Metals One — First by name, first by nature

Metals One is developing the Black-Schist project in Finland and the Råna project in Norway, with the aim of becoming a key source of strategic metals to the EU. Both projects have the potential to produce ‘class 1’ high-purity nickel and are either adjacent or analogous to other world-class deposits.

Metals One was incorporated on 26 January 2021. During 2021 and 2022 it undertook a number of seed funding rounds, while optioning up project acquisitions until July 2023, when it transformed itself into its current incarnation upon completion of the acquisitions of Metals One Finland (M1F) – a Finnish based company with rights to the Black-Schist project – and Scandinavian Resources Holdings Pty Ltd (SRH) – a company incorporated in Australia with operations in Norway – for a combined consideration including 140m shares (see Exhibit 1, below). Simultaneously, Metals One listed on AIM with the issue of 44m shares at a price of £0.05 to raise £2.0m net of expenses.

At the time of their acquisitions, M1F (formerly known as Finnaust Northern Mining Oy) and SRH were largely dormant exploration companies with neither workforces nor material assets. A summary of the total considerations for their acquisitions is as follows:

Metals One acquired an existing inferred resource at the R1 target of its Black-Schist project at Rautavaara in Finland of 28.1Mt of Talvivaara-type mineralisation at a grade of 0.19% Ni (53,800t of contained metal), 0.10% Cu (27,900t), 0.01% Co (3,400t) and 0.38% Zn (180,000t). At the same time, it had a (JORC) exploration target of 16–24 Mt at its P5 target at Paltamo at grades of 0.18–0.27% Ni, 0.09–0.13% Cu, 0.01–0.02% Co and 0.33–0.50% Zn and a longer-term ambition of potentially defining up to 200Mt of resources in the area.

At almost exactly the same time as its listing, on 25 July 2023, Metals One entered into a subscription and shareholders’ agreement with Gunsynd, pursuant to which Gunsynd agreed to subscribe for such number of shares in the capital of Metals One Finland (which holds the Black-Schist project) as was equal to 25% of the voting rights of Metals One Finland, at an aggregate subscription price of £1m over four tranches of £0.25m. On 16 November 2023, Gunsynd duly subscribed for its initial 6.25% tranche for an aggregate price of £0.25m. Metals One then commenced drilling at its Black-Schist project in December.

In May 2024, Metals One raised a further £0.895m via a placing to investors of 89.5m shares and terminated the Gunsynd agreement with an option to regain 100% ownership of the Black-Schist project and fund its own work programme. As part of the termination agreement, Metals One has been granted a three-year option to re-acquire the 6.25% of Metals One Finland currently held by Gunsynd for an aggregate consideration of £0.25m (ie the consideration originally paid by Gunsynd) payable, at the discretion of Metals One, either wholly or partly in cash or shares at the greater of the placing price (1p) or the 30 day volume-weighted average price prior to exercising the option (note that such shares will be locked-in for a period of 12 months from the date of their allotment and issue).

Shortly afterwards, on 16 July 2024, Metals One announced a resource estimate of 29.0Mt of Talvivaara-type mineralisation at its P5 target at a grade of 0.18% Ni (52,000t of contained metal), 0.08% Cu (24,000t), 0.01% Co (3,500t) and 0.33% Zn (96,000t) – effectively doubling its total Black-Schist project resource (see ‘Resources’ on page 10). 

On 8 August 2023, Metals One’s Råna project partner and operator, Kingsrose Mining (ASX: KRM), announced that it had completed the acquisition and interpretation of a number of magnetotelluric geophysical surveys (Spartan MT) at the Rånbogen prospect. These are significant, as Spartan MT surveys are able to identify areas of low resistivity (high apparent conductivity), which may represent nickel-copper-cobalt sulphide mineralisation. Highlights of the surveys included:

As a result, Kingsrose put in place a programme of ground-based and downhole electromagnetic (EM) surveys in order to accurately identify drill targets and switched its drill rig to a helicopter portable system, such that it could be easily transferred from the Bruvann mine to Rånbogen to test the conductive targets. Drilling started shortly thereafter and highlights from its 5,000m diamond drilling programme are shown below. In general, the results confirmed the presence of high-grade, semi-massive, nickel-copper-cobalt sulphide mineralisation and a broad zone of disseminated sulphide mineralisation at Bruvann, located within the Arnes prospect, while demonstrating that mineralisation in the area is also open along strike from existing mine infrastructure. The results included:

To date in 2024, Kingsrose has performed mapping and geophysical surveys in order to generate a pipeline of drill targets and recommenced drilling in August via a contractor, Arctic Drilling AS, focused on two targets, comprising shallow, highly conductive EM anomalies immediately down dip from mineralised nickel-copper-cobalt massive sulphides at surface.

Metals One’s two projects – Black-Schist (comprising the Paltamo and Rautavaara areas) and Råna – are strategically located within Europe’s Nordic region, in Finland (an EU member state) and Norway (an EEA and EFTA state, but not within the EU). Via the ports of Helsinki and/or Oulu in Finland, in particular, and Lulea and/or Pitea in Sweden, it has access to the Baltic Sea and thence, via the north German ports, to the heart of the German auto-manufacturing industry. Via the northern Norwegian port of Narvik, it also has access to the Atlantic basin and markets further afield.

