The Nickel Explosion - scdn.caseyresearch.com

The Nickel ExplosionBy David Forest, Editor, Strategic Investor

How to Multiply Your Money on Tesla’s New Battery

2

THE NICKEL EXPLOSIONStrategic Investor

Dear Strategic Investor,

The world is changing. I am a geologist by trade, and I’m used to people not being interested in resources… But lately, I’ve been really into tracking Tech Fuel – the resources that power the latest tech megatrends. And for the first time in a century, we’re seeing world-altering industrial trends unfolding in the U.S… And all of these trends – 5G communications, the Internet of Things, artificial intelligence, robotics, and electric vehicles (EVs) rely on different types of tech fuel. And without the tech fuel behind the tech… there would be no tech.

One of the greatest minds in tech breakthroughs… specifically electric vehicles… has realized this. And you can bet hedge funds and institutional investors will catch on soon. In fact, some big investors are already getting excited about a certain type of tech fuel… So, what is this particular tech fuel?

It’s nickel.

Let me explain why nickel will be the most important tech fuel in the electric vehicle revolution… and I’ll give you the top stock to play this trend today.

THE MOST IMPORTANT TECH FUEL POWERING THE ELECTRIC VEHICLE REVOLUTION The next chart shows the metal components of a typical lithium-ion battery used in electric vehicles. Both lithium (blue) and cobalt (gray) are key inputs. But nickel – which is shown in green – makes up nearly one-third of the metal that goes into such batteries. This is setting the stage for an unexpectedly massive surge in demand and explosion in price.

3


THIS TECH FUEL IS SET TO SOARTo understand the huge potential nickel has right now, look no further than one of the world’s most prominent entrepreneurs…

Tesla CEO Elon Musk.

During a Tesla earnings conference call, Musk got onto the topic of the batteries Tesla uses in its electric vehicles. He shocked analysts by saying that he wants to squeeze more nickel into each unit than ever before. In fact, Musk has long been a proponent of nickel. Previously he told Tesla backers, “Our cells should be called nickel-graphite [rather than lithium-ion] because primarily the cathode is nickel.”

One of the earliest types of batteries for EVs was the NMC 111 model. As you can see in the chart below, nickel (green bars) made up about 30% of the metal contained in an NMC 111 battery. To the right, however, you can see how metal content has evolved in subsequent EV battery models. The next-generation NMC 433 battery used slightly more nickel. And then came the NMC 532, which contained even more.

Elon Musk and Tesla are taking nickel use to the next level: promoting the new NMC 811 battery. As you can see in the chart, the bar at the far right shows how the NMC 811 raises nickel content to over 70% – by far the highest ever. In fact, the “811” is shorthand for the proportions of nickel, manganese, and cobalt – with the battery containing eight parts nickel to one part manganese and one part cobalt.

Adding more nickel makes perfect economic sense.

4


A pound of cobalt has sold for around $20 in recent years – while a pound of nickel was going for around $8. That cost reduction is driving the steady rise in the nickel content of EV batteries seen in the chart.

I sat down with one of my friends, who does a lot of work in Asia, and is intimately connected with some of the largest battery manufacturers in the region – companies like Samsung and LG. During our conversation, I mentioned the NMC 811 battery design and the positive implications for nickel.

“811,” my friend laughed. “That’s old news. The people I’m working with are on to 9-to-0.5-to-0.5.”

He went on to explain how technology is evolving to allow battery makers to add even more nickel to their new designs. He suggested that new batteries will be nine parts nickel to each half-part cobalt and half-part manganese. I was stunned. But my subsequent research backs up these claims.

Nickel demand from the surging EV battery space is going to be much, much bigger than investors recognize. At the same time, nickel is the cheapest metal in the battery space right now – setting up a major opportunity for those who get positioned today.

A MAJOR SUPPLY DEFICIT IS LOOMINGThe thing is, right now, no one is really talking about nickel. For a metal that’s the go-to component in electric vehicle batteries, this commodity is getting very little investor attention. Right now, investors are mainly focusing on more-traditional uses of nickel, mainly in the stainless steel market, where the global outlook is mixed.

This is a set-up for big price spikes when people realize just how tight nickel supply is. It’s happened in the past. A couple of years ago nickel was selling for just $4 per pound. It then spiked 75% in under 12 months, making it perhaps the best-performing commodity during the period. I believe that could happen again as demand from the EV sector continues to heat up.

The thing is, even though investors aren’t giving nickel much heed, industry insiders are paying very close attention to this tech fuel… In fact, Tesla has appointed a purchaser whose sole job is to secure nickel supplies for Tesla’s EV batteries. And recently, Tesla put its money where its mouth is: sources told major news outlets the firm is seriously considering investment in a Canadian nickel mine. According to reports, Tesla could fund the building of the mine - in exchange for a steady supply of nickel.

But we don’t think Tesla and Elon Musk will stop with just one source of nickel. The company is reportedly looking at nickel options all over the world. Some reports even suggested Tesla could partner with the government of Indonesia to build a nickel plant in that country. The next chart shows why there’s so much concern in the EV sector about finding nickel to buy.

