Published on November 21st, 2020 |
by Zachary Shahan
November 21st, 2020 by Zachary Shahan
As you may recall, several months ago, Tesla CEO Elon Musk expressed some rather strong interest in nickel, a need for nickel. I talked about the matter a bit with mineral mining and market experts at RK Equity — see here, here, and here. We’ve covered nickel in various other ways as well. However, more recently, I connected with a top North American company in this arena and was lucky to get the opportunity to dig in much deeper. Below is an interview with Sean Werger, President of Talon Metals Corp., and Vince Conte, CFO of Talon Metals Corp. If nickel interests you, have a look!
1) Tesla CEO Elon Musk recently made a plea for nickel, but especially more “efficiently mined” nickel and environmentally friendly nickel. (“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.”) Regarding efficiency, what do you take that to mean? What is he implying?
In our view, “efficient” mining has two parts. The first is focusing on projects that are high-grade (the average global grade for underground nickel mines is currently reported to be approximately 1.1% nickel), with high recoveries of metal from the rock (i.e., excellent metallurgy). At the end of the day, this means there will be limited waste materials. This is truly how to mine “efficiently.” For examples of mining nickel efficiently, please look at the Eagle Mine in Michigan and the Nova-Bollinger Mine in Australia. Both of these mines are high-grade nickel sulphide projects, that have been profitable even at current nickel prices. The Tamarack Project is also expected to be a low-cost nickel producer.
The second part of mining efficiently is what a mining company leaves behind once all ore is extracted. Will it be a highly polluted and inhospitable wasteland, or an opportunity for something even better than it was before? Talon intends to use our finished co-filtered tailings facility as a solar farm, generating clean electricity for the community — thus continuing our support even after we’re gone.
In the future, “efficient mining” will mean everything is utilized, from tailings to post reclamation materials. We, at Talon, are looking towards the future. Our goal is to remove the negative stigma associated with the word “mining” and show the world how “green” nickel mining can be!
2) On the matter of environmental sensitivity, again, can you put that request in some broader context? What’s the full spectrum in the nickel mining industry on environmentally sensitive versus environmentally insensitive?
Your questioned nailed it — you need look from mine to battery, not just what happens at the mine.
Environmental sensitivity is a subject that has come under increasing scrutiny over the past several years. Customers who purchase environmentally friendly products want to know that the materials used in the production of such products were responsibly sourced.
So, what does “environmental sensitivity” mean in the nickel industry? In our view, it comes down to four key aspects:
- How tailings are managed:
- Insensitive: Tailings facilities with enormous dams holding back millions of gallons of waste water are not considered to be environmentally sensitive. These dams could (and have) failed in the past, causing catastrophic damage and loss of lives.
- Insensitive: Disposing of tailings in the ocean. This may cause excessive turbidity in the water — which leads to the death of coral reefs and other aquatic life. It also alters the pH of the ocean in that area, which could have a ripple effect felt across the entire globe (picture phytoplankton and krill dying, greenhouse gases reaching never before seen levels due to phytoplankton die-off, polar ice caps melting and water levels rising).
- Sensitive: Small tailings facilities with a large percentage of tailings placed back underground rather than on the surface. The remainder is filtered and dry-stacked. This also means the majority of water is recycled. Dry stacking of tailings costs a bit more but is much more environmentally sensitive and eliminates the need for a dangerous tailings dam.
- Note that at Talon’s Tamarack Project, it is proposed that there will not be a tailings dam — Instead, we will have a dry stack tailings facility with crushed waste rock (called a Co-Disposal Filtered Tailings Facility). The facility will be totally sealed and encapsulated post-mine closure. We will continue to treat any runoff water from rain and snow. In addition, we are working with some of the top minds in the world to design a cutting-edge means to capture and store carbon from the environment before encapsulating.
