world where there’s substantial resource reserve available to be developed.

Matthew Gordon: But they also announced that they are halting exports. That’s had a big impact. Sent shockwaves. Why did they do that? What is the impact of that’s going to be short-term and medium-term?

Mark Selby: They first started banning ore exports about 4-years ago.

Matthew Gordon: They’ve been stop-starting?

Mark Selby: Yes, it’s come and gone into the market a few times. One of the reasons why Nickel has been a difficult metal to invest in is because of some of these dynamics. What is Indonesia going to do or not do as we move forward? In 2014-2015, they put a ban in place, because when you look at the price of ore, as a percentage of the contained Nickel value versus the price of Nickel, when you ship it in ore form, the country is only capturing 15%-20% of the value. Indonesia has a finite amount of Resources. They wanted to see as much value-add happen in Indonesia. So by putting the ban in place, it was forcing Chinese companies to build their plants in Indonesia, as opposed to China. And that plan worked very successfully. Indonesia has seen tens of billions of dollars of investment in capacity. They then changed their mind, and allowed some more exports to continue, partly because the local producers, including a state-run company, PT Aneka Tambang (AnTam), was mining to provide high-grade ore to the local Chinese plants. But they were also… you can’t just mine the high-grade ore, you have to take some lower-grade with it. They were facing mountains of unsold ore that they couldn’t do anything with. Indonesia then allowed exports for a period of time. And this was supposed to continue until 2022. And what the big announcement said ‘we’re going to bring that forward’. It got brought forward to 1st January 2021. And then in the past month or so, there’s been talk of banning, but they’ve actually now allowed some exports.

Matthew Gordon: This driven by what? There’s politics involved. You’ve talked about Chinese companies building plants in Indonesia. They must hold some sway, because of employment, building roads… What are the dynamics?

Mark Selby: It does come down to local stakeholders who are mining ore, and want to continue to sell ore to China and make money that way. And now you’re going to lose that ability and that revenue stream. It comes down to balancing off those local interests versus some of the larger Chinese companies that are there, and trying to find that balance. When they banned it the last time, it was hard fast rule. There is no leakage. And by 1st January of 2020, it will be enforced. And we don’t expect any leakage going forward, because they want encourage that next wave of investment. In terms of HPL plants as well and stainless-steel plants.

Matthew Gordon: And that’s going to come from China?

Mark Selby: Yes.

Matthew Gordon: HPal is not cheap?

Mark Selby: Not cheap at all. You’re looking at $30,000 – $35,000 per ton of capacity that you want, at best. HPL plants built in other parts of the world have faced massive overruns, and have ran up $60,000 – $100,000 per ton of capacity that’s in place.

Matthew Gordon: What does that mean, as a number? If you are looking at the CapEx for a HPal plant, what number are you asking me for typically?

Mark Selby: So if there’s a $30,000 tonne plant, the best example that has been done, is by Sumitomo Metal Mining. They spent about USD$1.4Bn.

Matthew Gordon: These are big CapEx numbers upfront. There are very few people can do that. Not only fund it, but very few people can put that consortium together. The Chinese influence, or the China building plants locally and funding them. How have they structured that? Is it build and operate model?

Mark Selby: It’s different between the NPI and stainless-steel. What they’re doing with the HPL. So the NPI and stainless-steel, you have several large producers and some smaller ones in China, who take the same technology that they put in place in China. Clearly building a carbon copy of that plant in Indonesia. Cut and paste. There you’re looking at $10,000-$20,000 tonne of installed capacity. All the way through to making stainless-steel in Indonesia. So they have expertise in that particular area when it comes to HPL, that’s Hydro Met technology. If you’re making stainless-steel there is no hydro metallurgy involved. What we’ve seen in terms of the HPal plants that are being built in Indonesia today is they are joint ventures between several different Chinese partners, some of whom bring that hydro met technology, people who bring the resources. And then people were able to bring the scope and scale of their existing business to help deliver some capital in there to build the HPL plant. None of them are operational yet. There’s going to be a big TBD to see how quickly they ramp up relative to some of the other plants that have not done so well. Typically, HPal has taken longer and costs more.