In terms of local geography, the Rautavaara (R1) and Paltamo (P5) prospects are located in the Northern Savonia and Kainuu regions of eastern Finland, respectively. The regional mining and processing centre at Sotkamo lies between the two project areas approximately 90km north of Rautavaara and 50km south of Paltamo. The regional city centre of Kuopio (population 120,000) is approximately 100km south of Rautavaara, while the port of Oulu (population 210,000) is approximately 145km north-west of Paltamo. There is a regional commercial airport at the Kainuu regional capital of Kajaani (population 36,000), 43km south-west of Paltamo. The two project areas of Paltamo and Rautavaara are separated by the Talvivaara mine, operated by Terrafame.

The Precambrian Fennoscandian Shield is the most richly endowed area of mineral resources in Europe, and Finland currently has over 40 mines producing metallic ores and industrial minerals. Base metals, gold, platinum group metals and industrial minerals are the main commodities extracted and the mining industry is a significant contributor to Finnish GDP. As a result, Finland is one of the most active countries in Europe, in terms of mining, with at least 40–50 companies engaged in mineral exploration. There is also a significant mineral processing industry, which includes nickel, copper, zinc, cobalt, ferrochrome, steel and stainless steel.

A large amount of detailed geological information on the Black-Schist project, specifically, and the Kainuu Schist Belt, generally, is contained within CSA Global’s competent person’s report, dated 18 July 2023 and hosted on Metal One’s website, of which the following is a very abridged summary.

The Geological Survey of Finland (GTK) carried out detailed work in the Talvivaara–Rautavaara area from 1979 to 1984. Initially, this comprised five reconnaissance diamond drillholes completed over 879m at Rautavaara (average 176m/hole), which intersected wide zones of low-grade sulphide mineralisation within Black-Schist material. Other work included ground magnetics, slingram EM and gravimetric surveys and airborne magnetics and EM flown on a 200m east-west line spacing in 1983. GTK also conducted regional bedrock mapping in 1996. Between 2009 and 2010, detailed magnetic surveys were completed over the Rautavaara R1 (Pappilanmaki) prospect by Western Areas and Magnus Minerals (FinnAust). Given that it gave a magnetic response, the pyrrhotite contained in the sulphidic black shales thereby allowed potential direct targeting of sulphide targets and six target areas (R1 to R6) were thus duly identified. Subsequent drilling by FinnAust between 2009 and 2011 resulted in a further 57 drillholes primarily at the R1 target from 7,520m of drilling (average 132m/hole). From the results of this drilling, a mineralisation and geology envelope was determined with an apparent folded strata of mineralised black shale around a core of highly altered and deformed serpentinite interpreted to represent a peridotite ultramafic fragment.

The nickel-zinc-copper-cobalt mineralisation is strata-bound, hosted within the high-grade metamorphosed and intensely folded Black-Schist. The main mineral assemblage in the Black-Schist is quartz, mica, graphite and sulphides. Accessory minerals include rutile, apatite, zircon, feldspar and garnet. At least three stages of ductile folding have been discerned, which was the result of the regional Svecofennian closure that has resulted from the formation of isoclinal folding along the belt.

Pyrite and pyrrhotite are the dominant sulphide minerals within the Black-Schist deposits at Rautavaara, similar to the Talvivaara deposit. The sulphidic nickel-zinc-copper-cobalt deposits are hosted by highly sulphidic-graphitic muds and turbiditic wackes, which have undergone a high degree of metamorphism. Pyrite, pyrrhotite, chalcopyrite, sphalerite, alabandite and pentlandite occur both as fine-grained disseminations (<0.01mm) and as coarser grains in quartz sulphide veins. In the mineralised Black-Schist, spheroidal fine grained (<0.01mm) pyrite contains more nickel and less cobalt than in the coarse-grained pyrite.

Recent results from Metals One’s eight diamond drillholes at the R1 Hook target within the Rauta 9-11 licence area of the project identified significant intersections of mineralised black schists in all eight holes, while also demonstrating geological continuity with the company’s existing resource at R1 (see Exhibit 8). A total of 1,551m (average 194m/hole) were drilled along what, according to ground and airborne geophysical surveys, appeared to be a fold structure to the east of the company’s existing R1 resource. Highlights of the programme were:

The best thickness and grades were intersected on the eastern limb of the main R1 Hook fold. This observation, together with confirmation of the synformal nature of the limb, dipping steeply to the south, suggests significant potential for further mineralisation to the east, beyond the boundary of the company's existing permit. As a result, Metals One has lodged a reservation to secure this area, known as Kirkkosuo (see Exhibit 7), with the intention of confirming the extension of the structure and mineralisation with a limited diamond drill programme in due course.

GTK carried out detailed work in the Paltamo area from 1972–82. Work included base of till geochemical sampling, ground magnetics, slingram EM and gravimetric surveys and airborne magnetics and EM flown on a 200m east-west line spacing in 1982. Regional bedrock mapping was also performed by GTK in 1990–99. FinnAust subsequently drilled 5,911m in 25 drillholes (average 236m/hole) on the P5 target area from 2010–12 and intersected copper-cobalt-zinc-nickel mineralised black shales. Some of the more notable intersections within the mineralised black schist were:

Until Metals One’s acquisition of the licences in July 2023 however, no further exploration activity nor ground geophysical surveys had been performed since 2012 and no airborne EM surveys had been flown over the property since 1982.

