The ESG contradictions facing the nickel market

Brazilian Nickel is negotiating financing for its project in northeast Brazil's Piauí state amid a challenging scenario for the metal. 

In recent quarters, nickel prices have experienced downward pressure due to the start of new projects in Indonesia. However, questions have been raised by industry players about the social and environmental criteria of these projects.

Guilherme Jácome, president of Piauí Níquel Metais, a subsidiary of Brazilian Nickel, spoke with BNamericas about the company's project and the market outlook, as well as ESG practices.

BNamericas: What is the status of the Piauí Níquel Metais project?

Jácome: We're currently operating on a small scale, a semi-industrial scale in Piauí. We use the heap leaching process, which is a technology widely used in copper and gold but not so much in nickel projects.

We're finishing the bankable feasibility study and now we’re in the final phase, in final talks in the search for investors to finance this project.

We have already obtained all the necessary licenses to start production.

BNamericas: What will be the investment?

Jácome: We still don't have a final investment number; we're in the final phase of preparing capex and opex and, as I said, in the final phase of negotiating with financiers.

But I can say that our internal numbers confirm the viability of the project, even with the drop in the price of nickel seen in recent months.

BNamericas: What is happening in this segment that is putting downward pressure on prices?

Jácome: What is happening is that we're seeing a large amount of nickel enter the market from growing production in Indonesia.

Indonesia, which has always been a large producer of nickel, has adopted an even more aggressive approach in accelerating projects and a large part of this material is going to China.

Unfortunately, the level of socio-environmental governance of these projects in Indonesia is very questionable and this is generating an oversupply of nickel in the market.

The entire market is surprised by the speed at which these nickel projects in Indonesia have started up operations. However, this was accompanied without minimum safety criteria and respect for environmental rules.

It's important to highlight that most of Indonesia's production is going to China, to produce batteries for electric cars.

BNamericas: What is the medium and long-term scenario for nickel prices?

Jácome: The nickel industry has reacted to the drop in price by closing some mines.

After reaching more than US$25,000/t [in the first quarter of 2023], the price of nickel more recently tested levels between US$14,000, US$15,000/t and this made operations unviable, as in New Caledonia and here too in Brazil, for example, Horizonte Minerals' Araguaia project had problems.

Now I see that the market, in terms of price, is starting to react.

Days ago, the London Metal Exchange imposed restrictions on trading nickel from Russia because of the war against Ukraine. This is already a good indication that the market is starting to evaluate restrictions for some regions. Perhaps we can also see restrictions on nickel produced in Indonesia that don't follow the best ESG practices.

The price of nickel has risen in recent days, perhaps an indication that those values of US$14,000 and US$15,000 could be rock bottom.

BNamericas: What price level guarantees the feasibility of a project in Brazil?

Jácome: This depends a lot from project to project.

In our specific case, where we have a specific technology, our operation costs US$8,000 to US$10,000/t. That is, even in the current low price scenario, our project appears to be profitable and viable.

BNamericas: Don't the issues involving Indonesian nickel show a contradiction in the market, given the apparent growing demands for ESG practices?

Jácome: The market will eventually require some level of ESG certification for all metals, not only nickel.

But in fact, this is taking too long. The market needs some filter, perhaps only negotiating with companies that have ESG certifications.

It is a contradiction that mining companies in Brazil have to meet so many environmental rules and follow best practices, and this doesn't exist in other places in the world.

It's also a contradiction to think that nickel, which is a material used to produce batteries for electric cars, which in practice would reduce greenhouse issues, has been produced in some countries that don't follow the best environmental practices.

Vehicle manufacturers themselves should demand these certifications of best ESG practices from the companies that supply them with raw materials.

BNamericas: Regarding your project, when does the company intend to start large-scale production and what would annual production be?

Jácome: Once we obtain resources, we would deliver the project in three years. We'll have the capacity to produce 25,000t/y.

We're already getting quotes for services that will be necessary for the project, such as civil works, earthworks, the electromechanical part. At peak construction, we'll have 5,000 people working on the project.

I believe that in six months we can be finalizing the necessary financing to move forward with the project.