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Bigger Spending on EV Batteries Means More Nickel Has to be Mined

2021.11.13
A story to follow over the next decade is how the clean energy transition would dictate the global markets.
According to the latest Reuters…

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Bigger spending on EV batteries means more nickel has to be mined

2021.11.13

A story to follow over the next decade is how the clean energy transition would dictate the global markets.

According to the latest Reuters analysis, automakers worldwide are planning to spend more than half a trillion dollars on electric vehicles and batteries through 2030.

This represents a considerable increase over the $300 billion figure given by a similar analysis just less than 3 years ago.

Other surveys have also come up with different, but still significant, spending projections. In June, consulting firm AlixPartners said auto industry investments in electric vehicles would reach $330 billion by 2025.

Source: Reuters analysis of company disclosures

Last year, all global automakers combined spent nearly $225 billion on capital expenditures and research and development, according to AlixPartners’ estimates.

As the world’s biggest EV manufacturer, Tesla has already put in motion plans to boost production with new multibillion-dollar “gigafactories” near Berlin and Austin.

In China, the top EV market globally, automakers have announced well over $100 billion in investment targets over the next decade. Japanese automakers have also committed $40 billion in spending.

European carmakers are also rising to the challenge, led by Germany’s VW Group, which is set to lead the industry with more than $110 billion in investment commitments through 2030.

Furthermore, the Reuters study pointed out these global investments do not include the “tens of billions being invested in additional production capacity by the world’s largest battery companies, many in cooperation with their automaker partners.”

Everything considered, the expected surge in EV investments would cause a ripple effect further down the supply chain, including a key part of the energy transition: battery metals.

Nickel Shortfall

Among the metals that are set for a decade-long demand surge, one that would require the industry to pay special attention to is nickel.

While only 10% of the world’s nickel currently ends up in the battery supply chain, the growth in EV demand and additional investments are expected to completely transform the market.

Bank of America forecasts that 690,000 tonnes of nickel would be needed by 2025, based on its estimate of 13.6 million EVs sold that year. That represents nearly the entire mined nickel supply of Indonesia, the world’s top biggest producer, which in 2020 outputted 760,000 tonnes, out of the 2.5Mt total.

If we take that number out and apply it to EVs, the mining industry has to find another 690,000 tonnes to supply all of nickel’s other uses, the primary one being stainless steel.

Nickel sulfate powder made from nickel sulfide ore, is a crucial ingredient in cathode formulation for lithium-ion batteries needed to propel electric vehicles.

Nickel is popular with EV battery-makers because it provides the energy density that gives the battery its power and range. Increasing the amount of nickel in a battery cathode ups its power and range.

The rate of nickel consumption for EV battery manufacturing is set to outpace both lithium and cobalt over the next decade, with an average annual growth rate of 29%, according to Fitch Solutions.

A recent report prepared by Wood Mackenzie in advance of COP26 estimates that global lithium-ion battery capacity is set to double in just two years, with storage and EV application to drive battery demand to 2.3TWh by the end of the decade.

However, setting ambitious climate targets would be fruitless without sufficient supply of metals to accelerate the decarbonization process.

“The energy transition starts and ends with metals,” according to WoodMac, which specifically lists nickel as one of five minerals (copper, cobalt, lithium and aluminum being the others) that are at critical volumes.

The Edinburgh-based research firm questions the availability and reliability of the world’s nickel supply with the prospect of a significant spike in demand.

Based on WoodMac’s forecast, nickel demand is expected to double from 2.4Mt today to 4.9Mt in 2040, which, at the current rate of mine production, would leave us with a severe supply shortfall.

Just how much more nickel is required to achieve net zero by 2050, though, depends on the pathway on which the energy transition takes place.

Based on the AET-2 scenario, which limits global warming to 2C on pre-industrial levels by the end of this century, WoodMac estimates that an additional 1.7Mt of nickel will be needed (see below). Other metals, too, are facing supply challenges.

Overall, WoodMac finds that the capex for base metals mining projects alone needs to quadruple to about $2 trillion to achieve an accelerated energy transition.

According to Julian Kettle, senior vice president and vice chairman of metals & mining at WoodMac, the mining industry has been underinvesting even for a slower energy transition.

Those in the industry are also well aware of this. Glencore CEO Ivan Glasenberg previously said nickel supplies need to grow by an additional 250,000 tonnes a year, projecting that annual nickel demand will rise from 2.5Mt currently to 9.2Mt over the next few decades.