The P5 JORC exploration target was originally estimated by a previous permit holder using portable XRF measurements correlated to a sample of chemical assays. However, it did not assay several of the mineralised intersections in the cores, which resulted in a lower category JORC exploration target of 16–24Mt. Hence, Metals One’s assessment of the P5 JORC exploration target historical data suggested an opportunity to increase the volume of, and confidence level in, this mineralised structure. Consequently, its work programme focused on elevating the confidence levels in P5 by completing the chemical assays of all mineralised intersections of the 5,911m drilled across the target, which subsequently enabled it to commission Mining Plus to produce a new mineral resource estimation, underpinned by the more accurate data (see ‘Resources’ on page 10).

Significantly, previous explorers, including GTK, had intersected similar mineralisation elsewhere along the belt, suggesting geological and grade continuity, which offers the potential for further expansion of the P5 resource and the development of other targets within the belt.

Exploration by Kingsrose during 2023 demonstrated the discovery potential of Råna. By applying a new geological model, coupled with modern geophysical techniques, it has discovered new mineralised bodies at Rånbogen and Malmhaugen and blind mineralisation within ultramafic intrusive rocks extending beneath the gneiss country rock at Bruvann in an area previously considered as un-prospective. Key geological features identified at Råna include:

Work by Kingsrose to date has only covered a small area of the intrusion, with a number of high-priority targets remaining to be tested, including:

Metals One’s original licences in Norway and Finland are shown below:

In Q423, the company undertook a regional assessment of the Kainuu Schist Belt to identify additional mineral targets. Via an analysis of historical assays and geophysical data, and by applying its prospectivity model, it identified several targets in proximity to its existing R1 resource in Rautavaara and P5 target in Paltamo, which it quickly secured with the submission of three additional exploration applications and four reservation applications, representing a total area of 15,004.13ha (cf 704.37ha under its existing licences in Exhibit 6, above).

In contrast to the image of Europe as being bureaucratic and hostile to extractive industries in its permitting regime, Metals One reports that all of its applications were processed within a timeframe of just two months. Having recently completed a community roadshow, it also reports that the two communities most local to its Black-Schist project are hugely supportive of the company and the project with respect to permitting and re-zoning.

On 16 July 2024, Metals One announced a maiden JORC inferred mineral resource at the P5 area of 29Mt to more than double the overall resource at its Black-Schist project in Finland to 57.1 Mt:

The increased resource will now form the basis of a PEA on the upgraded project, to be led by Wardell Armstrong International, which is expected to be completed in Q424.

Having doubled its resource earlier this year, Metals One has announced that it has awarded the contract to undertake a formal PEA for the Black-Schist Ni-Cu-Co-Zn project to Wardell Armstrong (WAI), a long-established British engineering and environmental consultancy. WAI will commence work on the PEA immediately and it is expected to be completed in Q424.

The primary aim of the PEA is to evaluate the economic viability of the project based on resources contained within the R1 and P5 deposits and to deliver an early level study that includes a preliminary economic evaluation of the Black-Schist project. Among other things, the PEA is expected to identify:

Once completed, the PEA will form the basis of the company’s application for Strategic Project status under the EU Critical Raw Materials Act. In this eventuality, it would be eligible for fast track permitting and grants for non-dilutive funding (see ‘Financials’ section, below).

From Exhibit 3, it can be seen that by far Metal One’s closest analogue, from a geographical perspective, is Terrafame. Terrafame has Europe’s largest nickel ore reserves and uses a bio-heap leaching process to produce battery chemicals and, in particular, nickel sulphate. Resources are estimated to be sufficient to support production for 50–60 years.

The roots of Terrafame’s operation date back to 1977, when the GTK discovered a substantial ore deposit in the region. After been reconnoitred by Outokumpu in the 1980s, the deposit was eventually put into production on 1 October 2008 by Talvivaara Kaivososakeyhtiö Oyj. After a number of environmental breaches, the Finnish government founded Terrafame and took control of the mine in 2015. After considering closure, it instead refinanced the mine in 2016 and sought external financing from Trafigura in 2017 (which has subsequently been converted into equity), at which point the decision was made to focus on the production of EV battery chemicals rather than metallic nickel for the stainless-steel market. After the requisite construction period, Terrafame started the ramp-up of the battery chemicals plant in June 2021 and, shortly afterwards, signed its first large-scale co-operation agreement to supply nickel sulphate to Renault for more than 200,000 EVs per annum. This was followed, shortly afterwards, by similar agreements with Stellantis (Chrysler-Fiat-Citroen-Vauxhall etc) and Umicore.

Production in 2023 was close to the previous year’s record level in terms of both stacking ore and nickel production, despite disruptions from higher than average rainfall and a period in which the plant ran at reduced capacity owing to a halt in the Chinese battery market and the fall in the price of battery chemicals.

