Australia’s nickel sector mulls further consolidation

Perth-based IGO, Australia's largest independent nickel sulphide producer, has said it is in preliminary discussions with Perth-based Western Areas, the second-largest producer, in relation to a change of control proposal and the basis upon which engagement and due diligence could proceed.

The two companies expect to produce 41,000-44,000t of payable nickel in concentrate in the July 2021-June 2022 fiscal year, most of which will be sold to offtake partners such as BHP's wholly-owned Nickel West, China's Jinchuan and commodities trader Trafigura.

IGO, which recently entered into a lithium joint venture with China's Tianqi Lithium, produced 29,002t of nickel in concentrate at its Nova mine in Western Australia in 2020-21 and has issued guidance of 25,000-27,000t for 2021-22. Western Areas produced 16,180t of nickel in concentrate in 202-21 and has issued guidance of 16,000-17,000t for 2021-22.

A major attraction for IGO is the Odysseus project being developed by Western Areas. First ore is expected to be mined this quarter, with first concentrate being produced in late 2022. Odysseus has an ore reserve of 164,000t of nickel and is seen producing 14,500 t/yr of nickel in concentrate from 2023-4 for at least 10 years.

"Western Areas is one of the few companies that has a clear line of sight towards sustained nickel production into the 2030s," Western Areas' managing director Dan Lougher said.

What also makes Western Areas an acquisition target is that it has a 19.9pc stake in Australian mining firm Panoramic Resources, which is in the process of resuscitating the Savannah nickel project, a victim of the last downturn in the nickel market.

BHP has made it clear that it is keen on growing its nickel profile. Nickel West has mining, concentrator, smelter and refining arms. A 100,000 t/yr nickel sulphate plant is scheduled to come on stream by the end of September to supply rising demand in the global battery cathode market. Nickel West produced 89,000t of nickel metal last year and is eyeing 85,000-95,000t in 2021-22.

Earlier this year, South Korean industrial conglomerate Posco paid $240mn to Canada's First Quantum for a 30pc stake in the Ravensthorpe nickel-cobalt project in Western Australia, which produced 3,789t of payable nickel in April-June this year. It also signed a long-term offtake agreement. Glencore's Murrin Murrin operation in Western Australia produced 13,100t of nickel in the first half of 2021.

Australian nickel developer Poseidon Nickel is expecting first production from its Golden Swan nickel mine in 2022 and copper miner Oz Minerals is planning to make an investment decision next year on its West Musgrave copper-nickel project, Australia's largest undeveloped copper-nickel resource.