But mining companies can’t simply flip a switch and turn on that much new nickel. Decades of underinvestment means there have been very few large-scale greenfield nickel sulfide discoveries.

Where is the list of mining projects to come on stream to achieve the theoretical demand?  Remember, on average it takes well over 10 years for a new mine to be discovered and developed.

Historically, most nickel was produced from sulfide ores, including the giant (>10 million tonnes) Sudbury deposits in Ontario, Norilsk in Russia and the Bushveld Complex in South Africa, known for its platinum group elements (PGEs).

However, existing sulfide mines are becoming depleted, and are not being replaced, which has changed the geographical weighting of nickel production.

With existing sulfide mines becoming depleted nickel miners are having to go to the lower-quality, but more expensive to process, as well as more polluting nickel laterites such as found in the Philippines, Indonesia and New Caledonia.

This obviously defeats the purpose of what the world is trying to achieve. Soon enough, the mining industry will need to seek out new sulfide deposits from which the extraction of high-grade nickel needed for battery chemistries is economically, technically and environmentally feasible.

And while the pickings are slim, history suggests the best places to look are those with proven sulfide mine production.

Given Canada’s rich mining history and status as a top 5 nickel producer globally, we believe this is where much of the high-grade nickel used in EV batteries could come from.

The largest nickel deposits are found in the Thompson Nickel Belt in Manitoba, Ontario’s Sudbury Basin and the Ungava Peninsula in Quebec. Of the three, most of Canada’s nickel supply currently comes from Sudbury, where Brazil’s Vale is operating one of the world’s biggest nickel mines. In fact, many describe Sudbury as being the “nickel capital of the world”.

As we’ve previously discussed, Ontario is becoming a major hunting ground for the big-name miners looking to boost their nickel profile, evidenced by BHP and Wyloo Metals’ months-long battle to acquire Noront Resources and its high-grade Eagle’s Nest deposit in the Ring of Fire area.

As the urgency to mine more nickel grows, other sulfide projects in and around this region could soon make the headlines. In this article, we have identified two emerging nickel explorers with potential to supply the critical raw materials to fuel the energy transition.

Palladium One Mining

Like Sudbury, Vale’s Voisey’s Bay operation in Labrador has long been one of the biggest nickel producers globally.

One project with resemblance of a Voisey-style nickel-copper-PGE mineralization is the Tyko project near Marathon, Ontario, being developed by Palladium One (TSXV: PDM) (FSE: 7N11) (OTC: NKORF).

The project covers approximately 24,500 hectares of land within the highly prospective Mid-Continent Rift nickel province, including over 7,000 hectares of the mafic-ultramafic Bulldozer intrusion, which has seen virtually no geological mapping nor exploration.

The Tyko project is located 25km north of the Hemlo mining complex, NW Ontario

The Archean-aged mafic-ultramafic intrusion is rich in nickel, containing twice as much the battery metal as copper, and equal amounts of platinum and palladium.

According to the company, the high tenor of the sulfide minerals suggests a valuable concentrate could be produced, and that even if the sulfides are disseminated, the deposit could still be economic.

Drilling in 2020 primarily focused on the Smoke Lake target, an EM anomaly identified through geophysical surveying. Magnetic survey undertaken shortly before drilling helped to refine the anomaly, resulting in the successful discovery of massive magmatic sulfides.

The first discovery of massive sulfide mineralization at Tyko was confirmed in January, when the company announced drill intercepts from massive magmatic sulfide of up to 9.9% nickel equivalent. Subsequent drill results reported from the 2020 program were a resounding success, confirming the high-grade nature of the deposit.

A second-phase, 2,000m drill program was initiated in April to follow up on these high-grade hits. The assays to date have been excellent, including massive magmatic sulfide intercepts grading up to 10.2% nickel equivalent, demonstrating a robust mineralization spread over a distance of at least 18 km.

In addition to the high-grade Smoke Lake zone, Palladium One believes there are new zones of nickel-copper mineralization yet to be discovered.

Preliminary results of the recently completed airborne EM survey have identified as many as four significant multi-line EM anomalies on the Tyko copper-nickel project, which further support this hypothesis.

Of particular interest are two anomalies in the Bulldozer Intrusion. These are the first EM anomalies identified in this large mafic-ultramafic intrusion and hint at potentially large tonnage targets.

Assay results from the Phase 2 drill program at Smoke Lake are still pending.

Renforth Resources

Meanwhile, another project we are actively monitoring is the Surimeau polymetallic property held by Renforth Resources (CSE: RFR) (OTCQB: RFHRF) (FSE: 9RR), located in the neighboring province of Quebec.