- How ore is processed to extract nickel:
Laterite projects do screening of what is essentially clays. This means very low grade material is put through what is called a High Pressure Acid Leaching (HPAL) process. HPAL is a version of a hydromet process.
Sulphide ores (like the ore found at the Tamarack Project), in contrast, can be concentrated, which means that the ore is upgraded by 10× before being treated. This means the processing facility is much smaller than an HPAL project. The nickel concentrates, which are predicted to be in short supply starting next year, are then treated in one of two ways:
- Smelting and refining — The nickel sulphide concentrates are smelted to produce a matte product that is shipped to a refinery, which typically uses a hydromet process to make nickel for stainless steel. The smelting process is very energy intensive and produces large amounts of CO2 and SO2.
Hydromet — Unlike HPAL, a hydromet process for sulphides starts with about 10× higher grade. The process skips the smelting part and refines nickel using steps that are somewhat similar to refining a nickel matte. This means less energy and emissions.
This hydromet process is therefore seen as the more environmentally-friendly option. At Talon, we are developing a version of the hydromet process to produce battery metals at site. This means no smelting. It also means lower cost and skipping 3× transportation (across different continents) before nickel returns to the USA in a battery component called a cathode (i.e. we go directly from mine to battery).
Talon is looking to raise the bar on how mining is done. By going directly from mine to battery we believe that we can play a vital role in a fully integrated domestic battery supply chain, rather than shipping the product around the globe multiple times for processing.
- Green Energy to Power an Electric Mine Fleet:
Clean energy is one of the fastest growing sectors of Minnesota’s economy. In 2007, the State passed the nation-leading Renewable Energy Standard which had a goal for Minnesota utilities to get 25% of their electricity from renewable sources by 2025, and by 2017 Minnesota reached this goal. Minnesota’s most recent Clean Energy Act has three main initiatives, the 100% carbon-free standard, clean energy first, and energy optimization. 100% carbon-free is calling for all utilities to make the transition to 100% carbon-free sources by 2050. Clean energy first calls for renewable energies to be the choice replacement when current Minnesota power plants reach the end of their lives. Energy optimization calls for putting efforts towards reducing the energy costs for families and businesses, to encourage the shift to lower carbon energy options.
Talon’s initiatives fall right in line with these goals for Minnesota’s clean future. Our mine plan includes the use of an electric mine fleet, we are analyzing the ways for in which our operation can be carbon neutral, and our product will potentially provide a domestic source of sustainable nickel to power USA made electric vehicles.
- Community Development: Supporting Sustainable Growth before, during and after Mine Closure:
At Talon, we are committed to working with local government and businesses to support ongoing economic growth and development opportunities that align with the community’s future goals. This is an integral part of our feasibility planning today, which is currently looking at ways to utilize the Co-Disposal Filtered Tailings Facility post-mining, as a platform for a solar farm that could be a green source of energy for a sustainable manufacturing industry after mine closure. We are providing the world with a new vision of what mining can be: clean, green and efficient. We are the supporters of carbon neutral technology. This is the future of mining.
3) How much do you think Tesla does or will put teeth behind these requests for efficiency and environmentally sensitivity? And what do you think is the threshold for each?
We do not feel it’s appropriate to speculate on Tesla’s strategy and approach.
4) Can you tell us a bit about the difference between nickel used for other purposes and nickel used for EV batteries?
Nickel is primarily used in stainless steel and other alloys, but is also a major component in batteries for electric vehicles. Ultimately, there are two types of nickel deposits, laterites and sulphides. In regards to laterites, this is further broken down into Saprolites and Limonites. Currently, only Limonites can be used in batteries for electric cars.
More than 70% of nickel today is produced from laterites. These projects are typically low-grade with extremely large footprints and significantly higher capital expenditures for processing. Laterite projects are also technically challenging and present a risk to the environment.
Nickel sulphide projects are typically underground, with the average global grade at approximately 1.1% nickel. There are a few open pit projects at around 0.6% nickel. (For more information, look under the heading “World of Nickel” on www.talonmetals.com.)
