What Vale’s changing view of Canadian nickel asset might tell us about EV demand evolution

“What is good about the Thompson mine ore is it is primarily nickel, and there is not much other impurity in it.” So Gary Annett, the head of Manitoba operations for Brazilian miner Vale, told the Thompson Chamber of Commerce back in the summer of 2022, according to Canadian business media outlet Western Investor.

“People are starting to notice that there’s only so much Class 1 nickel in the world to develop this technology,” Annett continued of the anticipated growth in demand for battery-grade nickel. He was speaking a month after Vale confirmed it had entered into a long-term agreement to supply Canadian Class 1 nickel to the US operations of EV maker Tesla, which might have contributed to the feeling of bullishness.

Fast forward just over 30 months and the mood music is very different. Vale has put Thompson under strategic review, including the potential sale of the assets. And its very quality that Annett was extolling is now seen in the debit column.

“It is a non-polymetallic opportunity,” says Shaun Usmar, CEO of the firm’s Vale Base Metals (VBM) arm. “It is something that is, at the moment, not generating the highest returns when we look at the opportunity set for nickel. So, we need to make sure that we do not make the mistake of trying to be all things to all people and spread our resources and our limited capital too widely, which is the reason that we have initiated this process on Thompson.”

The optimism that a pure, high-grade nickel asset would be prized as growing EV adoption drove demand from battery makers northwards has been replaced by a view that a complex that yields solely nickel is a potential liability. Which may say something around how much nickel demand in automotive has disappointed as all-electric sales have risen at slower rates than many had anticipated.

Interested parties

But there may be other miners prepared to take a view that Class 1 nickel demand and price will rebound. Vale reports “significant interest” from potential buyers.

The asset’s data room opened last week, and the firm expects to make a decision on the Thompson assets’ fate in the second half of the year. It maintains “a completely open mind as to what their path may entail in the future, including a potential sale”, Usmar says.

The assets include two operating underground mines, an adjacent mill and significant exploration opportunities in the 135km-long Thompson Nickel Belt. Thompson produced 10,500t of VBM’s finished nickel production for the 12-month period ending Q3’24.

Cost out

Across its nickel portfolio as a whole, VBM continues to hunker down and focus on reducing production costs until prices recover — efforts that should be boosted by the continuing ramp-up of its 45,000t/yr Voisey’s Bay Mine Expansion (VBME) project. VBME completed commission in December but will not hit full capacity until the second half of next year. In contrast to Thompson, it also outputs material quantities of copper and cobalt.

First ore production from the second VBME deposit is described by Vale CEO Gustavo Pimenta as an “important milestone toward continued efficiency gains and fixed cost dilution in the nickel business”. “Nickel costs are… trending downward, with further support expected as a result of the VBME ramp-up,” he adds.

“In nickel, all-in costs totalled about $13,900/t, the lowest since Q1’22, driven by higher byproduct revenues, especially from copper and PGMs,” says Marcelo Bacci, Vale’s executive vice-president, finance and investor relations, again emphasising the current popularity within the firm of polymetallic nickel assets. Usmar highlights the planned start of a second furnace at the Onca Puma complex in Brazil in the second half of the year and higher development rates in its Ontario mines as factors that will continue to improve the nickel cost base.

“I think, particularly on nickel… this significant reduction in cost… has to continue,” Usmar says. “ And the focus for the team, particularly in this market, is get the cost structure down —the overheads as well as the operating costs. We need to make sure that we are sustainable in this sort of price environment, and then can benefit when we see a recovery in the future.”