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How to invest in nickel

The Oregon Group sits down with Martin Vyrda, EVP, Strategy at Nickel28, to discuss the best approach to investing in nickel.

“As an investor, what I look at is people always say, grade, grade, grade is like in real estate, location, location, location. But that’s not really true anymore because all the high grade material has been discovered, has been exploited.

What I would look for is if you find a deposit that has a consistent grade, it could be a low grade, is what is the product that you can make from that? And how much is it going to cost you to make that product?”

— Martin Vydra, EVP, Strategy at Nickel28

In the wide-ranging discussion, Martin discusses the economics behind nickel mining and investment, jurisdictions and the application of national laws, management and promoters, new electric battery chemistries and their impact on nickel, as well as environmental concerns.

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Full transcript:

As an investor, what I look at is people always say, grade, grade, grade is like in real estate, location, location, location. But that’s not really true anymore because all the high grade material has been discovered, has been exploited.

What I would look for is if you find a deposit that has a consistent grade, it could be a low grade, is what is the product that you can make from that? And how much is it going to cost you to make that product?

Because at the end of the day, it’s always economics. Economics to dig it out of the ground, economics to convert it into perhaps an intermediate, which could be your final product or could not. And then the economics to make the final product. So, what I look for is, jurisdiction. How consistent is the law going to be applied.

Am I gonna sign a deal and then five years later I’ve got a different tax regime or a different different government in there. How, how comfortable am I about the jurisdiction? I’m very comfortable in Indonesia, and some people might think that’s not a stable jurisdiction.

But it is. I’m sometimes not comfortable in a jurisdiction such as Canada because you don’t know how long it’ll take to permit. But that is a factor. Second thing I look for after jurisdiction is, who is promoting the project?

How experienced are they in the space? Are they somebody who understands the market? And when I say the market, not only the business you’re in, say the nickel business, or is it somebody who’s just gotten in recently and this may be promoting something that they don’t understand? Because we’re all people.

So if I, I believe in the management team, if I believe in the jurisdiction, then now I’ll start to drill down into the actual resource. How comfortable am I with the resource. Does it meet the requirements of, in Canada, a forty three one zero one, or in Australia, a JORC, or in South Africa, their requirements. It really doesn’t matter.

But how comfortable am I in the people who are saying this is what we have in the ground. And then the next step I’ll say is how much test work have they done off the resource to demonstrate the next product that they’re going to make. That product may be concentrate such as in case of Giga Metals, which is making a concentrate, that product may be a matte, that product may be NPI, but how much work have they actually done on it to prove out the viability of that. And then finally, we come down to the cost.

What’s it gonna cost to build it? What’s it gonna cost to operate it? And how much external factors can affect those costs. For example, we have two two operations that both say they have a a nickel sulfide product.

One of them has perhaps a little bit more iron associated with the nickel. So if they wanna make a product like NMHP, they need to add sulfuric acid.

The other product has, a nickel sulfide with sufficient sulfur that they don’t need to purchase sulfuric acid. So if you’re operating the two with the same electricity cost, which one is going to be more susceptible to swings in commodity price. It’s gonna be the one where you have to buy the sulfuric acid versus the one that comes with its own sulfur. So those are some of the things I look at for. So if I look at a whole suite of twenty or thirty nickel projects, there might be only two or three that meet that criteria for me.

If I’m an investor that’s currently looking at nickel, I’m gonna hypothesize that that investor is looking at nickel because of the expected boom in EVs.

So that will narrow it down to a certain type of product, what are the EV manufacturers looking for in nickel so that they can streamline their manufacturing process.

Early on, manufacturer were using pure nickel briquettes to make an intermediate product called nickel sulfate, which was also called a premium product because they have to take pure nickel dissolve it and make nickel sulfate, which was the first building block in lithium ion batteries. And, and, and, unfortunately, I understand that you take nickel sulfate, and nickel sulfate becomes a building block of PCAM, which is your precursor cathode active material. Also called a ternary material.

