China’s squeeze on rare earths has revitalized interest in other metals over which it has effective control which helps explain why investors are taking a close look at Australia’s downbeat nickel sector.
Easily the most depressed of the base metals, a sector which includes copper and aluminum, nickel’s price has been in cellar for three years, falling by 50% from $30,000 a ton in 2022 to last sales at $15,000/t.
Aerial view of the production activities of the nickel smelting company Virtue Dragon Nickel Industry in Morosi, Indonesia (Photo by Andry Denisah/SOPA Images/LightRocket via Getty Images)
SOPA Images/LightRocket via Getty Images
Over-production in Indonesia from mines and smelters ultimately controlled by Chinese business interests is the prime cause of the price collapse which has forced rival producers around the world out of nickel business.
One of the hardest hit has been Nickel West, a division of BHP, the world’s biggest mining company which is looking for buyers prepared to compete with Indonesia’s low-cost mines.
Surprisingly, according to recent media reports in Australia, there’s a line forming at BHP’s front door led by private equity players and small local miners interested in buying some of Nickel West’s assets if the business is broken up rather than being sold to a single buyer.
Just as interesting and driven by the same desire to control raw material supply not under Chinese control is the investment by two big Japanese companies in a large but undeveloped Australian nickel project.
Japanese Interest
Sumitomo Metal Mining and Mitsubishi Corporation have formed a joint venture to take a 50% stake in the Goongarrie nickel and cobalt project of Australia’s Ardea Resources.
The project, which early studies estimated could produce 30,000 tons of nickel and 2000 tons of cobalt a year for 40 years is currently subject of a definitive feasibility study (DFS) scheduled for completion in the first half of next year.
The two Japanese companies are funding the $64 million DFS which will fine tune earlier estimates that Goongarrie could produce nickel at a cost of between $6000-and-$10,000/t, a level competitive with Indonesia nickel producers.
Interest in nickel, a metal traditionally added to iron to make stainless steel, has expanded because of its use in the rechargeable batteries which power electric vehicles, a market which also consumes cobalt.
Nickel West Exit Stage Right
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Until China weaponized its rare earth export business Australia’s nickel industry seemed destined for the scrap heap, unable to compete with Indonesian material.
The threat of China expanding its market control to other minerals has stirred interest in nickel which is listed by the U.S., Canada and Australia as a critical metal.
According to Australian media reports U.S. based Denham Capital, Appian Capital and Resource Capital Funds have expressed an interest in the Nickel West business which was trading at a loss when mothballed last year.
BHP has maintained the assets in good working order in the hope of a clean sale to a single buyer, but that new owner will inherit mine-site rehabilitation costs believed to be close to $900 million.
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