Matthew Gordon: We have talked to a few Nickel companies along the way and they drop in very casually that the HPal bomb, the conversations without comprehending. Are there many people in world who can put a HPal project together, not just financially, but technically?

Mark Selby: Sumitomo Metal Mining is the only company that has really done it successfully, that delivered projects that have ramped up relatively quickly and were delivered close to budget.

Matthew Gordon: So that’s important. Because all this is for the benefit of retail. High net worth office investors. These are little red flags, which I’m interested in getting and getting out of those conversations. Sumitomo. Noted. On the Supply side of things, who are the other influences? Who are the other players in the market?

Mark Selby: If you look at the supply today, you’ve got a handful of groups that really control the biggest bulk of supply. You’ve got Indonesian production that we’ve talked about in terms of NPI and to integrated stainless. You have the Chinese Nickel Pig Iron producers that have been taking ore from Indonesia. But we’ll have to get it from the Philippines and a few other countries to continue to produce Nickel Pig Iron in China. You’ve got the larger integrated historical producers. Vale, Inco from the past, Glencore with Falcon Bridge from the past. And then the Russian producer, Norilsk. Each of those are large integrated Nickel producers. AuraMet is a smaller integrated producer and has again been around a long time. And then obviously BHP has their operations in Western Australia. So that large base of integrated, multi-asset producers who Nickel has just one of their commodities, is other important big chunk of supply.

Matthew Gordon: The thing that those guys all have in common is they are vast. Big companies with access to finance. Because Nickel not cheap to put together.

Mark Selby: Yes, it is not.

Matthew Gordon: From investors point of view. You need to so understand when you’re looking at companies you need to understand where they fit in the cycle. I think we will get to the end of this conversation. But in terms of picking winners, it’s good to understand that the thesis behind Nickel. And how companies can actually monetize what they’ve got. So on the supply side, just as a first conversation, thank you very much. Demand. It comes back to our lovely Super Cycles. Demand at the moments is what sorts of levels?

Mark Selby: Demand has continued to be quite robust. That’s one thing people underestimate about Nickel. Nickel demand is grown at an average of almost 5% a year over the last decade. For things like copper and zinc, the comparable number would be 2-3%.

Matthew Gordon: What’s that been driven by?

Mark Selby: Stainless-steel growth. Batteries are just 2% of the market today. It’s a very small amount and is going to grow very quickly and very to a very large number. All of that historical growth has really been driven by stainless-steel and to another extent, alloys and Alloy steel. And the reason it’s able to grow and will continue to grow is stainless-steel is a very small fraction of the overall steel market. So stainless-steel has a lot of properties in terms of long-life, highly recyclable, which are becoming more valuable in today’s economy. Stainless steel continues to steal share from other types of steels. We don’t expect any slowdown in stainless-steel demand growth going forward.

Matthew Gordon: Is that coming out of China as well?

Mark Selby:  Yes, China has been the massive source of demand growth, but it continues to grow in a lot of a lot of other countries.

Matthew Gordon: What are the other common demand drivers for Nickel at the moment?

Mark Selby: The other big one is high Nickel alloys. That’s one of the things with China is that it moves up its economic development curve. You start with carbon steels, you move to stainless-steels. And then when you get into other sectors of your economy that become more important, you start to use Nickel as Nickel, and things like high Nickel alloys that, are used in jet engines, gas turbines. Nuclear power plant alloys. There’s another big chunk of about 15% to 20% of Nickel demand that goes into those types of applications. And every time you’re sitting on a plane, if you look out a window, there’s several tons of Nickel in every one of those jet engines. So as tourism becomes a big part of the Chinese economy, and Chinese tourists start to fly everywhere, they’re ordering thousands and thousands of planes. That’s helping drive Nickel demand globally for those airframe manufacturers.