You take that PCAM and then you turn it into CAM, cathode active material, which is actually the cathode in a lithium ion battery. It’s a metal alloy. So if you work backwards, you say, what is the primary product that the EV battery makers are looking for?

Five years ago, six years ago, it was nickel briquettes. Nickel briquettes were a pure form of nickel, ninety nine point nine percent nickel. You dissolved it in acid, you had nickel sulfate in a fairly pure form, a little bit of, impurity removal, and then you could precipitate pure nickel sulfate crystals.

With the cost of nickel appreciating over the last five years as the demand went up, you saw manufacturers looking for cheaper alternatives. So they, they move down the value chain of nickel. Instead of the final form of nickel briquettes, which is deliverable to the London Metals exchange.

You went to what is used to make nickel briquettes. So nickel briquettes are made from intermediate products. And there’s three primary intermediate products out there right now. There is MHP mixed hydroxide precipitate, which is about forty percent nickel, three percent cobalt, and the balance of it is, a hydrated water molecule and you’ve got some impurities.

You know, you’ve got a little bit of iron. Maybe one percent iron. You’ve got some sulfur in there. You’ve got a little bit of aluminum, a little bit of manganese, not much.

Then there’s MSP, a mixed sulfide precipitate, which is another way of concentrating nickel, and then you have nickel matte, which is a form of nickel sulfide that’s been smelted to reject a lot of the impurities and a the lot of the iron. It’s about seventy five percent nickel, but it’s lower in cobalt. And then it’s a high degree of sulfur, about twenty five percent sulfur, and then you have some iron. The question is though, which of those three are most likely to fall in the EV battery chain.

If I have pure nickel product, ninety nine point nine percent, like a briquette, I told you, can I use all class one nickel for the production of EVs? And the the answer is no. Class one is typically divided into two forms. One is a powder turned into a briquette, and the other one is nickel cathode, which is electroplated nickel.

So ironically, what you’re doing to make class one nickel is you put nickel sulfate in solution, then you recover it as pure nickel. So let’s take NorNickel, for example, they make class one nickel, they make cathode, So does Vale, so does Glencore, a lot of companies. The problem with class one nickel cathode is its full density. So it takes forever to dissolve in acid.

So we’ve seen that somebody who’s desperate for powder will take class one nickel cathode and atomize it to turn it into powder to get a high surface area. Because when you have a cathode, it’s a very low surface area for the amount of nickel you have in there. So if you were to take a nickel briquette and put it in that bath of acid at eighty degrees c and and stir it, you might have it dissolve in twenty four hours. If you were to take the same quantity of nickel cathode, it might take a week.

So it’s a very inefficient use of nickel cathode. Nickel cathode was really invented to recover nickel for use in alloys, primarily stainless steel, but also in super alloys for jet engines. So that is its ultimate, destination. But I think going forward, if the demand for class one nickel for batteries increases, you might see some nickel cathode plants convert from cathode to perhaps recovering that nickel as some other form.

Not maybe metallic. It could be a crude nickel sulfate crystal. It could be an MHP.

It could be some other form of chemical or a nickel oxide.

The extraction technologies that are being talked about now are really laboratory chemistry from universities that have been known or hypothesized for years. So most ores, whether they be nickel or say copper, typically come in two forms. There’s an oxide or a sulfide.

If you have a sulfide ore, you’ve got a fuel source that comes with it, because to, to liberate the nickel from the sulfur in a sulfide ore, historically, it’s been pyrometallurgical.

You you burn it, you burn the sulfur, and you make SO2 gas, you recover it as sulfuric acid, but you liberate the nickel into form that can be easily leached in acid and dissolved.

Nickel oxide is a little bit more difficult. It takes three times the energy to recover nickel from an oxide than it does a sulfide.

Because you’re breaking a stronger chemical bond.

So nickel oxide, we would typically get in laterite.

Such as a laterite or saprolite.

