Interview with Industry Commentator Mark Selby, CEO of Canada Nickel Company.
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We catch up again with Mark Selby to get his take on investing in the Nickel market view our previous interview here. Fans of investing in the Electric Vehicle Revolution thesis will find this interesting. Some battery metals are on the up and others are not, why is that?
We discuss the Class 1 and Class 2 Nickel debate as well as the intermediate Nickel, and the amount of Nickel units required in the market. Investors new to Nickel may find the discussion around how to identify good investment vs. a lesser investment fascinating.
Do you know the difference between Laterite Nickel and Sulphide Nickel and why some investors won't touch Laterite Nickel? And what HPAL plants actually cost and why some companies pushing that agenda may be about to fall off a cliff? As an investor you need to know what that entails.
Interview highlights:
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Matthew Gordon:
I just wanted to say thank you very much for the piece you did last year, end of last year. We've had amazing feedback on that because it has helped clarify and expand people's understanding of the Nickel markets and thanks for that, and you are probably seeing lots of different pieces of that now going out to the market too. I appreciate that. One thing we didn't cover though was this Class 1, Class 2 debate. We said we would talk about it a little bit further. You kindly said yes to speak today. Why don't we kick off - what is Class 1 and
Class 2?
Mark Selby:
Yes, so Class 1 and Class 2 refers to the type of Nickel product that gets produced. So, a Class 1 Nickel tends to be LME deliverable and meet a purity standard of 99.8%, or better. It gets used, you need it in applications like alloys, alloy steels, plating products, and then increasingly, that purity of Nickel will be required for Nickel sulphate into cars. Again, the key is the product, it doesn't necessarily have anything to do with where it comes from, and I think that is one of the places where people get trapped up.
Class 2 is basically a Nickel-containing product that is less than 99%. That can still be used by a consumer and it doesn't have a terminal market so the issue with that is, with an LME-deliverable product, if you can't sell it to a customer, you can always drop it off at the LME and get the 'LME price' that day for your product. Class 2 has to go to a consumer and so those products tend to have much more volatile premiums because there is not that terminal market like you have.
Matthew Gordon:
So what do you mean by consumer? Because again, terminology in the industry is different.
Mark Selby:
Sure, generally, Class 2 gets used in stainless steel and alloy steel applications where those processes have a robust refining step in the process so they can take materials that are less pure, or they are quite happy to have the iron that comes along with Ferronickel because they need iron to make stainless steel or make an alloy steel, anyways.
Matthew Gordon:
Got it. So now we understand what they are, there's a lot of conversation online and I think you alluded to the fact that perhaps people shouldn't be expending as much energy worrying about whether it is Class 1 or Class 2, why do you think people are concerned first of all?
"The frustrating part for me is that there has just been so much air time on this Class 1 versus Class 2, and there are some really bad, to me, pieces of thinking that happen and get people distracted. What I think is the real issue is we need to make sure we have enough Nickel units, period, to meet the growth for stainless steel and to meet the growth for electric vehicles, going forward"
Mark Selby:
'Yes, I think where it has come down to is; yes, we will need lots of new Nickel to make Nickel-Sulphate batteries. And the
Nickel that needs to go into those Nickel Sulphate, or the Nickel sulphate that comes with it, needs to have a very high Nickel purity to it. That is true, but where people get tied up is that they then project that all the way back to that, okay, these types of deposits are only good for this type of application. At the end of the day, there's basically three types of Nickel sources: there's limonite ore, there's saprolite ore, and then there is Nickel Sulphide ore. Limonite is what goes into the HPAL stream typically, Saprolite is used to make ferronickel and NPI, and then most sulphite ores, they make a Nickel concentrate and that then gets smelted and refined. The key piece of it is that each of those steps makes an intermediate product which can be smelted or refined into a whole range ' it happens today and will happen even more so in the future because we are going to need a lot more Nickel Sulphate, so the Chinese are going to build way more capacity than the market needs, just like they do for every other product, and so there will be all this capacity to take an HPAL Intermediate, to take a Pyro-ferronickel Intermediate mat, or take Sulphide concentrate and turn it into 99.9% metal. Turn it into high-purity Nickel Sulphate. Turn it into Ferronickel if they need to, you know, again, you need to completely decouple the ore source discussion from the end product discussion.
Matthew Gordon:
Right. Okay, so when I'm reading about people having discussions, debates, sometimes heated, online, about well; 'I won't invest in Laterites, I'll only invest in Sulphites', what you're saying is that it doesn't matter.