At the Tamarack Project, the nickel grade of our indicated resource is 1.83% nickel, 0.99% copper, and 0.045% cobalt. These high-grades allow us to be one of the most cost-effective ways to produce nickel. Unfortunately, high-grade nickel projects, like the Tamarack Project, are few and far between. There are also some low-grade nickel sulphide projects (with grades of 0.2% to 0.3% nickel, without copper by-products), but these projects are still only conceptual at this point, as they have not yet been put into production, even during periods of peak nickel prices. Similar to laterite projects, it is expected that these projects will have extremely large footprints and significantly higher capital expenditures for processing. They will also be technically challenging and present a risk to the environment (with, among other things, their large tailings dams).
The current supply chain for nickel used in EVs is inefficient, as the supply chain was essentially created for producing nickel for stainless steel and has been extended to batteries, instead of being optimized for batteries. Talon is working to optimize the supply chain to create a domestic supply of nickel in the USA. For more information on this, please see our answer to Question #7 below, and we also encourage you to visit our website and learn more about the current nickel supply chain and Talon’s plans for improving the process.
5) Can you give us some information/data on the size of the market for these different kinds of nickel?
Currently, global nickel production is approximately 2.4 mtpa, with only around 1mt (42%) being suitable for the battery supply chain. Of that 1mt, in 2019, only 8% was actually used in the battery supply chain.
Before 2000, nickel was mainly produced from high-grade nickel sulphide deposits. Higher grades mean more metal per tonne of rock, which results in higher profits. New high-grade sulphide discoveries (like the Tamarack Project) are currently almost impossible to find, and as a result, a shift has occurred towards using nickel laterite deposits (mostly from the Philippines and Indonesia). As discussed above, there are also some low-grade nickel sulphide projects (with grades of 0.2% to 0.3% nickel, without copper by-products), but these projects are still only conceptual at this point, as they have not yet been put into production, even during periods of peak nickel prices. For more information, please see this and this.
Jim Lennon, a leading global nickel analyst at Macquarie, has forecasted that there will be a nickel deficit post-2025 (that is, he suggests that there will be enough nickel to supply the markets until 2025). Given that mining projects take several years to go into production, investment in new nickel projects is needed now, to ensure there can be new nickel supply post-2025.
Analysts predict that suitable, global nickel production for batteries will need to increase substantially by 2029 to meet expected demand. Production from new high-grade nickel sulphide deposits, like the Tamarack Project, will ultimately be the lowest cost-option for nickel suitable for the battery industry.
6) The largest nickel mining companies appear to be Vale, Norilsk Nickel, Glencore, and BHP Billiton. Where does Talon Metals fit in there? And how does it stand apart from these?
The companies that you mention are among the largest mining companies globally that own numerous mines across many commodities (typically known as a “major” mining company), whereas Talon is known as a “junior” mining company with a sole focus on one project, being the Tamarack Project.
Of note, the Tamarack Project has the potential to host numerous mines along its 18 kilometer intrusive complex, and thus has the potential to turn into a large nickel district. The current mineral resource at the Tamarack Project sits on less than 1 kilometer of the 18 kilometers. Nonetheless, there have been a number of holes drilled well outside of Talon’s mineral resource area, where high-grades of nickel and copper mineralization have been intersected (for example, some of the highest grades drilled on the project to date occurred approximately 3 kilometers to the north of the company’s mineral resource area).
Talon’s near-term strategy is to focus on expansion of the nickel-copper mineralization at the Tamarack Project within an approximate diameter of 2 kilometers from its mineral resource area (i.e., approximately 1 kilometer to the north and 1 kilometer to the south of its mineral resource area). After that, Talon plans to progress the Tamarack Project towards production, so the project can be in production post-2025 (when a nickel deficit is predicted).