And the extraction technology from laterites are twofold, is is pyrometallurgical to make, ferronickel or NPI. And that’s really you’re melting the entire earth that you dig up. You push away the slag, which is your aluminum, your magnesium, and you recover a product of basically iron and nickel.

But there’s also hydrometeorological means of of pulling nickel out of laterites, and it’s, it’s acid leaching. You’re, you’re basically dissolving the entire earth in acid. And then you’re selectively pulling out the nickel. Now sulfuric acid has been the medium of dissolution for decades because sulfur is a plentiful element.

You can make sulfuric acid from burning it and you get energy out of it as a heat source. And then you have sulfuric acid and it’s not expensive to make sulfuric acid, then neutralize it, dispose of it. So what happens though is you have a lot of iron remaining.

But now we hear things about chloride leaching or nitric acid leaching, hydrochloric acid leaching, nitric acid leaching. You’re doing the same thing as sulfuric acid, but you’re now you’re changing the temperature.

You can, you don’t need high pressure equipment because you’ll dissolve it at a lower temperature.

But at the end of the day, you’re still dissolving everything. And we hear about technologies that say they generate no waste. Well, then you’re generating all product.

So if you think that most nickel laterites are one percent nickel, to make ten thousand tons of nickel, which is a small nickel extraction in a year. You need to process one million tons of ore.

So you’ve got now nine hundred and ninety thousand tons of material that you’ve extracted from the ground that you can’t use. If you acidify it, you’ve got to do certain things with it. You’ve got to neutralize the acid, and then you’ve got to determine, can I dispose of this in a responsible manner? Some of these technologies say, well, we’re not going to dispose of this material.

We’re going to use it all. We’re going to recover the iron. We’re going to recover the manganese. That’s great.

But you’ve got to neutralize that acid, then you’ve lost that acid. So nitric acid and hydrochloric acid are very expensive in terms of sulfuric acid. If you’re not neutralizing the acid, if you’re recovering it, you’re using some form of energy to reverse the acidic reaction, get the acid back out. And then you’ve got to recover the iron, the manganese, the magnesium, all of the other elements that came in there. You’ve got to determine, is there a market for it?

Or are you just saying I have a by product? So a lot of these new technologies will work great in a laboratory, but when you look at them at a commercial scale, sometimes it’s just not feasible or practical. And the other challenge with some of these new game changing technologies is the materials of construction.

Sixty years ago when HPAL high pressure acid leaching, utilizing sulfuric acid was introduced, titanium was such an exotic metal. You just couldn’t afford to make titanium piping. So you had to use special brick line piping or brick line vessels because at temperatures at about two hundred and thirty degrees Celsius, and, and the acid concentrations where you have forty gram per liter free acid. It would eat through anything. But fast forward metallurgy, and we’ve got materials like duplex and hastoys and high nickel alloys, which can resist acid at high temperature and then ultimately titanium.

Nitric acid and hydrochloric acid, they tend to dissolve everything.

And the materials of construction, although they exist on a, on a commercial scale, when you’re when you’re talking about making ten, twenty, thirty thousand tons a year of nickel and processing such great quantities of material, you’ve got a challenge. You’ve got erosion, you’ve got corrosion, and you’ve got fatigue.

None of this has been proven on a commercial scale. So I say, that’s a great chemistry equation.

I think you can make it work in a laboratory because you’ve skilled technicians there, tweaking everything, making sure all the chemistry is right, making sure the temperature is right. Now when you build a plant, that is processing instead of forty liters per hour, four thousand cubic meters per hour.

The cost of running that right on the line may be prohibitive. And if one person maybe does something wrong and you corrode a vessel, you’ve just shut down, and you’ve cost yourself millions of dollars in equipment and downtime. So these chemistry, these technologies have been known, but there’s a reason they have not been economically deployed on a commercial scale yet.

So if you’re an investor and you’re worried about the environmental footprint, of the project. You have to look at three types of effluence, emissions, or tailings. You have solids, you have liquids, and you have atmospheric.

