Has nickel hit rock bottom? Potential for stocks on the upswing

2 April 2024 13:36

The global uptake of electronic vehicles (EV) and grid storage are the two single biggest drivers of an inflection point for the critical role nickel now plays in helping to power a range of green technologies.

In short, its role as a vital component of next generation batteries, including nickel-manganese-cobalt (NMC) batteries and nickel-cobalt-aluminium (NCA) batteries has been game-changer for nickel. 

But having become a vital member of the battery metals family the nickel price wasn’t expected to fall so unceremoniously off its new-found perch.

However, it’s important to note that the price of nickel has historically experienced large price swings and 2023 was no exception.

Steel still rules

The price of the base metal has swan-dived by around 45% since January last year when it was trading slightly above US$30,000/t. Unsurprisingly, nickel was the worst performing base metal complex on London Metal Exchange (LME) and the Shanghai Futures Exchange (SHFE) in 2023, due in part to unprecedented growth in supply from Indonesia and a pivot from Nickel-containing batteries to the lithium-iron phosphate (LFP) alternative.

The net effect was an unexpected nickel surplus, accentuated by a slowing demand from the stainless steel and battery industries.

While the transition to the ‘clean-energy story’ clearly opens news door for nickel, it’s important to note that longer term worldwide core nickel consumption remains wired to old-economy stainless steel production capacities developing worldwide, especially in Indonesia and China.

Despite the growing demand for nickel by EV battery manufacturers, it’s understood that around 70% of nickel produced is still used to manufacture stainless and heat-resistant steels.

By comparison, based on ING’s figures, batteries only account for around 17% of total nickel demand.

Positive signs of re-stocking

However, after experiencing annus horribilis in 2023, higher than expected Chinese demand coupled with slower growth in Indonesia, could have created a turning point for nickel this year.

Since falling to a year-to-date (and three year low) of around US$15,600/t early February, the price of nickel has bounced back up above US$16,400/t – making it the best performed based metal so far in 2024.

Morgan Stanley attributes nickel’s recent rally to record net short positions on the LME and indecision over mine permitting approvals in Indonesia.

Following a spate of production cut announcements from likes of BHP (ASX: BHP) and others – to the tune of around 110,000/t – Morgan Stanley analysts expects balance to reemerge in nickel market in 2024.

The broker points to the recent 7% rise in nickel sulphate prices as positive signs of re-stocking by cathode producers.

In light of recent output cuts, Indonesia today announced plans to significantly expand its nickel output. Septian Hario Seto, the country’s deputy co-ordinating minister for investment and mining, doesn’t expect plans to increase output to derail growth in the nickel price witnessed this year.

He expects long-term nickel prices to be between US$18,000/t and US$19,000/t.

Upgraded outlook

Echoing similar sentiment, early March Macquarie’s veteran nickel analyst Jim Lennon upgraded his outlook for nickel after concluding that Indonesia-led supply glut had been overstated.

What’s expected to curb supply from Indonesia are the country’s declining ore grades, a dearth of major discoveries, together with rising mining costs and geographical challenges.

Overlay declining Indonesian supply with greater than expected output by Chinese stainless-steel makers and other users of nickel alloys, and Lennon suspects nickel will continue to recover from oversold levels.

Assuming Lennon is right, and consumption has been underestimated by around 100,000 tonnes, he suspects the nickel surplus for 2024 could be less than 40,000 tonnes.

With global nickel consumption expected to increase on the back of recovery of the stainless steel sector, plus an increased usage of nickel in EV batteries, Ewa Manthey, commodities strategist at ING expects prices to average US$16,600 in Q1, before gradually moving up to an average US$17,000.  

A leg up for Australian nickel stocks

In attempt to give Australia’s small cohort of actively producing nickel miners a leg up, the Federal Government recently added nickel to the official Critical Minerals List, giving it access to grants under the $4 billion Critical Minerals Facility.

Given that Western Australia, accounts for 90% of the country’s [nickel] reserves, the WA premier recently granted miners a temporary 50% rebate on royalties for the next 18 months whenever prices are below $US20,000/t. 

This rebate could be welcome news for the likes of BHP which has been threatening to close its 80,000/t nickel operations in WA due to weaker metal prices for some time.  However, it’s too late for Andrew Forrest to benefit following his decision to close his WA nickel mine.

Despite the challenges confronting BHP, here’s a snapshot of a handful of nickel companies -including one large cap and one AIM-listed stock – all with big nickel resources under their belt that are either already producers or well on their way to future production.

NickelSearch (ASX: NIS)

NickelSearch is a dedicated nickel sulphide explorer operating in Western Australia. Its flagship project is the Carlingup nickel sulphide project in WA’s south comprising the RAV1, RAV4, RAV4 West, RAV5, and RAV8 prospects spread along over 10km of strike length.

The project is located about 500km southeast of Perth within the Ravensthorpe Greenstone Belt.

The company listed on the ASX in October 2021 with 108 square kilometres of tenements in the same greenstone corridor as IGO’s (ASX: IGO) Forrestania nickel sulphide complex.