This 260 sqkm brownfield property hosts several target areas for gold and industrial metals (nickel, copper, zinc, cobalt, silver) located south of the Cadillac Break, a major regional gold structure in Quebec.

Both the gold and battery metal targets on the property are supported by historic findings and Renforth’s follow-up exploration.

Exploration focus is currently placed on the sulfide nickel rich VMS targets, in particular the Victoria West prospect, which was the site of recent drilling by the company over the past year (see map below).

The Surimeau district property hosts numerous areas of interest

The Victoria target was last explored in the 1990s by LAC Minerals looking for gold, though it was later determined by LAC and previous operators that nickel, zinc and copper, plus a few more minerals, are also present. This finding was later validated by Renforth’s initial fieldwork.

According to Renforth, information gleaned from drilling and trenching the Victoria West target, along with surface sampling, create an area of interest that includes about 5 km of strike on the western end of a 20 km magnetic anomaly.

The company interprets this anomaly to be a nickel-bearing ultramafic sequence unit, which occurs alongside, and is intermingled with, VMS-style copper-zinc mineralization.

In fact, Renforth considers the style of mineralization to be an “Outokumpu-like” occurrence, referring to a district in eastern Finland known for several unconventional sulfide deposits with economic grades of copper, zinc, nickel, cobalt, silver and gold.

About 50 million tonnes of ore averaging 2.8% Cu, 1% Zn and 0.2% Co, along with traces of Ni and Au, were mined from three deposits between 1913-1988.

Renforth’s first drilling at Surimeau occurred in October 2020, with 2.5 short holes completed.

A total of 15 holes for 3,456m were completed during the 2021 program, drilling off 2.2 km of strike within the approximately 5 km long Victoria West target. Another four holes totaling about 1,000m were drilled this summer; these holes delivered visible sulfides in the core.

Assays for the 21 holes drilled at Victoria West all came in this week, with each hole hitting mineralization as expected, and the four deeper holes even demonstrating an increase in grade.

While still at a very early stage, the company considers the extent of these findings, plus other known targets and unexplored prospective ground, warrant further exploration on this 260 sqkm property.

Victoria West is only one of six polymetallic target areas on the Surimeau property historically documented as hosting mineralization.

The latest to be prospected is the Huston area, located about 18 km northwest of the Victoria West area. This area is almost entirely unexplored with the exception of a limited drill program in the general area by Hecla in the 1980s, which focused on gold.

Results of this summer’s prospecting from the southwestern part of the area gave the first ever documented nickel occurrence at Huston (Renforth recently reported a grab sample assaying 1.9% Ni, 1.38% Cu, 1170 ppm Co and 4 g/t Ag). Follow-up work is planned by the company’s geological team for the fall season.

Potentially, more drilling could occur during the last three months of the year at Victoria West, Huston and Malartic West, another important target that is prospective for copper and silver.

Conclusion

Reflecting the critical condition of the global nickel market is the metal’s price.

Nickel prices in London recently hit a 7-year high amid concerns of a depleting supply of the key industrial metal. Chinese nickel contracts are also coming off all-time highs, with refined nickel inventories in Shanghai hovering near record lows for weeks.

Global miners have been experiencing significant output declines. Vale SA saw its Q3 output fall 22% year-on-year, and as a result, reduced its 2021 production guidance.

Russia’s Nornickel, the world’s largest refined nickel producer, also reported lower output in Q3, with production in January-September falling 23% year-on-year.

While a global supply shortage looms over the nickel market, the demand pressure on decarbonization metals will continue to pile up. This bodes well not only for further price rallies, but also those that are exploring for and discovering the next nickel deposits to serve the EV revolution.

Richard (Rick) Mills
aheadoftheherd.com
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Energy & Critical Metals

US Dept of Energy Looks to Produce More Uranium for Cutting-Edge Nuclear Reactors

The US government is looking to advance the country’s nuclear power capabilities, and with that produce more more high-assay low-enriched
The post US…

The US government is looking to advance the country’s nuclear power capabilities, and with that produce more more high-assay low-enriched uranium fuel in an effort to align with a less carbon-intensive future.

As reported by CNBC, the Department of Energy on Tuesday formally requested additional information regarding intentions to produce large quantities of high-assay low-enriched uranium fuel (HALEU) in order to power a new generation of nuclear reactors. As of current, the National Nuclear Security Administration of the DOE develops just enough uranium to meet the demand of its nonproliferation and defense missions.

