Tesla gets involved in New Caledonia mine to secure nickel supply

Elon Musk at GTC 2015. (Image courtesy of NVIDIA | Flickr.)

Electric cars maker Tesla (NASDAQ: TSLA) will become a technical adviser at the conflict-ridden New Caledonia nickel mine, as part of the company’s attempt to secure enough supply of the key battery metal, which CEO Elon Musk has singled out as his biggest concern.

Political leaders in the French Pacific territory agreed on Thursday to sell a majority stake in Vale’s nickel business to a consortium called Prony, which includes Swiss commodity trader Trafigura.

The Brazilian miner, the world’s top nickel producer, had been on the hunt for a buyer for over a year, but the sale was complicated by the fact that New Caledonia has been debating getting its independence from France, and where nickel is one of their main sources of wealth.

The agreement inked on Thursday, Reuters reported, gives a 51% stake in the Vale (NYSE: VALE) operation to New Caledonia’s provincial authorities and other local interests. Trafigura will have a 19% stake, less than the 25% planned in the initial sale deal with Vale.

New Caledonia is one of the world’s largest nickel producers, but last year’s protests by groups seeking independence from France for the island delayed Goro mine’s sale

The parties also called for reinforced environmental standards and set a target for the mining complex to be carbon neutral by 2040.

The move seeks to put an end to violent protests over the planned sale of Goro nickel-cobalt mine, which forced Vale to shut down the site in December.

The company decided to walk away from the ailing nickel operation in late 2019 due to mounting issues, including a $1.6 billion write-down related to the mining complex.

Click here for an interactive nickel price chart

New Caledonia is one of the world’s largest nickel producers, but last year’s protests by groups seeking independence from France for the island delayed the sale.

Vale Nouvelle Calédonie (VNC), which includes the Goro mine, a processing plant and the port of Prony, proved a financial burden for Vale since it began operations two years behind schedule in 2010.

While Goro has the capacity to produce 60,000 tpy of nickel in the form of nickel oxide, it has never performed to full capacity due to design flaws and operational commissioning issues.

In 2019, the mine churned out just 23,400 tonnes of nickel, slightly over a third of its annual capacity.

Getting cheaper

The price of nickel increased more than 25% over the last year due to supply concerns as demand for battery production is increasing.

At $16,290 per tonne, nickel futures on the LME have dropped by 13% in the past two days after China’s Tsingshan Holding Group, the world’s top stainless steel producer, announced it will begin supplying battery grade nickel matte to Huayou Cobalt Co and CNGR Advanced Material Co.

Matte is an intermediate product made from concentrate that can be further processed into battery-grade chemicals.

For an interactive nickel price chart, click here.

Tesla, which is named as “technical and industrial partnership” in the New Caledonia deal, recently indicated that it was planning to move into the mining business to secure resources for battery production.

The automaker has also secured lithium mining rights in Nevada and struck a deal to buy cobalt from Glencore (LON: GLEN). But it has shown the most concern about nickel, which is a big part of the cathode in lithium-ion battery cells.

Musk pleaded with miners last year to produce more nickel, promising a “giant contract” for supply produced efficiently and in an “environmentally sensitive way” amid concerns that a deficit looms – as early as 2023.