This chart shows the number of kilograms of nickel used in a typical electric vehicle model – as compared to traditional vehicles driven by internal combustion engines. It makes it very clear why there’s a major surge in nickel demand coming.

5


As you can see, each electric vehicle (like the kind Tesla manufactures) uses over 20 kilograms of nickel. And moving to larger vehicles like buses, the nickel usage is significantly higher. When we look at how total demand stacks up for the surging EV sector, the numbers are stunning.

The chart below shows overall nickel demand for electric vehicles including battery electric vehicles (BEV) and plug-in hybrid electric vehicles (PHEV). Nickel demand for EVs is expected to increase by nearly 1,000% between now and 2025. That’s a 10-fold increase.

6


Now, nickel users like Tesla are really worried about supply… because there simply isn’t enough metal being mined on Earth right now to meet this surging demand.

Prior to 2016 – when the EV boom was just getting started – nickel miners globally produced more metal than overall demand. The market enjoyed a small surplus. But since then, the growth in nickel use from the EV sector has flipped the market. Starting in 2016, demand raced ahead of mined nickel supply – putting the market in a deficit.

The chart below shows how large nickel surpluses are a thing of the past. COVID-19 resulted in 103 tonnes of surplus in 2020, but it shrinks every year following. Industry observers expect demand to outstrip supply again, starting very soon.

With EV use rising, the global nickel market is facing a supply shortfall – and it’s only going to get bigger over the coming decade.

Right now, the lack of mined nickel supply is being stop-gapped by above-ground nickel inventories. But those stockpiles are rapidly depleting, with over 25% of inventories having disappeared over the past year alone. And when we look at the geology of nickel, the situation is even more complicated in figuring out where new supplies of this increasingly sought-after metal will come from.

THESE “ULTRA-NICKEL” DEPOSITS WILL BE THE BIGGEST WINNERS FROM THE EV REVOLUTIONFor many metals, all mines are created equal. An ounce of gold, for example, mined in Australia is the same as an ounce from Canada, in terms of its properties, use, and pricing.

7


But nickel is very different depending on where and how it is produced. We’re about to get a bit technical, so bear with me…

Unlike most metals, nickel comes from two very different types of geological deposits: nickel sulfides and nickel laterites. There’s a lot of science behind the differences between sulfides and laterites.

But basically, laterites are crusts that occur near the ground surface in hot and often wet climates – in places like Indonesia and the Philippines. Laterite nickel deposits are often easier and cheaper to mine. For that reason, laterite mines dominate global nickel production.

Sulfides, on the other hand, are more like the hard rock we think of when we usually picture mining and can occur at significant depths below the surface.

All told, approximately 60% of worldwide nickel supply comes from laterite deposits, with just 40% of our nickel coming from sulfide mines.

Up until recently, the nickel market could use supply from laterite and sulfide nickel mines interchangeably, more or less. That’s because the major use for nickel prior to EVs was in steelmaking – in which both types of nickel work just fine in blast furnaces. But when you’re manufacturing EV batteries, the difference between laterite and sulfide nickel becomes much more critical.

Nickel produced from laterites contains a lot of iron by-product. In some cases, the metal produced from laterite deposits is just a few percent nickel and over 90% iron. That doesn’t cut it for a tech fuel metal, though… because EV battery manufacturers need very pure nickel metal. The inputs for EV batteries need to be about 99.9% nickel.

Sulfide deposits produce nickel that meets the ultra-pure specifications EV manufacturers need. But in order for the 60% of global nickel that comes from laterites to be usable for EV batteries, there are some major steps required. The only way to make laterite nickel workable for EVs is to put it through a process called “high pressure acid leaching” or HPAL for short. As the name suggests, this is a process where laterite nickel is run through mechanical processing that uses high pressure and heat to drive off the iron impurities.

There are a few problems with upgrading laterite nickel using this process. Most importantly, the capital costs are massive – often running in the billions of dollars. And the process uses strong sulfuric acid, which can make permitting and operations difficult. Because of those issues, only about one-sixth of laterite production – or 10% of total global nickel supply – gets up-graded using that costly process.

Here’s what that means for EV battery manufacturers. If I’m an EV company like Tesla, I can only use about 50% of the world’s mined nickel supply – the 40% that comes from sulfide nickel mines, plus the 10% that’s upgraded from laterite nickel mines.

8


That’s a major challenge. On the one hand, we’ve got nickel demand for EVs projected to grow by 1,000% in the next several years. On the other hand, growth of mined nickel supplies is very limited – and much of the new supply coming online isn’t usable tech fuel in EV batteries.

You can see in the chart above how laterite mines have accounted for all of the nickel supply growth in recent years, while sulfide mine supply has plateaued – and is expected to fall in coming years.

That lack of usable EV nickel supplies explains why a company like Tesla recently appointed staff solely to tackle nickel sourcing. Nickel is a very specialized commodity, facing a very serious supply challenge.