Mark Selby:
'Yes. It does not matter. There are today, more natural homes, and today, Nickel Sulphide processing has actually been a bit of an oligopoly between the very small number of Nickel smelters that exist, but the Chinese will build lots of capacity. Again, I've talked about, again, real
world examples; in the Cobalt space, in , China was 3% of finished Cobalt production. In 3 years, they were 30% of production, and in 5 years, they were 50% of production and that was basically taking bags of Intermediates and dirt, sometimes dug by children in the Congo, and turning it into a usable Cobalt product. It was a various range of Cobalt salts. And again, people get all excited about this Nickel salt premium, well, in a Cobalt market, because there is so much capacity to make salts in China, salts tend to trade at a discount to the metal, not a premium.
Matthew Gordon:
That's fantastic. That's helped me understand it, certainly. There have been in the past, discussions about premiums on one versus the other, but you are saying, the way the market is setting itself up means that that is going to take that issue away as a concern.
Mark Selby:
'Yes, yes. And part of the reason that got some traction was because about 18 months ago, 2 years ago, yes, Nickel Sulphate prices at that time were trading at a about a USD$2,000 tonne premium to metal in China because, again, you had this surge in demand that started and the supply just hadn't had chance to get going, you know? Today, Nickel Sulphate premiums are recently, I haven't looked this week, but Nickel Sulphate premiums in China were 0. And that's where I encourage investors again, don't get caught up; if something is trading at a short-term very high premium or a short-term big discount, don't extrapolate 3 months or 6 months and say that's the long-term sustainable value for that premium discount.
Matthew Gordon:
Well, hence, talking to people like you; you have been through a couple of cycles and understand the machinations of the sector, I appreciate that. Can we talk about HPAL? We've had so many people come back about your comment around HPAL, okay? Because some companies set themselves up and say we are HPAL ready ' to use that term. You made a comment to us that the cheapest, well, the only and therefore the cheapest builder of an HPAL plant ' it has cost them over USD$1Bn. So anyone who is telling you that it has cost them less to build than that, they need to have a pretty good reason as to how they justify that going forward, right? So that has obviously been what some companies, a handful of companies are saying about the market. It's quite a big statement from you, and people have asked; where's your certainty coming from? Why are you so confident that going forward, people aren't going to be able to deliver a HPAL project cheaper than, say, USD$1Bn?
Mark Selby:
'Sure. Okay. So where this comes to is, if you think about it, this is about USD$40,000 per tonne of installed capacity. So that is'the only company that has successfully done two HPAL plants is Sumitomo Metal Mining, and their costs to build those plants were between USD$30,000 and USD$40,000 per tonne of capacity, just to make an intermediate product that they shipped to their existing factory in Japan. So they are not going all the way to a pure Nickel Sulphate or a pure metal or a pure briquette, which is just additional costs that have to be built into it.
So this is the best case performer ' number 1. Number 2 -they are building these in the Philippines which is about, you know, lots of companies build modules in the Philippines because the construction work there is the highest productivity, lowest cost place in the world to build those things. So again, relative to Australia, relative to Europe, relative to Canada, the Philippines is a very low-cost place to build these types of operations. Unless the operation has higher grade than the operations that Sumitomo Metal Mining have built which is, you know, in the 1.3 to 1.4% range. And the reasons they built those ones were because the grade was pretty good. Two ' unless it's in a place that's cheaper to build stuff than the Philippines, then, or that they have way more infrastructure, that may be one thing that may exist in those places relative to Sumitomo Metal Mining built their operations. But, that's what you need to ask yourself to say, okay, do I believe this company's capital cost number or not?
Matthew Gordon:
Okay. That's fair enough. What you have said to me and what I have heard there is that; don't worry about Class 1 or Class 2, there's an intermediate solution which is going to be coming into the market, it's coming thick and fast. You are saying, worry about Nickel Units: there's not going to be enough Nickel to cope with the demand for Nickel. So that's a selling message. I want to help retail investors understand what are their red flags: so there's a lot of'come on ' mining is mining ' people go around: there's promoters and brokers and intermediaries, and they all go and loudly trumpet their story around the marketplace and it's not always true and it doesn't always come to be. So, what are the red flags around Nickel? What do companies need to have, or need not to have in place, because not all Nickel stories will work out. They are not all going to be economic. So, what do you look out for as an investor?
Mark Selby:
'So yes, as an investor, I think you know, one of the key things is scale and grade; you need, ideally, if you have got both
those are fantastic.
Matthew Gordon:
So what does scale mean? What do you mean by scale?
