Pertinent info for Ni extracted from Market Index article:
https://www.marketindex.com.au/news/aluminium-copper-nickel-lithium-which-asx-miners-are-nearing-theNickel
It’s all cycles! Nickel prices are plumbing the lows if its price cycle pushing some producers over the profitability cliff
Clearly Nickel is the worst looking base metals chart we’ve reviewed so far. The current cycle potentially resembles the major cycle pre-and-post GFC, and the steepness of the angle of the prevailing short term trend suggests the low of this swing could be towards US$10,000/t. There are few redeeming features in terms of my technical model, with little in the way of clear chart support until the March 2020 low at $11,055.
Taking an optimistic view – and this is hard to do, even if Nickel can stage a rally here – it will likely be impeded by chart resistance at the July 2022 low of $19,100/t and then at the long term trend ribbon around $20,000/t.
ASX mining stocks with exposure to Nickel
BHP Group (ASX: BHP)
BHP’s PR machine loves to tout the company’s focus on what it calls “global megatrends” like decarbonisation and electrification. So, in its FY23 annual report, there are over 200 references to nickel (FYI, there’s 340 to copper!). But in actual fact, nickel contributes only a tiny fraction of BHP’s underlying profits – around 0.6%.
BHP boasts that it holds the “second-largest nickel sulphide resources globally”. Most of this is in WA at its Nickel West operation which comprises open-cut and underground mines, concentrators, a smelter and refinery, and which produced 80 kilotonnes of nickel in FY23. I couldn’t find any information on Nickel West’s cost base, but BHP does state that a +/- US$0.01/lb move in the nickel price equates to a +/- US$1 million impact on its bottom line. This equates to a US$22/t move. This doesn’t sound like much but as indicated in the LME chart above, but nickel regularly moves in the thousands.
Mt Keith, just north of Nickel West, and West Musgrave, which BHP acquired in the OZ Minerals takeover, are BHP’s other major nickel development projects. The company wants to increase its nickel exposure, noting “We are continuing to seek more nickel resources through exploration, acquisition and early-stage entry.”
IGO (ASX: IGO)Like BHP, IGO is hardly a nickel pure-play. Whilst it is the most substantial onshore producer after BHP, with FY23 production of around 35 kilotonnes, over 80% of IGO’s underlying profits come from lithium.
IGO’s nickel business comprises the Nova Operation, Forrestania Operation, and Cosmos Project, each located in WA. It acquired the latter two after its takeover of Western Areas (WSA) last year. In July, IGO wrote down the value of these assets by nearly $1 billion (it paid $1.3 billion for WSA) due to substantial development delays and cost blowouts. Production at Nova has about five years to run.
Despite its current operational issues, IGO has done its best to transform itself into a battery metals focused producer, and nickel will remain an important part of its portfolio. For our discussion today, the important piece of data is IGO’s FY23 nickel production and cash cost, which was $5.63/lb or roughly US$12,400/t. The current LME nickel price is US$15,930 and its current short term trend is definitely not IGO’s friend.
Nickel Mines (ASX: NIC)Nickel Industries is the only other major ASX-listed nickel producer of note. It has majority interests in the Angel Nickel (80%), Hengjaya Nickel (80%), Oracle Nickel (70%), and Ranger Nickel rotary kiln electric furnace (80%) projects located in Indonesia.
The company produces nickel pig iron (“NPI”), which is a key ingredient in the production of stainless steel. In Nickel Industries’ most recent quarterly report, it reported attributable production of 28 kilo tonnes nickel metal, which puts the company on track for annual production of around 120 kilotonnes – making it a major global producer.
Indeed, many argue the influx of Indonesian NPI production is contributing to a supply glut in the nickel market, and it’s at least partially to blame for the slump in nickel prices. Regardless of whether Nickel Industries is part of the problem, it remains a significant listed nickel pure play, and therefore it is the most leveraged in this list to the nickel price.
Costs of production at Nickel Industries various operations ranged from US$9,467 to US$11,379/t meaning it still has plenty of margin at the current nickel price. It would take a price swing in nickel to close to the 2020 low to wipe this margin out.
