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Nickel Laterite's Integral Role in the Coming Nickel Boom - Part 1

Commentaries & Views

In my opinion, nickel laterite deposits will continue to play a major role in the future of the global nickel market. Nickel laterite deposits are, in relative terms, abundant and located at shallow depths within the earth’s crust, making them an ideal low-cost nickel source for the stainless steel industry. I, however, believe that in the future the role of laterites will expand to help fulfill the burgeoning electric vehicle revolution.

There are 3 reasons why I think this:

  • EV battery market demand for Class 1 nickel will outpace, over time, the current production capacity of nickel sulphide deposits
  • Both the production and development of nickel sulphide deposits is on the decline. High exploration costs, a slow development process (i.e. permitting) translate into what can be a minimum of 10 years and an average of more than 20 years from discovery to the development into a mine.
  • An increasing proficiency in laterite ore processing techniques - Hydro-metallurgy

Electric Vehicle Revolution

In my opinion, EVs represent the most disruptive force within the resource sector since China began consuming metals on a huge scale during the last resource bull market. The reason I feel EVs will have such a disruptive force is a mixture of both metal supply constraints and the major influx of demand.

As I stated in my introduction, the metal I find the most interesting in this EV revolution, given its fundamentals going forward, is nickel.

Source: Glencore 2018 BMO Presentation

As you may or may not know, nickel is a key ingredient in the 2 most popular battery chemistries – nickel, manganese and cobalt (NMC); and nickel, cobalt and aluminum (NCA). 

Source: Nornickel – May 2018

As you can see from the graph above, the most popular battery chemistry for the last couple of years has been NCM. Up until last year, NCM batteries were composed of equal parts, denoted 1-1-1, meaning 1 part nickel to 1 part cobalt to 1 part manganese. With the spike in cobalt prices, however, manufacturers have started to change the composition to be more economic, yet still have the stability needed for safe operation.

Currently, the newest commercially used ratio is 5-2-3, increasing the batteries' reliance on nickel.  As well, but still in the experimental stage, is the 8-1-1 ratio, which dramatically shifts the use of nickel higher, making it by far the major component of this future new generation of battery.

Along with the cost savings, the higher ratio of nickel provides the battery with a higher energy density, allowing a battery to maintain a charge longer and have a longer range.

EV Market Demand – Class 1 Nickel

The nickel used within the batteries is termed Class 1 nickel and is mostly but not exclusively derived from nickel sulphide deposits. Although the current EV market’s demand for nickel is low, the growth profile is incredibly large and is really where the EVs could cause a disruption in the nickel market – if not all of the battery metal markets.

NOTE – Battery related consumption is estimated to reach 85,000 tonnes by 2020, representing 4% of the 2017 nickel supply.

Source: U.S. Geological Survey and RBC Capital Markets

To put this into perspective, we need to take a quantitative look at supply and demand. First, let’s look at supply; the global refined nickel supply for 2017 was around 2.1 million tonnes (both sulphides and laterites).  

Second, the global nickel consumption for 2017 was around 2.2 million tonnes, demonstrating that demand is currently exceeding refined supply. For the focus of this article, this is particularly important. As I stated earlier, the EV market, at its current consumption rate, has very little effect in the overall market, however, as you can see, consumption is still exceeding refined supply.

What is the effect of EV demand over the next decade? This is a great question and key to understanding the predicament with which the nickel market is faced, moving forward.  A great estimation of future nickel demand is provided by Glencore in their 2018 Global Metals, Mining & Steel Conference presentation:

  • Assuming a 30% market capture of the world car market by 2030, EV nickel demand will reach 1.1 million tonnes per year.

1.1 million tonnes of Class 1 nickel consumption in today’s  market would encompass roughly 55% of the refined supply. Now assume that all 1.1 million tonnes can be serviced by the existing nickel sulphide refining capacity, which seems doable, but it isn’t!

There is going to be a proverbial “tug of war” between EV battery makers and speciality steel makers who consume Class 1 nickel for producing speciality grade steel products.

Source: Norlisk

Nickel Sulphide Deposits

What I find most interesting about nickel sulphides is that not only are their production figures predicted to curtail over the coming years, but the amount of projects awaiting development is low.  Why is this? In my mind, there are 3 reasons; first, a bear market in the nickel price which pre-dates 2016; second, the fact that exploring for these deep deposits is very costly; and finally, in comparison to nickel laterites, which are estimated to account for up to 70% of the crustal nickel deposits on the earth, there are far fewer sulphides to find.

Let’s take a look at how a nickel sulphide deposit is formed. Instead of me describing this, I found a fantastic image on the Balmoral Resources website, which takes us through the process. See below.

 

Source: Balmoral Resources

Below are 2 pie charts depicting the distribution of known laterite and sulphide nickel deposits world-wide. Currently, the majority of nickel sulphide exploration is occurring in proximity to the world’s existing giant deposits, such as Vosiey Bay in Labrador, Russia, Finland and Australia.

Source: Nickel Institute

Nickel Laterite Deposits

 

Nickel laterite deposits are found in the tropical regions of the world, places such as Indonesia, Western Australia, New Caledonia and the Philippines.  They are the result of the weathering of a nickel sulphide deposit and their composition is affected by a few key parameters, which include: the amount of weathering, drainage of groundwater and the tectonic setting.

Source: Murdoch University - Nickel Laterite Deposit Layers

 

There are 5 distinct layers or zones of a laterite deposit and they are as follows: ferricrust, red (upper) liminote, yellow (lower) limonite, transition or clay rich and saprolite/garnie. The key distinction between the layers is their composition, mainly the percentage of nickel and magnesium. Starting at the top and working our way down, you can see that the upper layers, the most weathered, have both the lowest percentages of nickel and magnesium. Conversely, the deeper layers contain the higher percentages of nickel and magnesium.

As you will see in Part 2 of this article, the composition of the laterite ore is key to how it is processed into its final product and, ultimately, how it will be consumed in its end use.

Concluding Remarks

In my thesis, demand for nickel laterites is related to the EV revolution and the incredible future growth that the industry could bring. However, even if you aren’t a believer in the EV revolution, I believe that nickel laterites are the future of the global nickel market, and it just becomes a matter of 'when' they begin to contribute in a major way to every source of nickel consumption, including the EV market.

Nickel sulphides and laterites are very different, not only in the basics such as composition, but on a higher level, such as the jurisdictions where they are found.  In my opinion, while the demand fundamentals of the nickel market are bullish, developments in 2 of the bigger jurisdictions for nickel mine production – Indonesia and the Philippines - could have a major effect on the supply side of the market, good or bad. Time will tell.

NOTE: There is a 3rd but much less common nickel mineral called Awaruite. There is only one deposit that I know of, FPX Nickel’s Baptiste Deposit in the Decar District, which is located in British Columbia, Canada.

In Part 2 of this series, I will take a look at the 2 main processing techniques for nickel laterite ore and how that fits into the global nickel market. Stay tuned!

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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