In contrast, Talon’s longer-term strategy is to cost-effectively explore the remaining 16 kilometers at the Tamarack Project, where historical drilling suggests that there may be plenty more nickel-copper mineralization to come.
At present, Talon has not yet entered into any arrangements to sell the nickel or copper from the Tamarack Project to any third party, be it an EV manufacturer, a battery manufacturer, or one of the “major” mining companies you mentioned above. As such, Talon, with the Tamarack Project, has the unique opportunity to be part of a future ‘tug-of-war’ between the stainless steel industry and the EV industry for the high quality product to be developed at the Tamarack Project. This is what we think really sets the Tamarack Project apart from the others — as a future low-cost producer of nickel, Tamarack has total optionality.
7) With EV production ramping up around the world, it appears that everyone in the industry agrees that batteries should be produced as much as possible regionally for different regional markets (North America, Europe, China, etc.). With Tesla Giga Austin now under construction and Tesla Giga Nevada still growing, as well as US battery factories being built by GM/LG Chem, SK Innovation, and others, we should expect a lot of growth in demand for battery minerals in the coming decade. What are the biggest opportunities for supplying the battery producers with minerals from North America? And what are the biggest obstacles to those opportunities?
We can’t speak for the other metals, but in terms of nickel, we believe the opportunity (especially for Talon) is to create an integrated domestic (USA) supply chain from mine to battery that is tailored for lithium-ion batteries, as opposed to the historical supply chain that was really built for the stainless steel market. The traditional supply chain is complex, lengthy, inefficient, carbon and sulphur dioxide intensive, requires numerous steps and includes a lot of transportation. For example, why have nickel travel around the world from the USA to China and back when instead you can have a direct route from a mine or project such as the Tamarack Project (located in the USA) to one of the battery factories in the USA? (For more information, please see “Present Transportation of Ni“).
In terms of challenges, we believe the main challenge is actually finding a USA source of nickel!! Of note, there is currently only one operating nickel mine within the entire USA, the Eagle Mine in Michigan. It has been reported that the Eagle Mine will be fully mined out (closed) by 2025. After that, the Tamarack Project is literally the only high-grade nickel project within the USA that is not yet in production. This means that if any of the EV manufacturers or battery manufacturers mentioned above ultimately look to source nickel from within the USA, the Tamarack Project will be the only game in town. This obviously puts the Tamarack Project in a very unique and exciting strategic position going forward.
8) The high cost of capital to build new mines is something I’ve been discussing with RK Equity analysts. Can you say what your cost of capital for financing new mining/production sites tends to be right now? Is there anything that could help you to bring that down?
In the world of nickel, high-grade nickel sulphide projects, like the Tamarack Project, have the lowest CAPEX and OPEX, but as we have explained above, these types of projects are few and far between globally. For a detailed summary of Talon’s current capital costs, please see our Preliminary Economic Assessment at https://talonmetals.com/technical-reports/.
Because there are limited high-grade nickel sulphide deposits, most nickel production today comes from Laterite projects. These projects typically have very high CAPEX (approximately $60,000 per annual tonne of nickel in intermediate), with higher OPEX as compared to high-grade nickel sulphide projects.
There are also some low-grade nickel sulphide projects (with grades of 0.2% to 0.3% nickel, without copper by-products), but these projects are still only conceptual at this point, as they have not yet been put into production, even during periods of peak nickel prices. Because of their low grades, these projects tend to have very high CAPEX and OPEX. (For more information, please see https://talonmetals.com/what-is-the-cheapest-source-of-nickel-raw-material/)
Yes, we believe that there are opportunities to reduce our current estimated CAPEX and OPEX. The main opportunity we see is through adoption of technology, which includes but is not limited to automation and battery or electrified equipment fleets. Our current estimates and productivity factors are based on today’s best available technologies and their associated pricing, which currently don’t exploit the full potential that we see. The technology shift in the mining industry is just beginning and we believe that by the time we break ground, it will be far more advanced than it is today.