Matthew Gordon: So you going to stick with the Super ~Cycle because it sounds terrifying and exciting at the same time to me. Where do you think we are in relation to the next Super Cycle? We know the price is today. Where do you think it’s going to get to?

Mark Selby: I think we’ve completed leg one. It’ll be three or four legs. You have a set of conditions that sort of have to unfold over a period of time. What set the stage for Super Cycle today is and when what historically has happened the past is, you end up in periods of underinvestment. To your point on supply, in supply you’ve got a lot of large companies. Well, they chose not to allocate capital to non-Nickel projects over the last decade or so. So most of the existing production has shrunk over the last decade. The existing mines are deep underground mines, or larger scale processing plants. Those are things that you can’t, add something and 12-months and be in production. It takes multiple years to do it. 2 underground projects. Vale finally approved the Voises Bay underground project a couple years ago, but that was announced in 2017 – 2018. First Nickel is not till 2021, and it doesn’t ramp up until 2023. 5-years from announcement to full production. Glencore and Sudbury again new mine in Sudbury called Onaping Depth. The first production won’t be for 3-years, because they’re sinking a several thousand metre shaft, and then it won’t ramp up fully for another few years after that. So with that under-investment, supply can’t be flipped on quickly again. So that’s starts the set the basis for it. And then there’s, a demand surge that comes out of somewhere. So, in the late in the 1960s, when we had the big spike, it was Japan that was growing very quickly. And there had been some underinvestment in Nickel, and they couldn’t catch up quickly enough. They then overbuilt in the 1970s. And in the 1980s, you had Korea and Taiwan industrializing. And so that was driving a significant amount of new growth. And we’d come off 10yr or 15yr of low Nickel prices under-investment as people were rationalizing vastly. That was overbuilt in the early 1970s in response to the big spike in the 60s. And in the 2000s, through the 1990s, Nickel had to absorb the collapse of the Soviet Union. So that was a big Nickel producer and consumer and their consumption of Nickel dropped by 80%-90%. And you had this huge amount of new supply introduced into the market and huge amount of scrap that came into the market, as basically the Russian economy got torn down and sent its scrap to the West. That time period leading up to the early 2000s had seen a significant under-investment in Nickel capacity, and then China came along and set the spike. So in this case, we’re coming off a decade of under-investment in other capacity outside of Indonesia. And we see now electric vehicles on the horizon. Then a big lump of demand that’s coming from the EV story.

Matthew Gordon: It’s fascinating because you’ve seen the replications and so therefore there are patterns, with these emerging economies, as they grow, get ever more demanding consumers. China at the moment is. Where are they in the phase of development? Because if you look at some of the cities and its hugely sophisticated. 1.3Bn people. They don’t all live in the cities.

Mark Selby: And that’s it. The thing that’s important about China is it’s not just one country. You’ve got several different areas that are going through a different stage of industrialization. So the Eastern coastal cities are probably all very up the curve. And then as you moved into the Western Centre of the country, you get less and less developed. So there’s, other parts of the regions that are moving up the curve. And then China’s got its Belt and Road policy. They’re extending that infrastructure build out into their neighbouring countries.

Matthew Gordon: We were there last year, Chengdu, Sichuan… And it’s exciting. There is a notable difference. But it’s coming. That wave is still there. They still have a way to go. This is so much of it. So the demand side of things for China is still encouraging for Nickel suppliers. And that’s not just the EV.

Mark Selby: That’s just 5% demand growth that we’ve seen in Nickel and will continue to see for long time. We don’t see that slowing down anytime soon.

Matthew Gordon: How do companies work out where they fit in to the mix? So you’re looking at these Super Cycles happening and these growth patterns. And, all the numbers point up, the pricing points up, but it takes a while to get into production. It also takes a lot of money to get into production. But before you get anywhere near production… how does a junior company establish itself in a world of giants? You mentioned super huge companies with big balance sheets and access to cash. How does a small company get into the market and establish itself?