Mark Selby:
'That you can produce a sizeable amount of Nickel for a reasonable period of time, say, 20,000 to 30,000 tonnes minimum for at least 10 to 20 years. You know, that very quickly gets rid of a bunch of potential opportunities. You need to have, because again, there is the rare
project that is at an extremely low capital cost, but at the end of the day, there is a chunkier enough amount of capital that is required to get into these operations. Now, if the grade is high enough, you can get away with smaller operations; so that's the thing you need to look at. If you have both, so things like Nova-Bollinger, that was why it got acquired for USD$1.5Bn.
Matthew Gordon:
Right.
Mark Selby:
'That's why Voisey's Bay was acquired for USD$5Bn. Because it was a big deposit that had a very high grade.
Matthew Gordon:
So let's talk about grade; you talked in the previous discussion about what is grade. What is low grade, what's okay and what is high?
Mark Selby:
'Yes, so again, you would have to split that between underground and open pit. For underground, you know, 2 to 3% plus would be high grade and anything less than that would be low grade. For open-pit, high grade would be anywhere from 0.7 to 1%. Again, it depends on the strip ratio, anything lower than that would be lower grade.
Matthew Gordon:
But lower grade can work if there's enough scale to it?
"That's what you need to ask yourself to say, okay, do I believe this company's capital cost number or not?"
Mark Selby:
'Enough scale to make it work; which is what Dumont and then what we have at Crawford, that's the key there, that there are
just very large deposits in places with lots of infrastructure.
Matthew Gordon:
So what else makes you nervous? You've got scale, you've got grade, what else is there?
Mark Selby:
'Yes, so the nature of the deposits ' one. The other in terms of part 2 ' the location of the project, so you know, again, political risk and infrastructure, right? Again, it is much easier and faster to build the mine if all the infrastructure you need to build it is actually
already in place. So, there are a lot of locations that are very remote that you have to spend money and time building the infrastructure before you can start building the mine. So that's where you look at big Copper projects in the Andes, they cost USD$3Bn to USD$4Bn because you have to spend USD$1 to 2Bn to out in all the infrastructure and then you spend another USD$1 to 2BN just to build the plant, in places where there is infrastructure in place. So the benefit in a place like Dumont, or what we have at Crawford is that all the infrastructure is in place so you can just build the plant and the mill.
Matthew Gordon:
Right. Without promoting your own company too much, just more generally, what do you think investors, when they are looking at the Nickel market, when they are hearing this EV story, what else should they be looking to avoid or what should they look for?
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Mark Selby:
'Again, I think the market today is still tough for exploration and development stories. You really do ' like where you are getting the premium valuations, if you look at some of the companies in Copper and Gold, in Columbia and Ecuador, is that they have this scale that will attract, that the Majors are willing to bid for, right? So they are really breaking out as a value category so again, as I think that investors are looking for opportunities as you want to look at, is it of a scale that is going to attract the bug guys that are going to write the big cheques that are going to make you, as an investor, a lot of money, right? That, I think, is key as you are looking for opportunities. If someone has been around for 30 to 40 years, unless there's a really new take on it, again, the Majors probably looked at 10 years and then 20 years ago, 30 years ago, and they didn't but it then. So unless there is a really compelling reason as to why they should buy it now, they are really, probably not going to get there.
So that would be number one and then number 2, again, I think there is low capital, low, very quick kind of restarts, kind of Brownfield things, that you know, again, there was a track record of prior action, you don't have to worry about, will the mine work? It's worked a bunch of times before. And again, with the right team that has the experience to actually deliver it and has delivered it in the past, because they can generally get to free cashflow and use that to build the business as well. Those, to me, those are the two real paths to have a look at.
Matthew Gordon:
That's really interesting. We have spoken to a few Gold companies, a few Silver companies, even a few Uranium companies who
are employing that model. So you have got to have been there and done that before, as is the case in all of these individuals, but they are looking to get into production early.
Mark Selby:
'One of the things that again, in terms of this Class 1 and Class 2 and really around Nickel Sulphate, I think what investors need to be careful about is, you know, there is a lot of this talk about, 'Oh, we're just going to make Nickel Sulphate.' I think there are a couple of
important characteristics of Nickel Sulphate that people really need to be conscious of: so, Nickel Sulphate, you take a product, even that's only 22% Nickel, so a lot of producers are taking a pure product and then making Sulphate which is a 22% product, or even most Nickel intermediates have a Nickel content that's higher than 22%. So, you are downgrading the Nickel content and what you are shipping is a bunch of Sulphate molecules and some water. So, do you really want to do that 4,000 miles away from your nearest customer, right? Because all you are doing is you are adding a whole pile of costs to transport that material to the battery consumer.