The second opportunity we see is through expansion of the mining areas through exploration success at the Tamarack Project. As discussed under Question 6 above, the current mineral resource at the Tamarack Project sits on less than 1 kilometer of the 18 kilometers. Nonetheless, there have been a number of holes drilled well outside of Talon’s mineral resource area, where high grades of nickel and copper mineralization have been intersected (for example, some of the highest grades drilled on the project to date occurred approximately 3 kilometers to the north of the company’s mineral resource area). We believe that there is enormous potential to expand our current resource, allowing us to capitalize on economies of scale going forward.
9) Mining minerals is one thing. Refining them and preparing them for use in EV batteries is another. What steps in the process do you engage in, and how do you expect that to change?
At Talon, we are currently assessing two production routes or products:
The first is the traditional supply chain where we would mine ore, concentrate it by milling to produce what is called a “concentrate,” then sending it to a smelter, who in turn sends it to a refinery, who sends it to a nickel sulphate plant, who in turn sends it to a precursor facility. This is the traditional nickel supply chain discussed above.
The second option that we are considering at Talon is to produce a nickel concentrate specifically for the battery market. This concentrate would be used to produce either a nickel sulphate or precursor directly. Depending on the off-taker (i.e., the purchaser of the product), the facility could potentially be co-located at the mine (in Tamarack, Minnesota) or the concentrate could be transported to a facility. Either way, we would collapse three facilities into one.
In Question #7 above, we discuss the inefficiencies of the current nickel supply chain, and our expectation is that it will change over the coming years.
10) Clearly, the auto market is going to need an enormous amount of nickel in the coming years. Do you think there’s enough investment going in for this or do you think there’s going to be a supply crunch that slows down EV adoption?
As discussed above, Macquarie’s Jim Lennon has reported that there is likely enough nickel to supply demand until 2025. Post-2025, it has been reported that there is an expectation of a building deficit for nickel that may become significant. Nickel projects do not just go into production overnight. It takes time to develop them, and go through the permitting process. In other words, investment needs to be made TODAY in order to make the timeline to supply the market post-2025.
As high-grade nickel projects are quickly being mined out, new mines are needed. However, these mines are mostly low-grade. They therefore need nickel prices of as much as $20,000/tonne ($9/lb nickel) to justify the capital spend.
This all bodes really well for an underground high-grade project, like Tamarack: given that we are high-grade, with simple recoveries of metal from the rock, we don’t require high nickel prices to justify the capital spend, as the IRR is high even at today’s nickel prices. There are very few projects that can claim this!
11) Rodney Hooper and Howard Klein have warned that if nickel prices get too high from a supply crunch, EV battery makers could look for ways to reduce nickel use in the battery chemistry — as the industry has done with regard to cobalt. Is this a matter you’ve discussed or seen others considering in some way?
This is already happening. For example, the mid-range Tesla battery is going down to 66.67% nickel. Also, note short-range batteries don’t have nickel (LFP).
All we know is that technology changes over time. We also know that nickel from recycling will begin to replace mined nickel as time goes on.
What is unlikely to change, however, is that demand for clean nickel concentrates (like what will be produced from the Tamarack Project) will likely exceed supply going forward. This is a real differentiator of the Tamarack Project — our clean concentrates will be very attractive to both the stainless steel and EV markets.
12) What did you think of Battery Day?
We were extremely excited by the comments made by Tesla during Battery Day. First, Elon Musk reiterated that Tesla plans to use more nickel in their high performance, Semi, and Cybertruck batteries. Second, Tesla announced that they plan to build a cathode facility in the USA. Assuming Tesla is looking for a domestic supply chain in the USA, the Tamarack Project becomes extremely well positioned, given that it is the only undeveloped high-grade nickel sulphide project within the USA that may coincide with the Tesla timeline.
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