All around the world, the Covid-19 crisis has forced companies to rethink their supply chains, particularly their potentially fatal over-reliance on China.
This is particularly true of electric car makers in North America, who are on the hunt for local sources of key raw materials that have traditionally come from East Asia.
Things were already looking up for the Tamarack nickel-copper-cobalt exploration project in the state of Minnesota in the US, but the Covid-19 economic crisis has given it new impetus.
What makes this perhaps even more interesting from a South African point of view is that the project is managed by Toronto Stock Exchange-listed Talon Metals (TLO.TSX), which has deep South African attachments.
The South African connections
Chairman Warren Newfield and CEO Henri van Rooyen are both South African and president Sean Werger is married to a South African.
The Talon team (previously through private investor-operator company Tau Capital Corporation) has a long history in SA and Botswana (see below), but Talon’s sole focus these days is the Tamarack high-grade nickel, copper and cobalt project in Minnesota in the US, which is turning out results which has caused a number of electric car makers to approach the company for discussions about potential business relationships.
“The exploration we’ve done so far indicates the presence of high-grade nickel, copper and cobalt along a 1km stretch of an 18km intrusive complex, and everywhere we’ve poked holes we’ve come up with promising mineralisation,” says Werger. “The next phase of the project is to explore south and north of the already identified intercepts.”
The exploration programme just completed shows nickel grades of 7.1% and copper at 2.98%. Also present is cobalt.
This is where it gets interesting.
The electric car market is expected to explode in the next decade, and with it demand for nickel sulphides, which are used in battery manufacturing. The nickel content in batteries has gone from about 20% to 80% in a decade, and will likely increase from there. Manufacturers are racing to improve the storage capacity of batteries, and hence the distance vehicles can travel before recharging. To do that, they need nickel in the form of nickel sulphates (nickel in powder form), and lots of it.
Many companies are now emphasising the importance of domestic supply chains as a result of the disruptions caused by Covid-19. As for Tamarack, there is only one other comparable nickel mine in the US, the Eagle Mine in Michigan. That will likely be mined out in about 2025, leaving no other US domestic source of nickel other than Tamarack, which is expected to come on stream around the same time.
“There is no doubt that electric cars are the future, and a domestic supply chain would be hugely advantageous for carmakers in the United States.
“We believe Tamarack is crucial to the future of EV battery production outside of China,” says Werger.
“Nickel is traditionally used in the manufacture of stainless steel, and that demand is not going away, but we are looking at potentially using Tamarack nickel to supply the electric car market.”
There will be tug of war over available nickel between stainless steel and electric car producers, undergirded by talk of a looming shortage in the market.
That’s only marginally reflected in the international nickel price, which surged in 2019 when Indonesia placed a ban on exports.
The Covid-19 outbreak deepened the sell-off already in play towards the end of 2019, with global stainless steel production briefly grinding to virtually a halt.
The longer-term outlook is more cheerful.
In a US Senate Committee meeting on Energy and Natural Resources in 2019, MD at Benchmark Mineral Intelligence, Simon Moores, said demand for nickel could increase 19 times if under-construction lithium-ion production facilities come online as planned, according to Nickel Investing News.
The US is dependent for 69% of its nickel from primary and secondary imports, and will be scrambling for any domestic production it can lay its hands on post the Covid outbreak.
Nickel production and consumption – US
That leaves Tamarack as virtually the only supplier of note in North America.
Tesla is far and away the market leader in electric cars, producing 103 000 units in the first quarter of 2020, which was 33% above the same quarter in 2019. Sales will likely take a serious hit in the second quarter of 2020, given that its main production plant has been shut for several weeks due to the coronavirus, but this has barely impacted the share price – down only marginally from its February peak of $901.
Elon Musk this week defied the “fascistic” lockdown by reopening Tesla’s California plant, and defied authorities to arrest him.
The Tamarack project was initiated in 2002 by Rio Tinto, with Talon Metals initially coming in as a minority 18.45% shareholder and junior partner. It didn’t quite fit Rio Tinto’s size criteria, so it handed the management of the project over to Talon, which completed the first phase of its exploration just before the Covid-19 lockdown in March.
Talon has an option to earn a 51% interest in Tamarack by March 2022, and a further 9% by 2026 to get to a total 60% interest in the project, based on the fulfilment of certain conditions, including the payment of cash and shares to Rio Tinto, and the completion of a feasibility study.
“With just 1km of a potential 18km intrusive complex explored, the real sizzle is likely to come as exploration kicks into high gear along the remainder of the complex,” says Etienne Dinel, head of geology at Talon.
It is more expensive to produce nickel from laterites (which have high iron and aluminium content) than from high-grade sulphides. New planned production in nickel is largely focused on the higher cost laterites, which is expected to drive up prices in the future. Tamarack projects a lower than industry average cost of production due to the widespread presence of nickel sulphides on the property.
Talon Metals’s core team goes back a long way in SA mining, having defined the Platexco platinum deposit in the Bushveld complex before selling in 2000 to Implats for about $200 million (R3.7 billion at today’s exchange rate). Many of the same team members were involved in platinum group metals company AfriOre, which was sold to Lonmin in 2007 for about $355 million (R6.5 billion).
The group was also involved in the exploration of the Mmamabula thermal coal project in Botswana, which was sold in 2012 to the Indian-owned Jindal Group for about $120 million (R2.2 billion). The project was originally conceived to supply power to SA, but has been dogged by logistics and power grid issues, and was sold last year to Maatla Energy for a reported $150 million (R2.77 billion).
In yet another southern African project, Talon Metals merged with Saber Energy in 2010 to develop a coal-bed methane project and shale gas deposits in Botswana, that today is Tlou Energy on the ASX.
Cash to go
Werger says the company has C$2 million in the bank, but will need cash top-ups going forward for the next phase of exploration.
The shares trade on the Canadian stock exchange at about 10c. Like all junior miners with no cash flow (until project exit), Talon appears to have a decent speculative following, with some encouraging longer-term prospects.