Matthew Gordon:
Okay. So you are saying -
Mark Selby:
'It's better to ship the Intermediate closer to the market, and then process it close to where it is going.
Matthew Gordon: \
Got it. So it is Sulphates that are not necessarily as cost efficient, people may say. You need that all-in cost, as it were?
Mark Selby:
'Yes. Exactly. And so, and the other part of it too is that when you make Nickel Sulphate, one of the biggest cost components is to take the Sulphate molecules that are in solution and dry out the solution so that you crystallise it. So that requires a lot of energy, and again, in a
lot of locations, energy is not cheap. Particularly because the first step, when you send it to the person that is going to upgrade it and turn it into a usable battery product, the dissolve it again. So, in terms of the overall value chain, it is a pretty stupid process to crystallise it, ship it and then re-dissolve it again. I mean, that's what Nickel Iron integrated Stainless Steel was all about; they used to make Ferronickel, they would cool it, ship it, and the first thing the stainless-steel plant would do it melt it again, right? So the Chinese said, oh, that's stupid. And I think you are going to see the same thing happen in the EV space; a lot of the downstream players are going to find a way and I know because we had discussions with them when I was at RNC, they are going to look for ways to build onto their front-end plant so they can take a Nickel Intermediary directly into their plant, dissolve it once and make a final product that goes to the battery maker, car consumer who or however far down integrated they are.
The only time it really makes sense to make Sulphate is if you are already getting it in to solutions. So in an HPAL project, if you have leeched it, you haven't built your plant yet to make it a high-grade product, in that case, maybe, if you are close enough to somebody, that might make sense to make Sulphate rather than a pure product. The other piece that all of these companies are going to deal with is that the purity restrictions on Nickel Sulphate are going to get stricter and stricter because all the car companies want to use more Nickel, because that's what gives it the energy density. That's what gives it the range.
Matthew Gordon:
Right.
Mark Selby:
The problem is that the Nickel is also the thing that makes the battery, in combination with a couple of other things, catch fire.
Matthew Gordon:
Combustible, yes.
Mark Selby:
'So they are pretty concerned about catching fire. And so they have a bunch of systems that doesn't happen. If you have random iron atoms or cobalt atoms, or other elements that are in the product, that complicates things. So, as we go from 33% Nickel to 50%, 60%, 80%, 90%, 95% Nickel, they want stuff that is as pure as possible into the process. So do you as a mining company want to continue to invest to meet the increasing quality standards that are going to exist going forward, and I think the answer to that is no. So there is Terrafame in Finland, they leach Sulphide ore and make a profit, and they were shipping an intermediate, for them to make a Nickel Sulphate plan to supply battery manufacturers in Europe - excellent idea, right? They have already got a very complicated chemical planet, making a chemical product out of the complicated chemical plant, that is okay because you need that expertise. For that scenario that made sense, but there are literally tens of other things I have heard of that just make zero sense to me. And again, to underscore with real world, not just Mark Selby's opinion on stuff. Glencore runs Murrin pressure leach plant, you know, it's an option for them and Glencore hasn't talked to them about making Nickel Sulphate directly. They are quite happy to ship 99.8% briquettes to the end consumer who pays the premium for the briquette and then they don't have to worry about the rest of the downstream process.
Matthew Gordon:
I'm going to pick you up at a later date to talk about when you see things or companies that will worry you. I won't get you to name names but I want to understand more about those. But, Mark, thank you very much for going through that with us. We have been reading with interest, people's responses to your last piece. Thanks for that and thank you for today. Stay in touch. We should catch up soon about Canada Nickel because that is'when is that actually going to hit the market?
Mark Selby:
'Yes, we are in the final stages of the regulatory approvals.
Matthew Gordon:
That's always fun.
Mark Selby:
'We should be - oh yeah ' we should be, we're looking at hopefully the end of next week.
Matthew Gordon:
Okay. Soon?
Mark Selby:
'We'll be in a position to do that. We are in the final stretches there so next week or the week after, and again, we still need the very final from the regulators, but we are making good progress on that front. So hopefully, sooner than later.
Matthew Gordon:
Well, we will look out for it; I'm sure there will be a press release on it and people will be able to start trading Canada Nickel in the next couple of weeks by the sounds of it.
Mark Selby:
'Yes. It will be a very exciting point in time.
Matthew Gordon:
Well, come and give us an update. Sounds like a great project. I'd love to hear more. And thanks very much for your insight. Beautiful.
Mark Selby: Thank you, Matthew, glad to talk about Nickel.
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