However, the latest information-gathering step is necessary for the country’s plans to eventually create cheaper, smaller and more safe nuclear reactors that would be able to meet growing energy demand. “I have long supported the commercialization of advanced nuclear technologies as a zero-emission source of baseload energy,” said Senator Joe Manchin, who, despite being the main Democrat opposing President Joe Biden’s $1.75 trillion spending bill, appears to convey support for the DOE’s latest plans.

“I am pleased that the Department of Energy is moving ahead with this announcement that will lead to a domestic supply of high-assay low enriched uranium in the United States.” added Manchin. Unlike traditional uranium processing, which creates about 5% uranium-135— the particular isotope needed for nuclear fission reactions, HALEU is enriched with about 20% U-235, making it a substantially more efficient fuel.


Information for this briefing was found via CNBC. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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Why Nio Stock Faces an Uphill Battle

Chinese automaker Nio (NYSE:NIO) has several strengths, including its innovative battery-exchange program, significant sales growth and its pending expansion…

Chinese automaker Nio (NYSE:NIO) has several strengths, including its innovative battery-exchange program, significant sales growth and its pending expansion into multiple overseas markets. Yet, NIO stock is down 50% in the past year.

A Nio (NIO) sign outside of the company's facilities in Shanghai, China.Source: Andy Feng / Shutterstock.com

Maybe that’s because in the past several months, the company’s sales growth and financial results haven’t been all that impressive. Or perhaps it’s because the electric vehicle maker faces extremely tough competition from the likes of Xpeng (NYSE:XPEV), Li Auto (NASDAQ:LI) and Tesla (NASDAQ:TSLA). Nio also seems to be significantly behind a number of its rivals when it comes to autonomous driving.

High Prices and Tough Competition

One thing that could hinder Nio going forward is the relatively high prices of its vehicles. The base prices for Nio’s EV lineup ranges from about $50,000 to roughly $70,000. Add in extras and customization and they can run upward of $80,000.

NIO’s latest model, the ET7, will cost customers about $68,710 and $77,640 depending on what battery pack they pick. And that’s after factoring in EV subsidies from the Chinese government.

For comparison, Xpeng’s after-subsidy base prices range from $23,000 to $36,000, while Tesla’s cheapest Model 3 starts at around $40,000.

Nio also faces a great deal of competition at the higher end of the EV market from some famous and well-regarded brands including BMW (OTC:BMWYY), Audi, Lincoln and Mercedes.

In China, where incomes are generally lower than in the U.S. and Western Europe, less expensive EVs have a much better chance of becoming bestsellers than their more costly peers. In the end, selling millions of EVs with, say, a 20% gross margin will prove more profitable than selling a few hundred thousand vehicles with, say, a 40% gross margin.

Nio Appears To Be Falling Behind in Autonomous Driving

It seems that Nio is well behind Xpeng and Tesla when it comes to autonomous driving. Last month, Barron’s reported: “NIO Autonomous Driving or NAD, as the company calls it, will maintain driving speeds and do some steering, but drivers still need to pay attention to the road at all times.” Doesn’t sound all that “autonomous” to me.

Meanwhile, in October, Xpeng released its Xpilot 3.5 version of its advanced driver-assistance system. “The system allows Xpeng’s cars to change lanes, speed up or slow down, or overtake cars and enter and exit highways,” according to CNBC.

And in November, Tesla started offering its Enhanced Autopilot system in China to some customers. According to Inside EVs, among the features offered by Tesla’s system are “Summon, Autopark, Auto Lane Change, and, most importantly, Navigate on Autopilot.”

You don’t have to be an expert on autonomous vehicles to see that Nio is trailing Xpeng and Tesla in this area by a significant margin.

Disappointing Sales Growth and Financial Results

For December, Nio reported that its deliveries had increased nearly 50% year over year to 10,489 EVs. That’s not terrible, but it was lower than the prior month’s 10,878 deliveries and a marked slowdown from November’s year-over-year growth of 106%.

It also paled in comparison to its competitors’ December growth. XPeng delivered 16,000 vehicles in December, up 181% from a year ago and 2.5% from November. And Li Auto saw its deliveries hit 14,087 in December, up 4.5% over November and 130% year over year.

Nio is expected to report fourth-quarter earnings next month. Management’s most recent guidance, released in November, of $1.46 billion to $1.56 billion fell short of analysts’ estimates of $1.75 billion. The consensus has since lowered its forecast, predicting Nio will earn $1.53 billion. That represents year-over-year growth of 49.5%, while full-year revenue is expected to increase 120% to $5.62 billion.