Exhibit 9, below, makes a comparison between Terrafame and Metals One on the basis of their resources and also demonstrates the latter’s potential earning power relative to the former on the basis of their supposed mining rates. For these purposes, we have assumed that Terrafame is capable of producing c 65,955tpa contained nickel over 55 years and that Metals One is capable of producing 5,400tpa contained nickel over c 20 years at a rate of 3Mt mined ore per annum from a series of shallow (c 200m) pits – the difference between the two being a factor of 12.2x.

Among other things, Terrafame’s multi-year agreements to supply low-carbon and fully traceable nickel sulphate for use in EV batteries to Renault, Stellantis and Umicore mark the first steps towards the development of a robust, transparent and sustainable European battery cluster. Also in June 2023, Terrafame signed an agreement with Fortum to develop a pilot operation to use metals recycled by Fortum from EV battery black mass in Terrafame’s battery chemicals production. Under the terms of the agreement, Fortum will supply Terrafame with nickel and cobalt recovered from used EV batteries at the Harjavalta recycling plant, which Terrafame will then use to produce battery chemicals for new EV batteries. The aim of the project is that, by 2029, 6.9% of the nickel sulphate produced by Terrafame will be derived from recycled material (above the 6% level required by the EU Batteries Regulation blending obligation). At the end of their useful lives, the batteries will then be recycled again, thereby closing the cycle of recovered raw materials.

With net assets of £8.8m attributable to shareholders, we calculate that Metals One had a book value per share of 4.24p as at end-FY23 and that it will have a book value, as at end-FY24, of 2.56p/share, to which its shares are currently trading at a significant 80.3% discount. While it is possible for the shares of junior metals explorers to trade at a discount to book value, we would observe that this is quite rare and that the discounts are also, on average, quite small. Within this context, it is also worth noting that the overwhelming majority of Metal One’s assets and net assets are accounted for by its exploration assets and its investment in associates (ie SRH).

At a share price of 0.504p, Metals One’s market capitalisation is £1.8m, or US$2.3m, giving it a forecast enterprise value of £1.1m, or US$1.4m as at end-FY24. With contained resources of 105.8kt Ni, this equates to a resource multiple of US$14.17 per attributable tonne of in-situ resource nickel. This compares with the average in-situ value that we calculated in our report Gold stars and black holes, published in January 2019, of 0.15% of the spot price of nickel, which, at the current price of the metal, equates to US$24.41/t. As such, Metals One’s rating is at a 42.0% discount to the global average, notwithstanding the location of its resources in one of the world’s premier global mining destinations (see Exhibit 10, below) and/or the potential for their expansion.

Also in Gold stars and black holes, we calculated that companies with completed preliminary economic studies commanded valuations between -4.8% and 50.7% of attributable project NPV, with an average of 11.7% (see Exhibit 166 on page 82 of the report). On that basis alone, we would regard Metals One as justifying its current share price in the event that the NPV of its PEA is US$12.0m. Once again however, this calculation affords no premium for the fact that the company’s project is located in Finland. According to the Fraser Institute, Finland is the most attractive destination for mining investment in Europe and ranks in the top quartile of jurisdictions, globally, on a par with the Yukon and above Idaho, British Columbia and the Northwest Territories:

The mean Fraser Institute investment attractiveness score for all jurisdictions is 56.56, which is between the scores for Serbia and California (in Exhibit 10, above). If this is deemed to attract an average valuation of 11.7% of attributable NPV, and the top and bottom halves of the sample are presumed to attract valuations with respect to the average and pro rata to their scores, then a company with an average project in Finland at PEA stage of development may be expected to attract a valuation of 34.0% of attributable project NPV. Adjusting for sovereign risk in this way (as well as PEA stage of development), we would regard Metals One as justifying its current share price in the event that the NPV of its PEA is only US$4.1m. By extension, anything higher would imply potentially significant upside.

The agreement between Metals One and Kingsrose allows for the latter to earn up to 75% in SRH via the staged expenditure of up to A$15m in the Råna project in Norway over eight years. In addition to its expenditure commitments, Kingsrose will also issue 4.5m Kingsrose shares (currently worth A$0.2m at a Kingsrose share price of A$0.035) and pay A$1.0m in cash to SRH in stages.

While Kingsrose might appear to have the typical profile of a junior metals’ explorer, in fact it had A$26.23m in cash as at end-June 2024 and is one of BHP’s preferred exploration partners having entered into a series of exploration alliance agreements with the major in May, whereby BHP will provide funding for regional mineral exploration in northern Norway and central and southern Finland. Kingsrose has specifically excluded Råna from the agreement. In summary however, the alliances will proceed in three stages being, firstly, a Project Generation Phase, during which BHP will sole fund up to US$20m in regional generative exploration over up to four years across belt scale areas of interest in Norway and Finland for the exclusive right to select targets to become Defined Projects. Following the Project Generation Phase is an Earn-In Phase, during which BHP may earn up to 75% in any or all Defined Projects in two stages by sole funding a further up to US$36m in exploration over the next seven years. Finally, during the Joint Venture Phase, BHP will have the right to establish a joint venture over any Defined Project, jointly funded by both parties, pro rata. During the final stage, should either party’s interest fall below 10%, its interest in the joint venture will be converted into a 2% net-smelter royalty. BHP will allocate A$7.75m to exploration activities prior to 31 March 2025. Kingsrose will operate the alliances during the Project Generation and Earn-In Phases and will be entitled to charge a management fee to cover overhead costs associated with the alliances.

