There is a common misperception among investors that lithium will power Tesla’s growth. However, that’s not the case. Nickel is more important. You see, lithium-ion batteries don’t really require all that much lithium. The cells used to power Tesla vehicles should be called nickel-graphite because the primary constituent in the cell as a whole is nickel. This is why investors should be focused on nickel miners and not lithium miners. That is why we are focused on Giga Metals (HNCKF).
Giga Metals (HNCKF)
First up, here’s the background story on Giga Metals (HNCKF) for those that aren’t familiar with the company. Giga Metals is actively advancing its flagship Turnagain nickel sulfide deposit with the aim of sustainably producing 40,000 tonnes of nickel per year. The Company has been supporting work with the University of British Columbia on CO2 sequestration in the pursuit of producing environmentally-friendly nickel with the objective of building one of the world’s first carbon-neutral mines.
Nickel, Not Lithium
At the 2016 Tesla annual shareholder meeting, Elon Musk laid out the investment thesis for nickel. He said:
“Although [they’re] called lithium-ion, the actual percentage of lithium in a lithium-ion cell is approximately 2%. Technically, our cells should be called nickel-graphite, because the primary constituent in the cell as a whole is nickel. On the anode side it’s graphite with silicon oxide. There’s a little bit of lithium in there, but it’s like the salt on the salad. It’s still important to avoid supply constraints [but] the main determinants of costs of the cell are the price of nickel in the form that we need it, and there’s a little bit of cobalt and some aluminum, and then the cost of synthetic graphite with the silicon-oxide coating.”
On Tesla’s last earnings call, Musk pleaded for more nickel. He said:
“I’d just like to re-emphasize, any mining companies out there, please mine more nickel. Wherever you are in the world, please mine more nickel and … go for efficiency, obviously environmentally-friendly nickel mining at high volume. Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way.”
A Tesla Model 3 contains around 30 kilograms of nickel. After nickel prices collapsed in 2007, there’s been little development of new capacity since then.
Giga Metals (HNCKF) Turnagain Mine
The Turnagain Project, located in north-central British Columbia, is among the largest undeveloped sulphide nickel deposit in the world in terms of total contained nickel. Giga Metals has 100% ownership of the project.
To date, locked-cycle flotation testing has been conducted at two laboratories on eight composites, including several locked-cycle tests at Blue Coast Research in 2018. Seven of the composites yielded high-grade nickel concentrates averaging 23% nickel at 52% recovery. The achievement of successful locked-cycle testing on a variety of samples from different parts of the Horsetrail deposit represents a major milestone for the project as these tests provide an important indication of the technical feasibility of the process.
The major focus of the locked-cycle flotation testing has been on composite samples from three horizontal holes drilled through the heart of the key Horsetrail zone, representing the expected production for the first several years of operation. Those tests employing the current standard process generally delivered repeatable results with recoveries in the range of 50-60% and concentrate grades in the range of 18-22% nickel, for samples ground to the target size of 80 µm.
Giga’s Turnagain mine in British Columbia has measured and indicated resources of 2.36M metric tons of nickel and 141K mt of cobalt; all of Canada produced 180K mt of nickel in 2019. Giga Metals (HNCKF) low carbon nickel plans include turning waste from its mining operations into cement type rock using carbon dioxide in the atmosphere and using hydropower.
Giga Metals (HNCKF) and Tesla
Mark Jarvis, CEO of Giga Metals Corp, responded to Elon Musk after the Tesla earnings call.
“If you want environmentally responsible nickel, I really think you have to look at sulphide deposits in first-world jurisdictions such as Canada and Australia. Canada has several very large, low-grade, open pittable sulphide nickel deposits waiting to be developed, including Canada Nickel’s Crawford deposit, Waterton’s Dumont deposit, and our own Turnagain deposit. Canada has some of the toughest environmental regulations in the world, so if you buy your nickel from Canada, you can be assured that this part of your supply chain is ethically sourced.”
The total cost for developing the Turnagain mine is less than $1 billion, which would be a drop in the bucket for $373 billion Tesla.
Giga plans to produce 40,000 tonnes of nickel and 2,000 tonnes of cobalt a year for 20 years. That would be enough to power thousands of electric vehicles. Tesla could provide financing, possibly in exchange for equity, nickel, and cobalt.
Forecasts from Benchmark Mineral Intelligence suggest nickel demand for batteries will rise to 1.4 million tonnes in 2030, or 30% of total nickel demand, from around 139,000 tonnes and 6% respectively this year, as sales of electric vehicles soar.
The problem for Tesla and other automakers is that most of the world’s new nickel production will come from Indonesia, where the process would involve disposing of mining waste into the ocean, a major concern for environmentalists.
Currently trading with a market cap of $47 million, Giga Metals (HNCKF) is a smart play on nickel and the EV revolution. At full production, the Turnagain project would be the fifth-largest NI sulphide operation in the world. It’s not a question of if the project will come online, but when.
As always, good luck to all (except the shorts)!
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Disclosure: We have no position in OTCMKTS:HNCKF or any of the securities mentioned. We wrote this article ourselves and it expresses our own opinions. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article. Insider Financial is not an investment advisor and does not provide investment advice. Always do your own research and make your own investment decisions. This article is not a solicitation or recommendation to buy, sell, or hold securities. This article is meant for informational and educational purposes only and does not provide investment advice.