If the company fails to meet or beat these numbers, NIO stock could sell off sharply.

The Bottom Line on Nio Stock

Nio faces tough competition in the Chinese EV market and appears to be falling behind its competitors in terms of growth. The high price of Nio’s vehicles compared with some of its rivals’ and its relatively slow progress when it comes to self-driving technologies could cost the company its edge.

Shares are currently trading for five times analysts’ average 2022 revenue estimate, which could prove to be overly optimistic. NIO stock isn’t expensive for an EV name, but it isn’t cheap either. And that valuation appears to bake in a meaningful amount of sales growth for the automaker, both at home and overseas.

I recommend investors avoid NIO stock at this point.

On the date of publication, Larry Ramer held a long position in XPEV stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015.  Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer. 

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NIO Has Strong Catalysts Going for It in 2022

Chinese premium electric vehicle (EV) maker Nio (NYSE:NIO) hasn’t had a smooth 2021. NIO stock was once trading at the highs of $60 and is down to $30…

Chinese premium electric vehicle (EV) maker Nio (NYSE:NIO) hasn’t had a smooth 2021. NIO stock was once trading at the highs of $60 and is down to $30 today. Nothing has gone wrong with the company but the overall investor sentiment has led to the sell-off. There are also several concerns associated with Chinese regulations and this has had an impact on NIO stock.

Image showing a Nio store with a glowing logo on the front.Source: Andy Feng/Shutterstock.com

It was trading at $14 in July 2020 and doubled in October 2020. The stock then hit $54 in November 2020 and saw the best days in the early months of 2021. However, the highs didn’t last long and the stock started falling since March 2021. It hit $33 in May and soared to $53 in June 2021 and fell back to the lows of $30 since then.

Nio has consistently impressed investors with the solid quarterly delivery numbers. Despite rising competition, Nio is walking with pride and is on the way to leading the EV industry. I have always been a fan of NIO stock and I am of the opinion that it could hit the all-time high again in 2022.

The company has already started the year on a strong note. With that in mind, let’s consider two reasons to invest in NIO stock.

The Future of the EV Industry Is Bright

The global electric vehicle market is expected to reach $802.81 billion by 2027, at a growth rate of 22.6%. The highest contributor to the industry in the Asia-Pacific region, followed by Europe and North America. The Asia-Pacific market is expected to reach $357.81 billion by 2027 at a compound annual growth rate (CAGR) of 20.1% and North America is estimated to reach $194.2 billion by 2027.

As countries continue to move towards fuel-efficient and low-emission vehicles, the demand for EVs is only going to rise. Meanwhile, in tandem with the rise in market demand, technological advancements and government initiatives will boost the growth of EV makers in the coming years.

Nio’s battery as a service model holds an advantage here and it could attract users who are looking for low-cost EVs that promise high performance.

Exciting Model Lineup

Nio is launching the ET7 sedan this year which will be followed by the ET5 compact sedan. There is also speculation that we will see even more new vehicle models this year. There is a lot of excitement surrounding the ET7 and the car will enter the German market soon.

My InvestorPlace colleague David Moadel believes that the ET5 will spark Nio’s recovery.

The ET7 will be Nio’s first model that will be sold in Germany. The company’s ES8 SUV is already sold in neighboring Norway and might make its way to Germany soon as well.

Nio has seen high interest from several potential users, particularly in the European markets.

If the company introduces new models in the coming year, it will be able to attract a larger customer base and increase revenues. Nio has already entered the Norwegian market and it will soon plan to enter other European countries this year. The company has already doubled the production capacity at their plant in China to 240,000 vehicles a year. This will allow the company to reach its full potential and the margins are expected to pick up soon after.

The Bottom Line On NIO Stock

Besides the strong operating numbers and impressive deliveries, Nio is working towards the expansion of its market and this will push NIO stock higher. I believe Nio has the potential to beat the rivals with its product line and the battery as a service.

An HSBC analyst Yuqian Ding has raised their price target of NIO stock to $54 with a Buy rating after the company reported strong delivery numbers for December and announced new models at the NIO Day event. The analyst thinks that new models in this year could boost the volume growth.

Nio has already set the stage for 2022 and I believe it will report strong revenue numbers in the quarterly results. This will help NIO stock recover in the coming two months.

On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long-term gains. Her knowledge of words and numbers helps her write clear stock analysis.

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