Mark Selby: So one of the opportunities and this is actually going to be a fundamental shift, that’s going to happen over the next 3-4yrs. Nickel processing, historically was an oligopoly controlled by Falconbridge, Vale. Norlisk. Glencore. The problem for small miners was, you could build your mine, but then you had to sell your concentrate to somebody. And unlike, copper and zinc, where there’s benchmark terms, they’re negotiated very competitively every year. There was, some fairly, take it or leave it pricing, which transferred a significant amount of that value to the smelter refiner, and away from the miner. Mining is hard. But when you end up having to give up a fairly significant share of that value to the smelter. What’s now going to be changing in the Nickel space? It’s we’re not there now, but over the next 2-3yrs is the Chinese and every other semi-finished, semi-processed material goes ahead and builds way too much capacity to meet the market demand. And then they bid up the price of the feed to a break-even number. With Nickel sulphate for EVs, a massive amount of capacity is required in Asia. They will build capacity to take various Nickel intermediates and then process them into the products that the EV market is going to need. So it’s opening up the door now for smaller sulphide mines to be able to come into production and have competitive pricing for their product in 2-4yrs. It will create the opportunity for some smaller producers to more easily come to market. In terms of laterite ore suppliers, China is going to need ore supplies, because Indonesia is now not going to be supplying it. There’s not a lot of places where you find laterite ore in coastal deposits that you can ship out of the country. But there are some places.

Matthew Gordon: Can you explain the difference between those types of ores.

Mark Selby: Yes. There are two primary types of Nickel deposits. Sulphide is what you think of in Sudbury and so forth. And so that the issue there is generally the mining is expensive. You have to build a deep open pit. Now there tend to be deeper underground mines or bigger open pit operations, processing low-grade Nickel. Once you make a concentrate, because you upgrade it from anywhere from 0.3% to 3% Nickel, up to something that’s 10%-15% Nickel. The processing of it from there is relatively uncomplicated, smelter refiner and it gets them. The tricky part for a laterite project is it is much easier mine. It’s basically a rock that’s been converted to dirt, over time. And in that process, the Nickel and Cobalt gets concentrated in the soil. You literally are just digging dirt. These mines in Indonesia, that ship ore to China, literally just dig it up, put it on a boat. The mining part of its quite simple and cheap, and the processing the mineral that’s the Nickel is in is a very complicated minerals so you have to use a lot of energy either through electricity to melt it all. And that’s how Nickel Pig Iron works. You take all that soggy dirt, dump it in a furnace and melt it and make Nickel Pig Iron ore. You have to use energy in the form of acid to break the bonds, to liberate the Nickel and Cobalt. That’s the HPL process. Those are big, complicated, expensive plants to do that. So one’s easy to mine. One is harder to mine. One’s much easier process, one’s much harder to process.

Matthew Gordon: And while you’re explaining the technical detail, cause there’s lots of talk in the market about Class 1 and Class 2 Nickel. For the audience can you explain what the difference is.

Mark Selby: There’s been a massive amount of airtime about this particular discussion. And the issue is more should be more about how many total Nickel units we have. At the end of the day, you can take a sulphite intermediate and you can make a range of products with it. You can make Nickel Pig Iron, Ferro Nickel via the roasting approach that we had a Dumont. You can take that to a smelter and to make finished Nickel products, and the same thing through the laterite source-based material. Most of that does go to make NPI today, but there’s no reason…there are producers, PT Inco, AuraMet that have produced for a long time that make a product that does go to a Nickel refinery that gets converted into finished Nickel and cobalt products that can be used for the battery sector. I think it’s very important for investors to not get caught up in that particular discussion. The Chinese are going to build lots of processing capacity to process intermediate’s junior mining companies, having processing plants at a location to make a product. That specification as we go to have more Nickel in batteries that the specification for that sulphate gets stricter and stricter and stricter. Are you going to build a sulphate plant and then continue to improve that plant to be able to make that product? You should just focus on making high quality intermediate and then you will have a market to sell that into in the future.