Twelve months ago, the company ‘significantly’ upgraded the indicated resource at Carlingup by 42,300 tonnes.

The updated JORC 2012 Mineral Resource Estimate (MRE) comprised 154,900 tonnes of contained nickel, of which 64,900 tonnes is from nickel sulphides. It also notes the indicated resources represent 65% of the total resource.

During the first half year ending 31 December 2023, Medallion Metals reduced its substantial shareholding (15.1%) to below 10%.

In addition to announcing the appointment of experienced geologist Jon McLoughlin as Exploration Manager, Managing Director Nicole Duncan has transitioned to a consulting role.

Mark Connelly, the current Non-Executive Chairman will succeed Duncan as Executive Chair and Suzie Foreman, currently serving as the Company Secretary, will transition into the role of Non-Executive Director.

NIS’s Australian Security Exchange-listed share price is currently trading at $0.031.

Aston Minerals (ASX: ASO)

The nickel-cobalt and gold exploration company ignited market imagination early 2023 when it released a maiden mineral resource estimate (MRE) for the Boomerang nickel-cobalt sulphide system at its Edleston project in Canada.

Following the completion of drilling work late last year, the company confirmed MRE of 1.04 billion tonnes at 0.27% nickel and 0.011% cobalt, or 30% nickel equivalent.

Earlier this year the company’s latest assay results from the latest drilling results confirmed nickel mineralisation at the B2 Prospect, extending high-grade continuity to a depth of 400m.

“Once assays from the final hole (132) are received, we will re-run the geological model at B2 to evaluate the resource,” said Managing Director, Russell Bradford.

“Further infill drilling and short hole drilling will be considered at B2 once the new model has been developed.”

ASO’s Australian Security Exchange-listed share price is currently trading at $0.013.

Blackstone Minerals (ASX: BSX)

The company is best known for its Ta Khoa nickel refinery project in Vietnam which is focused on building an integrated battery metals processing business that produces Nickel: Cobalt: Manganese (NCM).

However, Blackstone has also entered into an option agreement with CaNickel Mining over the Wabowden nickel project in Manitoba – an area with a long history of nickel mining – with an option agreement to acquire 100% of the 1.3Mt Wabowdeen nickel project from CaNickel Mining.

Earlier this month the company announced receipt of $4.25m from the Australian Research and Development Tax Incentive Scheme for FY23 and has since repaid $2.8m to Asymmetric Innovation Finance.

“In addition to the R&D refund, the company recently received $2m in cash from the sale of its shareholding in NiCo Resources (ASX: NC1), which together with the net R&D refund adding a total of $3.45 million to our cash position,” said Blackstone’s Managing Director Scott Williamson. 

“The additional funding firms up our cash position and allows Blackstone to focus on advancing the joint venture partner search whilst finalising the studies and permitting activities at the Ta Khoa Project in Vietnam.”

BSX’s Australian Security Exchange-listed share price is currently trading at $0.064.

Metals One PLC (AIM: MET1)

With battery metal projects at brownfield sites in Finland and Norway, Metals One, remains committed to defining a 200 million-tonne (Mt) resource in the Paltamo area of Finland and becoming an important supplier of critical metals to Europe.

Mid-2023 the company entered into a binding sale and purchase agreement to acquire Scandinavian Resource Holdings Pty ltd (SRH). 

All eight holes drilled at the R1 Hook target in December last year identified significant intersections of mineralised black schist. The nickel grades in these latest intersections correlate well to the existing R1 resource grade of 0.19% Ni.

The current JORC (2012) resource amounts to 28.1Mt at 0.19% Ni and 0.1% copper for 53,700 tonnes of contained nickel and 27,900 tonnes of contained copper, all within the Inferred category.

“Metals One was founded to focus on supporting the green transition for Europe,” notes CEO Jonathan Owens.

“We’re looking to step into that gap and help Europe become self-sufficient in these areas.” 

MET1’s share price is currently trading at 1.20 GBX.

Nickel Industries (ASX: NIC)

Nickel Industries is a globally significant, low-cost producer of nickel pig iron (NPI), a key ingredient in stainless steel production.

The company has expanded into the production of nickel matte and acquired interests in high-pressure acid leach (HPAL) projects, producing mixed hydroxide precipitate (MHP) for use in the electric vehicle (EV) supply chain.

Principal operations are located in Indonesia, with projects within the Indonesia Morowali Industrial Park (IMIP) and the Indonesia Weda Bay Industrial Park (IWIP), as well as the Hengjaya Mine.

In FY23 the company delivered a record US$403.3m in earnings, US$338m in gross profit and US$176.2m in profit after tax. 

Within a recent update, Managing Director Justin Werner advised shareholders that earnings from operations for the March quarter are expected to be in the range of US$65M-US$75M.

“Our quarter to date Hengjaya Mine production combined with the March month to date improvement in ore sales and NPI grades, are already up in March 18.8% compared to the average of the first two months of the quarter,” said Werner.

“We expect to see production and EBITDA improvement throughout 2024 supported by continued strengthening in NPI and LME prices.” 

NIC’s Australian Security Exchange-listed share price is currently trading at $0.81.

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