According to Elon Musk, this metal could be the new gold

In the popular imagination, lithium is the element that powers EVs. However, as Elon Musk has pointed out, the term “lithium-ion batteries” is something of a misnomer, because they don’t really contain that much lithium. “Although [they’re] called lithium-ion, the actual percentage of lithium in a lithium-ion cell is approximately 2%,” Musk explained at Tesla’s 2016 shareholder meeting. “Technically, our cells should be called nickel-graphite, because the primary constituent in the cell as a whole is nickel.” 

Above: Tesla's Elon Musk (Flickr: Steve Jurvetson)

More recently, Musk reiterated the importance of nickel, and made what sounded to some like an urgent plea for more of the stuff. “I’d just like to re-emphasise, any mining companies out there, please mine more nickel,” said Musk during Tesla’s latest quarterly conference call. “Wherever you are in the world, please mine more nickel and...go for efficiency, obviously environmentally-friendly nickel mining at high volume. Tesla will give you a giant contract for a long period of time, if you mine nickel efficiently and in an environmentally sensitive way.”

However, meeting the expected surge in demand for element #28 may not be so easy, because of various supply-side issues. In a recent interview with Kitco News, Michael Beck, Managing Director at Regent Advisors, said he sees something of a “perfect storm” brewing in the nickel trade.

A Tesla Model 3 contains around 30 kilograms of nickel, Beck told Kitco’s Michael McCrae. “Nickel is probably the single most important metal component in battery fabrication. It’s where all of the energy is stored, and increasingly battery chemistries are being refined to allow the inclusion of as much nickel as possible. The more nickel, the higher the energy density of the battery.”

The spotlight on nickel is a recent development. Nickel prices collapsed in 2007, and there’s been little development of new capacity since then, says Beck. “In this intervening almost 12 years there was no material investment in new nickel capacity. The last 12 years has been a drawdown of excess inventory, and that’s coming to an end. The ramp-up of demand is just beginning.”

The long lead time for bringing new nickel mines into production is another constraining factor. “It takes 7 to 10 years to bring on new nickel projects,” says Beck. “So, you have the makings of a perfect storm. You have a baked-in structural deficit for the next 12 years...you have inventories in the next 18 months going down to almost zero. You also have this new demand source that never existed for nickel.”

Above: Ken Hoffman, senior expert at McKinsey, weighs in on Tesla's need for nickel in order to expedite the EV revolution (YouTube: Kitco NEWS)

All that would seem to add up to an investment opportunity for somebody. “In the universe of metals, [nickel is] our favorite,” says Beck. “We think in the next two to three years you’re going to see a major up-tick of the nickel price...as shortages emerge, and that’s what’s going to be required to get new investment in the sector.”

So, what companies are poised to take advantage of the coming nickel rush? “Maybe the most interesting in the larger cap of established players is Norilsk,” says Beck. “They’re the number-two nickel producer, and they’re based in Russia. That’s probably the single best large-cap way to get exposure to nickel. It’s a major producer of the metal, and when nickel goes up, their share price goes up accordingly. At the smaller cap end of the spectrum, there are a bunch of smallish nickel explorers and emerging developers.”

Over the next few years, Beck believes that nickel shortages will emerge, and most companies with nickel exposure will benefit. However, there’s another factor in play. Tesla and other EV-makers are naturally eager to get their raw materials from sustainable sources. The industry has invested much effort and cash in cleaning up its supply chain for cobalt. Elon’s recent plea for nickel specified that it needed to be mined in an environmentally sensitive way. (Norilsk, by the way, has recently been involved in not one but two oil spills in in Russia's Arctic region.)

Vancouver-based Giga Metals quickly responded to Elon’s appeal, saying that it has a source of environmentally-responsible nickel in development. As Matthew Hall reports in Mining Technology, Giga Metals owns a property called Turnagain in north-central British Columbia, which it says is one of the largest undeveloped sulphide nickel projects in the world, and also contains cobalt.

Canada has plenty of nickel mines, but Giga Metals has a unique vision for the Turnagain mine. “Our goal is to be the world’s first carbon-neutral mine,” said Giga Metals President Martin Vydra. “We plan to use power from BC Hydro’s clean energy grid, which will involve more capital expenditure than the alternatives, but is the right thing to do.”

Above: Tesla's Model 3 (Source: EVANNEX; Photo by Casey Murphy)

“If you want environmentally-responsible nickel, I really think you have to look at sulphide deposits in first-world jurisdictions such as Canada and Australia,” said Giga Metals CEO Mark Jarvis. “Canada has several very large, low-grade, open-pittable sulphide nickel deposits waiting to be developed, including Canada Nickel’s Crawford deposit, Waterton’s Dumont deposit and our own Turnagain deposit. Canada has some of the toughest environmental regulations in the world, so if you buy your nickel from Canada, you can be assured that this part of your supply chain is ethically sourced.”

Another company to keep an eye on is Talon Metals (TSX:TLO), which is developing a mine for high-grade nickel sulphide in Minnesota, in partnership with global mining giant Rio Tinto. Talon President Sean Werger told me his company’s nickel will be much cheaper per pound than nickel from the lower-grade deposits in Canada. Last year, Talon was invited by a group of automakers to make a presentation to the US government on the need to develop domestic sources of nickel and other critical components of lithium-ion batteries.

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Written by: Charles Morris