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Battery demand drives quest for Class 1 nickel

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The Turnagain camp includes a one kilometre air strip.

By Jason Smith

  • Electric vehicles are stoking demand for Class 1 nickel used in electric vehicle batteries
  • Giga Metals is actively developing a world-class nickel-cobalt deposit in BC
  • Cobalt streaming company Cobalt 27 recently endorsed Giga and Turnagain with a financing worth more than Giga’s valuation at the time

Not all nickel is created equal.

In fact, there are two types of nickel, Class 1 and Class 2. The stainless steel that comprises the primary use for nickel comes primarily from Class 2 nickel, which has an iron component. And while that suits the needs of stainless steel just fine, Class 2 nickel lacks the purity for use as a component of batteries.

The electric vehicle revolution is steadily increasing demand for lithium-ion batteries, and nickel is a key component of these batteries. In an environment of growing battery demand, the demand for Class 1 nickel will grow proportionately.

This increase in demand will occur as the world’s large nickel deposits are steadily depleting, creating a supply gap for both types of nickel, but particularly for Class 1 nickel. Sid Rajeev, analyst at Fundamental Research, notes, “A lot of people don’t understand that only 50 per cent of the nickel supply is suitable for batteries.”

“In the next year or two years, you’re going to see some exciting times in the nickel market — it’s simple supply and demand.” — Mark Jarvis, President & CEO, Giga Metals

Giga Metals Offers Exposure to Class 1 Nickel and Cobalt

Thanks to the large deposit of sulphide-hosted nickel and cobalt at its Turnagain project in northern British Columbia, Giga Metals Corporation (TSX.V: GIGA) is positioned to be a player in not one, but two key battery metals. Turnagain’s Horsetail deposit contains 4.1 billion pounds of nickel and 253 million pounds of cobalt in the measured and indicated categories, and 4.3 billion pounds of nickel and 280 million pounds of cobalt in the inferred category.

That all this metal is sulphide-hosted makes for relatively simple metallurgy to convert those resources into a concentrate containing 18% nickel and 1% cobalt that can be readily converted into a Class 1 nickel product suitable for battery manufacture. Giga Metals’ President and CEO Mark Jarvis anticipates a robust environment for Turnagain’s metals, commenting, “In the next year or two years, you’re going to see some exciting times in the nickel market — it’s simple supply and demand.”

A Big Endorsement from Cobalt 27

Giga Metals recently got a big boost to its plans for Turnagain, courtesy of a deal for a 2 per cent net smelter royalty on future production.

A subsidiary of Cobalt 27, which is positioning itself as a cobalt royalty and streaming company, paid $1 million in cash and issued 1.125 million shares of the company to Giga. Given the deemed price of Cobalt 27’s share at the time of the transaction in July, the deal was worth more than $10 million, although Cobalt 27’s shares have fallen back a bit since then.

According to Jarvis, the deal gives Giga “enough capital to advance Turnagain to the prefeasibility phase by third quarter of 2019.” The goal is to have the project “shovel-ready” by 2021.

Drilling Underway

Giga recently completed a 10,800 metre drill program at Turnagain. The program has three goals: convert inferred resources, within the proposed open pit, into the measured and indicated categories; collect material for additional metallurgical testing; and conduct some exploration drilling. Results of the program are expected in November.

A 2011 preliminary economic assessment projects an after-tax net present value, discounted at 8 per cent, of US$724 million for Turnagain with a 27.2-year mine life. The capital expenditure required to build the mine is large, at US$1.36 billion, and that is typical of a project this size.

Jarvis says that Giga is actively seeking ways to make the project’s economics work with a smaller start-up and footprint. The resource includes two higher-grade starter pits that can be mined selectively to process higher grade material earlier in the mine’s life.

He adds, “Our goal is to model the smallest possible start-up that makes economic sense, so we can minimize up front capital risk. When you start smaller, economies of scale are working against you, but we’re looking at levers to improve the economics. With a strip ratio very close to zero in the early years, we think we can be more selective in our mining by putting higher grade, higher recovery material through the mill and stockpiling lower-grade material”

In addition to looking for ways to make a smaller mine pencil out, the company is also putting feelers out for end users beyond the traditional smelters that would buy Turnagain’s nickel-cobalt concentrate. Jarvis thinks it is possible that firms making nickel sulfate and cobalt sulfate for batteries will want to buy the concentrate directly, perhaps at a premium.

With nickel warehouse stocks in steady decline in recent years, and cobalt trading above its historical averages, Giga’s (TSXV: GIGA) Turnagain deposit puts it in position to provide leverage on battery-demand driven higher prices for Class 1 nickel and cobalt.

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.