And here’s a final complication: When it comes to the sulfide nickel supply that’s the staple for EV batteries, there aren’t a lot of places on Earth to look. The majority of global sulfide nickel production comes from just four countries – Canada, Australia, Russia, and China.

Canada and Australia are open and transparent markets. But for a buyer like Tesla, China is a tougher nut to crack – with much of its supply going to local nickel users. Russia is also difficult, especially after the U.S. and Europe imposed sanctions. As such, it’s possible that this second-largest global producer of sulfide nickel may be completely out of reach for many global battery makers.

In short, nickel demand for electric vehicles is exploding while supply is tight and highly specialized. As the EV revolution gains steam, I expect sulfide nickel deposits to become extremely sought after. In fact, my sources tell me that, right now, nickel produced from sulfide deposits can sell for as much as 30% more than nickel coming from other sources like laterites.

9


With that in mind, I’ve been reviewing all the nickel projects available to us as investors. And I’ve found the one in prime position to benefit from the coming nickel – and especially nickel sulfide – market boom…

OUR TOP “MADE-IN-AMERICA” NICKEL PLAY Today, demand for nickel is soaring due to the rising EV sector. As I showed above, a good chunk of this production comes from far-flung nations.

The U.S. has lagged in nickel production. Today, American mines produce less than 1% of global nickel output.

But that’s changing. Several American states are moving to potentially open new mines that could produce nickel. Some of these are in places you might not expect, like Wisconsin, Minnesota, and even Maine.

One state that has an established history of nickel production is Michigan. Here, nickel is mined alongside copper and precious metals platinum and palladium.

The Eagle mine in Michigan is in fact the largest nickel operation in the U.S.

It’s owned by Lundin Mining (LUN.TO or LUNMF). The company’s founding family, the billionaire Lundins, have built an empire of successful resource companies all over the world. They’ve created billions in shareholder returns across every populated continent on the planet.

Lundin Mining is itself an international conglomerate. It mines base metals like nickel, copper, and zinc in North and South America, as well as Europe.

During the last mining bull market, this stock returned over 4,000%.

10


It’s well-positioned for similar gains once base metals prices take off again.

In 2013, Lundin made a strategic move into nickel in America by acquiring the Eagle mine. Since then, it’s put Eagle into full production, which proved to be a shrewd move: Eagle’s production costs for a pound of nickel are 10 cents. In 2021, it plans to reach negative $0.25 per pound of nickel.

Lundin is continuing to rev up Eagle, planning to lower mining costs even further this year. That means this major mining center will be making enhanced profits on its nickel output. Expansions of the mine are also expected to increase nickel production by nearly 30% in coming years.

We’re getting in just in time to ride this stock higher.

Super low costs and higher output will help Eagle book strong profits and deliver to its investors in spades.

Better yet, Lundin is not a one-trick pony. It has a diversified portfolio of assets across the globe with the main focus on base metals. It also produces substantial amounts of gold, another metal that’s performing very well these days.

Overall, Lundin Mining is a premium base-metal producer with strong gold credits. It’s the largest nickel producer in the U.S. and will be a go-to supplier as tech fuel demand ramps up from electric vehicle makers like Tesla.

The perfect made-in-America play for one of the biggest rising tech trends in the world.

Action to Take: BUY shares of Lundin Mining (LUN.TO) up to C$15.00 or (LUNMF) up to US$11.50.

We’ll treat this as a speculation and control our risk by position-sizing. Please never invest money that you can’t afford to lose, and never borrow money to invest. Losing is always a possibility with all investments.

If this recommendation is trading about our buy-up-to price by the time you read this, please use a limit order and do not chase the price higher.

For portfolio tracking purposes, we’ll be following the U.S.-listed ticker.

Keep walking the path,

David Forest Editor, Strategic Investor

11


To contact us, call toll free Domestic/International: 1-888-512-2739, Mon-Fri: 9am-7pm ET, or email us here.

© 2021 Casey Research, LLC. 55 NE 5th Ave, Delray Beach, FL 33483. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from the publisher.

Information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. It is not designed to meet your personal situation—we are not financial advisors nor do we give personalized advice. The opinions expressed herein are those of the publisher and are subject to change without notice. It may become outdated and there is no obligation to update any such information.

Recommendations in Casey Research publications should be made only after consulting with your advisor and only after reviewing the prospectus or financial statements of the company in question. You shouldn’t make any decision based solely on what you read here.

Casey Research writers and publications do not take compensation in any form for covering those securities or commodities.

Casey Research expressly forbids its writers from owning or having an interest in any security that they recommend to their readers. Furthermore, all other employees and agents of Casey Research and its affiliate companies must wait 24 hours before following an initial recommendation published on the Internet, or 72 hours after a printed publication is mailed.

mailto:subscribers%40caseyresearch.com?subject=

The Nickel Explosion - scdn.caseyresearch.com

Documents

Transcript of The Nickel Explosion - scdn.caseyresearch.com