The recent announcement by BHP (ASX:BHP) to temporarily suspend operations at its Nickel West facilities has raised concerns and speculations within the mining industry about the future of Nickel in Australia. However, this decision could present significant opportunities for Nico Resources’ Wingellina project. The shutdown of Nickel West is not necessarily detrimental to Nico Resources (ASX:NC1) and could, in fact, be beneficial.
Old mines, high cost
BHP’s decision to suspend Nickel West operations was driven by an oversupply in the global nickel market that has led to lower nickel prices. BHP’s Nickel West operations have been facing significant cost challenges in the wake of these developments. The cost of production at Nickel West is more than US$20,000 per metric tonne (circa US$22,000 in 2024). Nickel West is a Class 1 producer and sells the majority of its product to battery-makers. However, it also owns old underground sulphide mines (Mt Keith is 29 years old and Leinster 46) and smelting operations that are not cost-competitive, especially in the face of the low-cost HPAL laterite product coming out of Indonesia.
Wingellina, by contrast, will have very low-cost open-cut operations that will have all-in costs in the vicinity of US$9,000 per tonne over the expected 40-year mine life and US$7,000 in the first 20 years. The chart below shows Wingellina as being in the 2nd decile on the global cost curve while Nickel West is in the 10th decile.
Source: LME, company reports, Woodmackenzie, Macquarie Commodities Strategy, August 2024
Strategic timing for Wingellina
The Wingellina project is the highest-quality nickel-cobalt laterite prospect in Australia and is strategically positioned to take advantage of the current market dynamics. As BHP suspends its operations, Nico Resources can accelerate the development of Wingellina, potentially bringing it online at a time when the market is recovering, and nickel prices are stabilising.
BHP’s exit from the market allows Nico Resources to attract more attention from investors looking for viable nickel projects. The Wingellina project, with its significant resource base and advanced stage of development, becomes an attractive investment opportunity.
With the proposed “NATO critical minerals” agreement and China controlling 70% of global nickel supply, Wingellina will become a strategically significant asset globally. This will, in Corporate Connect's view, attract capital directly from battery-makers and not just offtake agreements. Australia has the largest nickel laterite deposits outside of Indonesia, and it could potentially become a more palatable geopolitical risk for OEMs in the western world.
Source: LME, company reports, Woodmackenzie, Macquarie Commodities Strategy, August 2024
Environmental and community benefits
Nico is positioning Wingellina as a sustainable and community-focused project. With BHP’s suspension impacting local communities, Nico can step in to provide employment opportunities and community support, enhancing its reputation and fostering goodwill. Many Indonesian projects are being highly criticized for the environmental damage they have caused along with appallingly negative community impacts.
Conclusion
While the shutdown of BHP’s Nickel West operations may seem like a setback for the Australian nickel industry, it presents a unique opportunity for Nico Resources. By capitalising on reduced competition, strategic timing, and increased investment focus, Nico Resources can turn this situation to its advantage, positioning Wingellina as a key player in the global nickel market.