Metals One had net cash of £0.8m on its balance sheet as at end-FY23. Since then, we calculate that it has raised £1.2m net of expenses via the issue of equity. Assuming that it burns cash in FY24 at approximately the same rate as in FY23 (ie c £1.0m pa), we estimate that it will have net cash of c £0.7m on its balance sheet as at end-FY24 and that it will probably therefore return to the markets to conduct a placing in H125 in the aftermath of the publication of its Black-Schist PEA.

In January 2024, EIT InnoEnergy (supported by the European Institute of Innovation & Technology, EIT) and Demeter Investment Managers launched a fund dedicated to the development of a resilient and diverse battery raw material supply chain in Europe. With an initial target size of €500m, the EBA Strategic Battery Materials Fund is intended to build upon the success of the European Battery Alliance (EBA250) in its mission to create a resilient European battery industry. In its own estimation, the fund has been launched in an environment of ‘soaring’ European demand for batteries, which is exposing ‘significant’ gaps in the upstream mining and processing sectors of the EU’s battery material supply chain. In line with the EU’s Critical Raw Materials Act’s requirements to decrease the EU’s overreliance on foreign supply, the fund aims to boost domestic capacity for strategic battery materials, including lithium, nickel, cobalt, manganese and graphite. Consequently, at least 70% of investments from the EBA Materials Fund will be dedicated to projects increasing EU domestic production from mining, processing, refining and recycling in EU and neighbouring countries and it will be able to take positions of up to 20% in publicly listed companies. In contrast to its goal however, there is currently something of a dearth of qualifying projects in Europe. In this respect, the Black-Schist project’s PEA will be transformative in that it will form the basis of the company’s application for Strategic Project status under the EU Critical Raw Materials Act, making it eligible for funding from the fund as well as fast-track permitting and grants for non-dilutive funding.

Since 1950, nickel demand has increased by c 4% per annum (in excess of world GDP growth), primarily driven by 6.1% per annum growth in stainless steel output, which accounts for approximately 70% of demand. One of the earliest applications of nickel was the production of armour plate and, as a result, nickel came to be regarded as a strategically important metal by both the Eastern and Western blocks during the Cold War. All nickel in the United States was put under US government control during the Korean War and, from 1951 to 1957, it acquired nickel for the national strategic stockpile. Consequently, there was a severe shortage of nickel at the time for civilian purposes and prices rose gradually from 1950 to 1957 – four years after the ceasefire. A period of oversupply then followed during which quoted producer and merchant prices for nickel stagnated.

In 1966, Western Mining discovered nickel sulphide mineralisation at Kambalda in Western Australia, triggering an extensive exploration boom. Two years later, in 1968, the start of a prolonged series of labour strikes effectively shut down the Canadian nickel, copper and iron ore industries. At the time, Canada was by far the world’s largest producer of nickel, with Falconbridge and Inco alone accounting for 48% of world output. In addition, the strikes occurred at a time when global stocks were low and demand was restricted by available supply. As a result, the nickel price appreciated 43% in 1968 and then again in 1969, when Canadian output dropped by a further 20%.

This marked a seminal point in the history of nickel in that it prompted a sharp increase in the exploration and development of known nickel deposits – especially laterites – and in 1970 projects equating to 42% of total contemporary production were proposed. Nickel prices rose slightly from 1970 until 1975. However, between 1969 and 1974, new mines and processing plants were commissioned in Australia, Canada, the Dominican Republic and New Caledonia. In reality, only 71% of the expected increase in production in 1970 was ever realised. Nevertheless, the cumulative effect of these new production facilities eventually began to be felt at a time when demand was weakening (partly as a result of the cessation of US military operations in Vietnam). Finally, the Soroako mining and smelting complex was commissioned on the island of Sulawesi in 1977. Higher production therefore coincided with slower economic growth in the western world in the aftermath of the first oil shock and combined to reduce nickel prices sharply. This weakness was maintained until the Inco strike of 1978–79.

The effect of the Inco strike was compounded by the fact that major producers had been operating at only 55–60% of capacity to reduce inventories. During 1979, Inco raised its Port Colborne price for cathode six times. However, this strength proved to be only a brief respite from the more general environment of oversupply and prices quickly resumed their downward trend. Under the influence of the second oil shock (1979–82), demand for nickel fell 8% in 1981 alone – the first time since the 1940s that demand had declined for two consecutive years.

Prices remained low until 1986, during which time producers reduced world production capacity and at least five operations were closed. In the following two years, however, they staged a remarkable turnaround, rising from their lowest ever real price in 1986 to their highest level of the century in 1988, when the market suffered the first of three major liquidity traps when the London Metal Exchange (LME) official ring descended into chaos as one trader bid up the cash price from US$10,000/t to US$15,000/t with not a single offer. Trading was subsequently suspended, while the LME board held an emergency meeting. Owing, as it did, more to a transient shortage of stainless steel scrap at a time of increased demand than to underlying supply-demand fundamentals, the price quickly corrected and, although western demand for nickel grew continuously between 1985 and 1991, the LME price declined every year from 1988 until 1994.