Matthew Gordon: You are saying Class 1 & Class 2 is a distraction for investors, because the market will resolve the economics around that.

Mark Selby: Exactly. There will be short-term dislocations. So, don’t say, today the premiums X, but Nickel sulphate premiums were $2,000 two years ago They’re down to zero today.

Matthew Gordon: So back to our small company. You think it’s going to be easier for junior Nickel miners to actually get into market, be able to, not just find Nickel, dig it out the ground, but actually get it processed in market.

Mark Selby: At a competitive price.

Matthew Gordon: It’s got to be economic. Do you think mining Nickel in the past is advantageous, or do you think Nickel is a relatively easy type of commodity to mine?

Mark Selby: Generally mining is. The bottom line, the technologies, processes that are used are similar. If you’ve run a copper mine, you should be able to run an underground copper mine; should be able to run an underground Nickel operation because.

Matthew Gordon: We’ve talked to some CEOs of commodities and who have not mined in this space, who say you don’t know what you don’t know.

Mark Selby: I would say it’s consistent with the other base metals. Each metal does have its specifics. But you can find the expertise and put it in the place.

Matthew Gordon: I said earlier in the conversation, we’re going to try and work out how we can spot winners. So on a no names. I don’t want to pick any companies out. I want to understand the profile a little a little bit. There are bulk plays. And slightly higher grades. And they each have different challenges. So bulk for me is a little bit below 1%.

Mark Selby: No, it would be below 0.5%.

Matthew Gordon: What are the higher-grades?

Mark Selby: Higher-grades would be 3-4% Nickel. You get some massive sulphide Nickel, smaller players in Western Australia, and then you get another sort of bucket sort of between 1-3% that you could mine underground on a larger scale. Again, the biggest challenge with Nickel, is there’s not many new Nickel discoveries. If you look at the project pipeline of most metals, there’s literally hundreds of gold projects. There are dozens and dozens of copper projects. In the Nickel space there really are a very limited number of projects. And, there’s been a very limited number of new discoveries. When investors start to look at it, there isn’t a big universe of Nickel opportunities with which to invest in.

Matthew Gordon: And we have the pleasure meeting a few people with large-scale . This is a bottom up in terms of resource. But they’re all struggling at the moment, because the money’s just not there for them. But if you talk to institutions or banks, what are they feeling about this? But given the Super Cycle component, how does a financier put together a package based on what they’ve seen go on in the past? Or does it not matter to them?

Mark Selby: Dumont for the first 7-years, Nickel was an out-of-favour metal. There were concerns over the long-term price. It was very hard for people to get their head around building a big $1Bn Nickel project at that point in time. But with the shift over the last 2-years, the thing that’s been fascinating with the EV sector is they want the Nickel now. And they keep asking when can we, how quickly can you double it? Can you double it a second time? They have such massive growth requirements that discussion is starting to change. And I think one of the things, that’s to me is fascinating is you’re seeing literally tens of billions of dollars of investment in battery capacity. But they haven’t necessarily done that for the metal that they’re going to need yet. They’re going to wake up to that reality soon, that if you’re not also building the capacity to provide the raw materials that you’re going to need. It’s going to make it more challenging to make the battery if you don’t have this stuff, to make the battery out of this.

Matthew Gordon: It’s quite confusing for investors, because almost every company that we speak to is pitching the EV revolution …’that’s going to change our fortunes’ and therefore invest in us. Whatever the pitch is, some are more believable than others. We’ve had people talk about the timing of all of these things. The reality is a couple of years away. And realistically not going to be impacted by the EV revolution or price in the market, etc.. Demand in the market at the moment. But the what they what they will say is. ‘Get in cheap, our stock is cheap today. Get in ahead of the crowd’. How do you pick winners? What should we be looking for specific to market? What sorts of what are the sorts of things that should be avoided?

