Geopolitics are reshaping global commodity supply chains with no metal more impacted than nickel.
Nickel is critical to the global energy transition, the electric vehicles, solar panels, wind turbines and batteries that will power and move the world for the next generation.
Yet the western world, major consumers of nickel, are woefully unprepared should China and other Asian countries like Indonesia, cut off exports to the west.
A de-globalization of supply chains is happening today, yet because of the slow speed of this transition and the lack of a public game plan from North America, market participants are not fully appreciating the once in a decade investment opportunity is being created.
In this research note we lay out the dramatic strategic vulnerability now facing the western world and explore the one company, Canada Nickel (TSXV:CNC), doing arguably more than any other to drive investment into a North American nickel and battery metal supply chain.
The West is Currently at China’s Mercy
Demand for nickel is stronger than ever as both Europe and North America ramp up purchases of electric vehicles, solar panels and wind turbines to reach climate goals.
Nickel is the dominant battery chemistry in the highest power batteries today, making up 80% of the cathode.
Nickel Dominates the Fastest Growing Battery Chemistries
Yet at the same time the nickel supply chain remains almost entirely dependent on processing capacity in China.
Though a widely shared visual from International Energy Agency makes it look like 40% of nickel is processed outside of Asia, in reality, almost none of the nickel smelting and battery processing capacity resides in North America.
Battery Metals Processing Capacity Dominated by China
Production tells the same story, with North America consuming 14% of global nickel yet producing only 5%.
North America is still where the battery packs are assembled, not where the raw materials are mined or processed. This is both a huge strategic vulnerability for North America and a significant investment opportunity for early investors.
Money is Flowing into Battery Assembly Plants but Not the Critical Raw Materials
Looking at North America’s capacity to produce batteries, only around 120 GWH of battery capacity is currently operating, enough to produce 2 million cars a year.
Far less than the 15-18 million internal combustion cars sold per year.
Yes, another 1,000 GWH is planned for construction by 2030, but in the here and now only 10% of that capacity is constructed and operational, with the rest still underfunded and uncertain.
Billions are being sunk into battery plants, yet no large-scale nickel mines are fully funded for production.
With western government’s close to announcing significant development subsidies, in our view, owning western nickel resources is the most undervalued opportunity in the market today.
Canada Nickel Has the Most to Gain
In North America there is one company, Canada Nickel, doing more than any other to position itself as the west’s nickel champion.
From as asset perspective Canada Nickel owns the second largest nickel resource globally and would be the 3rd largest global mine at planned capacity of 48,000 tonnes per year.
Canada Nickel’s Crawford discovery is the largest nickel find since the 1960’s yet is only 1 of 10 other targets Canada Nickel has identified with larger footprints and similar grades to Crawford.
Canada Nickel’s CEO, Mark Selby, has arguably done more than any other nickel leader to put pressure on western government’s to act and put real money behind North American battery supply chains.
Mark travels nonstop, talking to political and business leaders about the risks the western world faces from a complete reliance on China.
Mark has become such an integral partner to the Canadian government that he recently visited a Washington D.C. investor conference as a member of the Ontario delegation, not simply as another conference speaker.
Canada Nickel is unique among North American nickel developers in that it already has backing from three giants in the mining and battery manufacturing industries. Anglo American, a global mining giant, Agnico Eagle, another giant and a company with a deep history and ties to Canada and Samsung SDI, a major global battery manufacturer.
These three companies own ~29% of Canada Nickel and have important strategic reasons to see a new nickel mine emerge in North America. They are likely willing to continue funding development of Crawford even if investors and governments are slow to realize the opportunity.
Market is Not Pricing in a North American Nickel Supply Chain
Current market valuations in the nickel space make clear how little chance of success is priced in by the market. Canada Nickel trades for less than 1/10th the after tax NPV of Crawford, ignoring any exploration upside.
The upside is substantial from going against the herd and betting that western governments will finally realize they need to take back strategic control of their renewable supply chains from China.
We are at a Political Tipping Point
In our view, the main reason North American nickel projects trade at such deep discounts is because of a lack of publicly announced funding available and a news media obsessed with painting Indonesia as the killer of all other global sources of nickel production.
We think political developments in the uranium space hold important lessons for where the US government will eventually go with nickel as well.
Last week the Senate passed a bill to ban imports of Russian uranium which now heads to the president’s desk. The US government is waking up to the risk bad actors pose to America’s supply chain for critical minerals.
Uranium was the first, but we don’t think it will be the last. Nickel in particular is too important to the energy transition, for supply decisions to be left in the hands of China, whose relationship with the west continues to deteriorate.
Mark Selby of Canada Nickel believes both Canada and the US will end up providing significant subsidies to build a nickel supply chain. Of the $800 million of equity capital needed to start Canada Nickel’s Crawford mine, Selby expects that at least half, $400 million, will come from governments, with the rest provided through offtake agreements and investments from current or future partners.
We are right at the tipping point where political talk turns into real money and this will prove to be a powerful rerating catalyst for the entire western nickel industry, including Canada Nickel.
Canada Nickel is a market awareness client of Capital 10X. For more information, including potential conflicts of interest please see our Content Disclaimer.