The collapse of the Soviet Union in 1989 and the subsequent downsizing of its military-industrial complex caused its nickel demand to plummet from 180,000 tonnes in 1989 to just 20,000 tonnes in 1997 and 18,000 tonnes in 1998 (when the South-East Asian currency crisis erupted). In addition, there was a sharp increase in Russian exports of stainless steel scrap to the European Union, leading to a rise in nickel supply into the western markets from former communist countries. While this excess supply was absorbed into the market until the mid-1990s, it maintained an effective cap on the nickel price with the result that, by the end of the decade, there had been no new greenfield developments of nickel projects since 1986. At this point, the development of high-pressure acid leach (HPAL) technology was transforming the apparent economics of production from nickel laterites and new projects equating to approximately 12% of worldwide production were proposed – mostly in Australia.

While these initially had a depressing effect on the nickel price, the cumulative effect of a lack of investment in productive capacity for more than 10 years at a time when demand from the emerging economies of China and India was soaring, caused nickel prices to leap from under US$6,000/t in 2001 to almost US$55,000/t in 2007 in the second major short squeeze of the post-war age. This move was further exacerbated by below-par production from the proposed laterite projects of the late 1990s, which were at least partially responsible for keeping the market undersupplied.

From a deficit of 41,000 tonnes (approximately 3% of supply) in 2006, the nickel market returned to a surplus of 37,200 tonnes in 2007 as a result of the stainless steel industry cutting back production levels and thereby reducing demand by around 2% and causing prices to drop by almost two-thirds to 2009 – exacerbated by conditions in financial markets – before retracing approximately 38% of their fall in 2010–11. Thereafter, however, prices resumed their slide, dipping below US$10,000/t in 2016 as the world grappled with the aftermath of the global financial crisis, before stabilising once again in 2018–20 prior to the COVID-19 pandemic, albeit at levels that did little to incentivise new productive investment in the sector.

In common with many other metals, nickel had a relatively buoyant pandemic as concerns about reduced demand from China quickly gave way to concerns about reduced supply from China. In anticipation of a subsequent increase in supply from Indonesia, however, a number of market participants were induced to take on large short positions towards the end of the pandemic as a hedge against falling prices. When Russia unexpectedly invaded Ukraine and threatened to compromise large Russian exports of nickel from Norilsk to the West, the market instead spiked, causing a number of shorts to have difficulty in delivering physical metal and to miss subsequent margin calls amid extreme price volatility as the price was briefly squeezed over US$100,000/t. In the end, trading on the LME was suspended for over a week and some US$12bn in orders were cancelled in nickel’s third major short squeeze of the post-war era. Since then, prices have settled back to a level they first hit in late 2003 in the run-up to the 2007 crisis, at c US$16,276/t.

With the effects of the March 2022 short squeeze now waning, the market is forecast to revert to a condition of surplus in 2024. In response, however, some of the largest (especially laterite) projects of the new millennium, such as Koniambo, Ravensthorpe and Goro, are now either transitioning to care and maintenance, closing or seeking new funding, holding out the possibility that any condition of oversupply will be short-lived.

Both nickel sulphides and nickel laterites have been mined and processed for over a century. Technologically, however, while often deeper, nickel sulphides have proved to be much the easier ores to process. In particular, their ability to produce a floatation concentrate reduces the size of the facilities required to treat the ore. Geologically, however, sulphide replenishment has lagged rates of ore depletion for several years, with the result that they account for only 27–40% of known resources and, unless new major discoveries are made soon, sulphide production appears destined to decline in both relative and absolute terms. Thus, whereas production of nickel from laterites accounted for less than 10% of the total in 1950, it accounted for 28% in 1968, 42% in 2003 and 58% by 2013. Some sources put its current contribution to global supply as high as 70%, although note that 70% of Class 1 nickel, containing 99.8% Ni, is still produced from sulphide ores.

Nickel laterites are the product of intense tropical weathering of ultramafic sulphides into oxide layers and fall into two broad categories. To date, the most commonly exploited have been the saprolite (or silicate) laterites, which are amenable to standard pyrometallurgical processes. The second type, which are amenable to HPAL techniques, are limonite ores, which are high in iron.

Laterites are almost invariably found at shallow depths in large, flat, tabular deposits. However, the weathering process (which is ultimately responsible for concentrating the nickel) also leads to variability in the thickness, grade, chemistry and mineralogy of the ore body. In extreme conditions, this may require a different processing method for each of the layers of mineralisation. In addition, laterites tend to be located in remote areas, which require a large amount of initial infrastructure development. While saprolites are conducive to traditional processing via standard techniques, processing limonite laterites is via one of two methods, historically via the Caron process or, more recently, via HPAL.

In the Caron process, residual moisture in the ore body has to be driven off before the material is calcined and melted at c 1,600°C. As a result, the process is both highly energy intensive and highly capital intensive (as well as having high reagent costs). Moreover, only limited upgrading of laterite ores is possible before processing and the plant, tailings and slag deposition areas must therefore be scaled for large tonnages. Finally, nickel recoveries are relatively low and most laterite smelters do not recover cobalt, which is a valuable by-product. As a result, the Caron process is not now regarded as an economically viable method of bringing nickel to the market, with Moa Bay in Cuba being the only large-scale operation in the world still using this method of processing.

