Column: Electric dreams turn into a nightmare for battery metals
A sector that was once racing to build new supply has been closing mines and deferring projects as low prices bite into the cost curve.
Vale (NYSE: VALE) said on Wednesday it had concluded the sale of its nickel and cobalt operations in New Caledonia, a French territory in the Pacific, to a consortium called Prony, which includes commodity trader Trafigura.
While the Brazilian miner did not disclose the exact terms of the deal, it said that $1.1 billion will be invested in the New Caledonia assets, with $555 million coming from its subsidiary Vale Canada Ltd.
“Vale’s intent from the beginning of the divestment process was to withdraw from New Caledonia in an orderly and responsible manner,” chief executive Eduardo Bartolomeo said in a media statement. This deal accomplishes that.”
Vale will have a supply contract to off-take part of the nickel produced, the world’s top nickel and iron ore producer said.
The Rio de Janeiro-based miner had been on the hunt for a buyer for over a year, but the sale was complicated by the fact that New Caledonia has been debating getting its independence from France, and where nickel is one of their main sources of wealth.
Click here for an interactive nickel price chart
The South Pacific archipelago, 1,200 km (750 miles) east of Australia, was gripped by riots over the sale process of Vale’s local business last month, with protesters saying a locally-led offer had been unfairly overlooked.
Vale Nouvelle Calédonie (VNC), the operator of the troubled Goro nickel-cobalt mine, proved to be a financial burden for Vale since it began operations two years behind schedule in 2010.
Mounting issues, including a $1.6 billion-write down related to the ailing mines, pushed the mining giant to announce in 2019 its intention to exit New Caledonia.
Vale later cut its 2020 nickel production guidance to 200,000 – 210-000 tonnes per year from 240,000 tpy to account for the anticipated loss of VNC’s 60,000-tpy output.
A few weeks later, the miner revealed it had received non-binding offers for VNC, which includes the Goro mine, a processing plant and the port of Prony.
Analysts estimate the nickel market could face a shortage as soon as 2023. A recent announcement by Tesla boss Elon Musk aimed at locking supply of the metal used in the batteries that power its electric vehicles (EVs), seemed to confirm shortfall fears.
Musk promised a millionaire contract to any company able to provide Tesla with sustainable nickel, which helps cram more energy into cheaper and smaller battery packs, allowing EVs to charge faster and travel farther between plug-ins.
Sale allows operations to continue and gives Vale the right to a portion of output amid growing nickel demand.
Tesla (NASDAQ: TSLA) became a “technical adviser” at the New Caledonia nickel mine in early March. The move followed the company’s announcement that it was planning to move into the mining business to secure resources for battery production.
While Goro has the capacity to produce 60,000 tpy of nickel in the form of nickel oxide, it has never performed to full capacity due to design flaws and operational commissioning issues.
New Caledonia is the world’s fourth-largest nickel producer, behind Indonesia, the Philippines and Russia.
Vale said it will focus on base metal assets in Brazil, Canada and Indonesia.
