Prime Meridians – Assassinating The Nickel Market: A How-To Guide

This week in Pierce Points:

California asked for more sun. New legislation requires state utilities to go 50% renewable by 2030.

The race for international shale got tighter. Argentina’s YPF says unconventional drilling is going “better than expected“.

Mexico’s largest steel alloy maker bought a gold mine. The purchase is part of a $300 million diversification plan.

There was good news and bad news for copper. One major mine is cutting production; another is about to start up.

Japan restarted another nuclear reactor. It’s good news for uranium, but not so much for global oil.  

Assassinating The Nickel Market: A How-To Guide
I loved the Steve Jobs biography. Not only the parts about mining legend Robert Friedland being a shaping influence on the Apple founder — but also how Jobs used a curious technique called the “reality distortion field” to mould his global empire.
Taking a page from his mystic days in India, Jobs would periodically drop impossible tasks on his teams. “We need a completely new operating system — in three months.”
Panic ensued. Engineers declared it was impossible to do three-years’ work in a matter of weeks. Marketing fretted over how to possibly roll it out fast enough. 
And Jobs simply said, “Do it.” Distortion field, change reality. 
Amazingly, it worked. Under the weight of outlandish goals, teams sweated out a path. The behemoth ship turned on a dime — it just took someone to suddenly wrench the helm. 
California’s big push for renewables this week is the same. Lawmakers said, “Enough. Get it done.” The targets are big and bold — and time is short. I’m sure utility engineers are panicking. 
But that’s how great things happen. 
Such a cognitive overhaul is simultaneously happening in another part of America — the historic mining districts of the northern Midwest. 
In Minnesota, for example, Governor Mark Dayton this week said he will tour mines across the U.S. Ahead of making a decision on permitting the Polymet nickel-copper mine — the first-ever mine in the state targeting ores from the Duluth igneous complex, and widely seen as being a test case for mining-friendliness in this re-emerging base metals terrain. 
That comes after Lundin Mining started up a similar nickel-copper (plus platinum) operation in nearby Michigan last year. Marking the end of a 12-year legal battle to permit a new mine in this formerly mineral-intensive state.
I’m excited at this trend — there are great rocks in all of these places. And they’ve gone under-explorered for decades, as non-Nevada America embraced a “mining is old and cold” outlook. 
The implications for project developers are intriguing. One of most critical takeaways stemming from the chart below, courtesy of Minnesota nickel-copper driller Talon Metals. (Thanks to the company for the information, and the extensive and informative discussion around geology, and the permitting regime in Minnesota.)
The figure shows something I love — a cost curve. In this case for nickel, detailing the cash costs for producing a tonne of finished nickel metal at numerous mines globally. Each bar is an individual operation, and a wider bar means larger output. They’re arranged from lowest to highest production costs, left to right. 
The first takeaway: there’s a huge range of nickel production costs around the world. From negative $10,000 per tonne at Norilsk, Russia (where platinum metals credits pay for the nickel production costs, and then some), to nearly $20,000 per tonne (over $9 per pound, or about double the current price of $4.80). 
Nickel Mining Costs
Source: Talon Metals corporate presentation (page 22
Curves like this show who dominates the market. If your mine is on the left side of the graph, when prices fall, everyone to the right will go out of business before you. Think Vale in iron ore, or Cameco in uranium — these low-cost producers survive and thrive through thick and thin.
For project developers, this is critical information. Because it shows us how to assassinate the market.
With any new project, we want to inject ourselves as far left on the curve as possible. If we can find a mine that’s more profitable than 75% of global projects, someone will want it. Find one that’s in the top 10% and it’s golden — we’ve jumped the queue on the world’s mines. We’ve assassinated the curve. 
The challenge in the nickel market is: there aren’t a lot of low-cost prospects. Instead, producers have been trying to gain an advantage by going big, the strategy for the two expansion projects highlighted by Norilsk in the chart above. The wide bars mean a lot of output — but the costs are in the highest 50% globally. 
That’s happening because the lowest-cost nickel projects on Earth — so-called sulphide ores — are rare, geologically. Developers aren’t finding many low-cost sulphide deposits anymore, so they’re moving to higher-cost laterite deposits, and trying to make up for lower margins with increased output. 
But that’s where America comes in. 
The new deposits being advanced in Minnesota and Michigan are rare examples of nickel sulphide deposits. With the igneous complexes here being perfect terrain for producing such ores. 
Developments and discoveries in this re-emerging district thus offer the potential to assassinate the market. Jumping ahead on the global cost curve and out-competing other producers.
Of course there are a lot of variables that go into this profitability equation — deposit size, depth, infrastructure. But as a developer it’s good when you’re starting with the right “ingredients” to yield a curve-assasinating mine. If we’re working in a non-sulphide nickel district, we’re at a disadvantage before a single sample is taken.
Sun Tzu said, “Win, and then go to war.” And this is a perfect example of winning before we even start, by setting up in a place with the best rocks. It also shows how America has some incredible mineral potential, despite being a “mature” mining nation. 
Bring on the renaissance. 
Here’s to coming back,
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Dave Forest

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