Mark Selby: The things to focus on are… because most projects are expensive. Vale’s new underground mine Voises Bay $1.5 billion. Glencore’s new mine $1Bn. Most Nickel projects are going to require $1Bn or so of CapEx To be able to fund that kind of investment, you need large companies to be interested. I think that’s one of the one of the things to look at is, is the scale of the resource that this company has got going to be attractive to one of the majors who say, ‘I want to grow in the battery material space and I can do that through Nickel’. If in attracting investment from the EV companies, they’re not going to fund 62 little mines to come into production. No, they want larger, long-life, large scale assets that can hopefully grow with them as they grow their businesses.

Matthew Gordon: So what is large scale?

Mark Selby: Nickel is a 2.4Mt market. And if you can produce, 20,000 to 30,000 tonnes a day. That’s a decent size mining operation. So roughly 1% of global supply.

Matthew Gordon: And if you can’t?

Mark Selby: I’d say that’s one class of investment. I think the other opportunity again would be smaller scale, that is produce a concentrate. Just make sure that, they’re using realistic operating cost assumptions and realistic capital cost assumptions, in terms of if they’re restarting a small scale mine. There are some of those opportunities out there today. Some of them are good, and are at a good price. They’ll be able to come to market relatively quickly and participate in the cycle as the Nickel market rebounds. When we were at RNC, we did the joint venture with Waterton. The cash-pool that we did was to sell down part of Dumont to be able to pick up some of these smaller scale restart opportunities. So you could participate in the cycle more quickly. As opposed to having to build a big project for 2-years. I would say that it’s the world scale asset, the sort of small-scale restart or small-scale resource that you can bring into production relatively quickly and cheaply. But again, make sure they’ve got realistic operating capital cost numbers.

Matthew Gordon: You talked about Sumito and HPal earlier. If someone’s pitching to the market, they can build a HPal operation for less than $1Bn. You’ve got to ask does that makes sense to me.

Mark Selby: There’s been one successful person, and that’s the cheapest. They’ve built multiple plants. They built it in the Philippines, which is a very low-cost place to operate. If you use that as a benchmark. And then scale it up from there. If you’re in a higher cost country than the Philippines, then that cost should go up. They only made an intermediate, they shipped an intermediate product that went to their existing refinery in Japan. If someone’s going downstream and going to a final product, that should be another chunk of higher cost. Because some of the less successful plants, if you look at some of the CapEx numbers, they ballooned to $7Bn-$10Bn before they started to work even close to properly. So that’s the upper end.

Matthew Gordon: So the answer is, you would be suspicious of someone saying HPal operate, if you’re spending less than $1Bn, that would be a red flag. Thank you for that.

Mark Selby: I would say justify to me why you think you can build a better than Sumitomo Metal Mining.

Matthew Gordon: Coming back to small companies. They are going to have to find strategic investors. Because with the balance sheet to be able raise the money to be able to invest in a Nickel project. How should companies structure those relationships? Obviously, you don’t want them coming into Pubco, because there’s going to be nothing left of the company. They tend to come in at asset level typically. What do those relationships look like?

Mark Selby: The Nickel projects that will get advanced this cycle are similar deals to what you saw in the copper space. You have an Asian either off-taker or a strategic who wants access to that material? And do they come in on a joint venture basis. They provide a big chunk of the equity capital that’s required and provide the balance of the financing to get that in place, we just haven’t seen it in Nickel yet. But it will be coming.

Matthew Gordon: I’m going to just to thank you because it is. Mark, thanks very much for your time today. Really enjoyed that. I learned a lot. I hope everyone else does too. We’re going to talk about your Canada Nickel company maybe when you when you’re back in Canada. So after that would make you look forward to hearing about that. But thank you very much for helping us learn a little bit more about the Nickel market. If we can talk to you again, some future date with some questions which do come in from a lot of the viewers and subscribers and followers.

Mark Selby: Oh, very much glad to do it. I think this is a metal that people haven’t had a chance to invest in very in very many ways. So, the more educated investors are, the better decisions are going to make.


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.