By contrast, the exploitation of limonite laterites depends on the HPAL process. This involves leaching the ore in sulphuric acid at an elevated temperature of c 270°C and a pressure of c 600 pounds per square inch (c 41 atmospheres) in titanium-lined autoclaves. Having been effectively solvent-extracted, the nickel is then electro-won from solution by standard hydrometallurgical processes, with typical recoveries in excess of 90% of the nickel and cobalt contained in solution. To date, however, almost none of the deposits brought into production using the HPAL technique have lived up to their initial design specifications. The problems have been multifarious, ranging from a surfeit of clay (making leaching difficult) to unsuitable materials being chosen for the high-temperature, high-acid environment of the plant. As a result, only about 61% of the new laterite capacity envisaged in the late 1990s has been realised. Moreover, far from being the low-cost producers that they were forecast to be, cost overruns have meant that the HPAL producers have tended to occupy the upper, rather than the lower, reaches of the historical cost curve. Nevertheless, since they account for the majority of known nickel resources (within which there is approximately twice as much limonitic, HPAL amenable-type ore as saprolitic pyrometallurgical type ore), production from laterites – especially from HPAL limonites – seems destined to have a significant impact on the supply of nickel in the future.

Globally, more than c 2.5Mt of primary nickel is produced and used annually in the form of nickel metal, ferronickel, nickel oxides and, increasingly, other nickel chemicals. Nickel is also readily recycled in many of its applications, and large tonnages of secondary or ‘scrap’ nickel are used to supplement newly mined metal.

Primary nickel production is generally divided into two main product categories: Class 1 (containing 99.8% Ni) and Class 2 nickel (containing less than 99.8% Ni). Class 1 nickel accounts for c 40% of primary nickel production and comprises a group of products including electrolytic nickel metal, powders, briquettes and carbonyl nickel. Class 2 nickel comprises ferronickel and nickel pig iron (NPI, c 10–15% nickel), which typically have a lower nickel content and are used in the production of stainless steel, in which producers take advantage of the inherent iron content of their product to accept an iron-rich nickel alloying agent. China began producing NPI in 2005 in different forms and grades and this has displaced significant volumes of traditional products such as nickel metal and stainless steel scrap in the manufacture of stainless steel in China and Indonesia, in particular.

Stainless steel production continues to make up c 70% of nickel’s demand applications. As with a number of other commodities, however, the prospect of a global transition to a low carbon economy holds out the prospect of rapid growth in what has hitherto been a niche area of the market. Although electric vehicle (EV) market share is still small relative to that for traditional vehicles, it is likely to increase in the coming years as major economies transition away from fossil fuels towards clean energy. President Joe Biden has signed an executive order requiring that 50% of all new vehicle sales in the US be electric by 2030. China, the world’s biggest EV market, has a similar mandate set at 40%, while the European Union is also seeking to have at least 30m zero-emission vehicles on its roads by then. According to the International Energy Authority’s (IEA’s) Global Electric Vehicle Outlook, if governments are able to ramp up their efforts to meet energy and climate goals, the global EV fleet could reach as many as 230m by the end of the decade (cf c 20m currently) and mineral demand would need to grow by c 30 times by 2040 to meet the various governments’ climate goals. As such, EV sales are expected to experience a compound annual growth rate of c 40% per year until the end of 2025, when EV penetration is expected to reach 15%. After that, EV market share is expected to rise further, reaching 35% by 2030.

Within this context, nickel will benefit not only from increased EV sales and market penetration, but also from an increased proportion of nickel contained in the batteries required to power them. Two lithium-ion battery chemistries dominate the market for EV batteries, namely nickel-manganese-cobalt (NMC) and nickel-cobalt-aluminium (NCA). NMC battery chemistry is used by almost every automobile manufacturer in the world except Tesla, which uses NCA chemistry. Either way, however, nickel is used to increase energy density in a battery, while cobalt is used to increase its stability. As a result, research suggests that, in the immediate future, the evolution of the NMC lithium-ion battery will be towards a more nickel-rich cathode. Hence, whereas NMC battery chemistry started at a 1–1–1 ratio of nickel-manganese-cobalt, it has evolved into a 5–3–2 ratio, and in the future, as technology advances, it is expected evolve further to a 6–2–2 ratio and then an 8–1–1 one. At c 45kg of nickel per vehicle, this suggests that demand for nickel from EV lithium-ion batteries could increase from c 70,000t (or c 3% of the market) in 2018 to c 600,000t (or 24% of the market) by 2025. Thus, in the longer term, the IEA predicts that growth in demand for nickel from clean energy applications in 2040 could be as high as 7–19x its level in 2020, which compares with 13–42x for lithium, 8–25x for graphite, 6–21x for cobalt, 3–8x for manganese, 3–7x for rare earths and 2–3x for copper.