When you use pyrometallurgy to extract nickel from sulfides, you have SO2 as a gas, which you recover in a very efficient scrubbing system as a sulfuric acid. And you also make a glassy type of material like slag, like welding slag when you see them, That’s the same thing that comes out which carries your impurities, and that is your tailings. But the glassy slSO can be used in road construction cement, and the so2 can be recovered as sulfuric acid. That’s actually a very responsible way of getting tailings out of nickel. The problem is the materials for that, the high grade sulfide deposits do not exist anymore, and nobody’s building any more smelters.

When you’re using hydro metallurgy and acidic leaching like HPAL, you’re creating vast volumes of liquid slurry that is acidic. As I said, if you extract one million tons of ore and recover ten thousand tons of nickel, you’ve got nine hundred and ninety thousand tons of goo, and it’s usually at a pH of one point eight. So, you have to, it’s not easy to separate the liquid from a solids.

You, you can dewater use these big ponds and get the liquid off. You have to neutralize the liquid, so you’re using something like, a calcium carbonate to neutralize it to a pH8, which is basically, the ocean. But you still have these acidic solids sitting there. So you have to either impound them on land in a lined pond, so it doesn’t leech into the ground.

And that is very challenging, because you’re thinking of an area the size of your mine sight that you have to put it in.

And, or you can dispose of it in a waterway. Typically, the ocean, there’s a reason a lot of HPAL operations are near oceans so that they have a place to dispose of the water because HPALs are not, water neutral. There’s not a neutrality.

The the amount of water you put out, is not the same amount of water you need. You’re actually creating more water and it’s not a useful form. You’ve gotta dispose of it. So the tailings have to be, you have to look at your environment. A lot of companies will say, we dry stack tailings, but then you have to think to yourself, if you’re in the Amazon in Brazil, or if you’re in the, in rain forest in Indonesia, how can you dry stack when the net rainfall is a meter and a half of water a year?

You’re just adding water back to it.

If you’re putting these tailings and you say we’re impounding them on land, but are you in a heavy, in a seismic area where, a little shake and bake, a little earthquake will just liquefy this mud and it could spread out. Is the pond lined? Are they neutralizing it? Limestone is very expensive.

And if you don’t have your own limestone source, you have to buy it. It adds to the cost. Or there’s, some some operations in Australia. They have the benefit of being in the desert, so they have net evaporation.

That is the actually one of the best. Right? The problem is the ore bodies in Australia are never near where you need them to be. And then finally, you have, marine disposal, also known as deep sea tailings, which is misunderstood.

The general public perception thinks it’s a, it’s a very bad form, but it’s actually not if the tailings are treated properly, such as neutralize to a proper pH, and if the tailings are deposited into an area in a deep canyon where they remain inert. It’s not bioavailable to the marine life. You can’t just dump it into the surface near a coral reef. Nobody does that.

That would be irresponsible.

But if your operation is near a deep underwater canyon, minimum a kilometer and a half deep, because of the nature of the tailings, they usually come out of the pipe and go down to the bottom and just deposit. And there’s usually not a lot of life down there, and there’s, very good, environmental impacts done before that. So if you’re an investor saying, you should ask yourself, is this operation a sulfide or an oxide? If it’s a sulfide, there’s a pretty good idea that is pyrometallurgical, I’m gonna feel comfortable about the tailings.

If it’s hydrometallurgical, I’m gonna know, okay, what are they doing with the tailings? Are the tailings acidic? Are they dewatering them? Are they just dumping them on land and hoping people don’t recognize that?

Look for that. Do the homework.

A lot of companies will not tell you in their public disclosure what they do with the tailings. Contact the investor relations office. Ask them I notice you’re near the ocean. What are you doing with your tailings? Have them respond to you.

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The Oregon Group is an investment research team founded by independent capital markets experts, Anthony Milewski and Justin Cochrane.

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