Lithium-ion batteries utilising nickel-rich cathodes require high-purity nickel, typically in the form of nickel sulphate. As the main feed for EV battery cathodes, nickel sulphate is currently manufactured by dissolving Class 1 nickel in sulphuric acid. Initially, it was thought that only the nickel ores that went to make Class 1 nickel products (ie sulphide ores) could be used to make the nickel sulphate on which NMC lithium-ion batteries depend. Last year, however, Harita Nickel became the first company in Indonesia to announce that it had processed lateritic ore into a mixed hydroxide precipitate (MHP) via HPAL, which is an alternative route to nickel sulphate for the battery industry. Another alternative is the use of nickel matte (c 70–80% nickel) and, in 2022, China’s CNGR Advanced Materials announced that it is to invest in three new projects in Indonesia to produce nickel matte, adding to the two nickel matte projects that it already has on the island of Sulawesi. However, the process is highly energy-intensive and polluting and almost invariably fails to meet western ESG standards. According to international consultant Wood Mackenzie, the extra pyrometallurgical step required to make battery-grade nickel from nickel matte adds to the energy intensity of NPI production, which is already the highest in the nickel industry at c 40–90t CO2 equivalent per tonne of nickel for NPI, compared to less than 40t for HPAL and less than 10t for traditional nickel sulphide processing routes.

It is unlikely that this new capacity will reach western markets since much of it is subject to offtake agreements. Indonesia is the world’s largest producer of nickel, with 43 smelting facilities in operation, 28 under construction and 24 more being planned and accounting for approximately half of global production. After it banned exports of raw nickel ore in 2020, China’s NPI producers started investing in upstream processing capacity in Indonesia itself. As a result, Indonesian NPI is now being used as a feedstock for China’s stainless steel industry and represents the largest volume category of trade between the two nations. Similarly, China’s nickel matte imports have increased sharply (with Indonesia accounting for 93% of the total), while imports of MHP have quadrupled from c 0.34Mt in 2020 to 1.32Mt in 2023, of which 63% originated in Indonesia.

While the expansion of Indonesian capacity may put a cap on the price of nickel, the government official overseeing the industry is reported to have stated that, while prices were unlikely to rise above US$18,000/t in the foreseeable future, neither should they drop below US$15,000/t, being the price at which Indonesian smelters would be forced to cut production.

Since 1945, by Edison’s interpretation, the nickel price has experienced 16 bull markets (of which four were long and seven were large – defined as being an overall upward movement of more than 50% in aggregate) and 16 bear markets (of which three were long and seven were large – defined as being an overall downward movement of 33.3% in aggregate). In percentage terms, the largest bull market occurred between 2001 and 2007 (see Exhibit 14) and resulted in a 533% increase in the price of nickel, while the largest bear market occurred between 1988 and 1993 and resulted in a 62% decrease in the price of nickel (see Exhibit 12). Over the entire period of 78 years, from 1945 to the present, the price of nickel has risen, on average, by 4.1% per year (geometric average), which compares with a 3.7% average rate of US CPI inflation over the same timeframe. Since January 2002, the rate of nickel price performance has accelerated to an annual average of 4.8% pa although, at the current time, bear market conditions appear to be prevailing in the ongoing aftermath of the March 2022 crisis:

On average, each bull market increased the price of nickel by 79.0%, while each bear market decreased it by 27.0% (simple averages). Taking the (average) price of US$25,617/t in 2022 to be the most recent peak of a bull market, an average bear market decline would see the price bottom out at US$18,697/t (which it has already surpassed), while a bear market to match the worst in post-war history (1988–1993 in the aftermath of the 1988 crisis) would see it bottom out at US$9,820/t. By contrast, if 2024 proves to be the nadir of the current bear market, then an average bull market price rise should see the price recover to US$30,560/t over the course of the next two and a half years.

Between 1945 and 2023, the average real price of nickel has been US$19,400/t and, with the exception of the crises in 1988 and 2007 and briefly in 2022, has rarely moved more than ±US$10,000/t from that average level (the standard deviation of prices about the mean being US$9,476/t).

On average, each bull market increased the (real) price of nickel by 66.9%, while each bear market decreased it by 27.3% (simple averages). Taking the (average) price of US$28,210/t in 2022 to be the most recent peak of a bull market, an average bear market decline would see the price bottom out at US$20,502/t (which it has already surpassed), while a bear market to match the worst in post-war history (1988–1993 in the aftermath of the 1988 crisis) would see it bottom out at US$8,797/t in real 2024 US dollar terms. By contrast, if 2024 proves to be the nadir of the current bear market, then an average bull market price rise would see the price recover to US$28,502/t in real 2024 US dollar terms over the course of the next two and a half years.

The production of nickel is extremely energy intensive. If the price of a barrel of crude oil can be considered a proxy for energy input costs generally – which it could historically – then it might be expected that there would be a close correlation between the price of nickel and the price of crude oil. This is indeed the case, with a regression analysis between the two returning a Pearson product moment (correlation) coefficient between the two of 0.85 (on a scale between +1 and -1) for the period from 1945 to the present.

As a result, the future price of nickel can also be estimated in terms of the future price of crude oil by using regression techniques, of which the following is a summary:

Given the number of data points in this analysis, the result can be said to be statistically significant; that is, there is less than a 5% probability that the observed relationship occurred as a result of random chance. However, it remains to be seen whether the correlation will be maintained if the world transitions to net-zero carbon, in which case we may see the nickel price begin to correlate to a new proxy for energy costs in the future (eg lithium). In the meantime, for nickel to rise back to its long-term real average price of US$19,400/t would require an oil price of US$85.03/bbl (cf US$81.07/bbl at the time of writing).