As nickel has come into focus as a critical element in electric vehicle batteries and battery storage systems, analysts, reporters, and industry experts have reported and published extensively on nickel.
Much of this attention has been centred around the historical cost overruns of large HPAL (high pressure acid leaching) projects and the impact that this will have going forward on financing new projects and the technology risk the market will accept for these projects. Another area of attention is the mass adoption of technology to convert NPI (nickel pig iron) to class one nickel at an economic price point.
To date, as we will explore in this article, almost no attention has been paid to what impact ESG will have on currently producing nickel mines and the development and exploration of future projects. This article seeks to highlight issues for consideration that companies will need to consider and address as they seek ESG certifications.
The Growing Relevance of ESG
ESG, short for environmental, social and corporate governance, has become a hot button issue in mining where projects have both environmental and social implications for communities that are affected by the presence of a mine from an industry with a dubious history. ESG’s importance will only grow as traditional sources of mining funding are diminishing and with the meteoric rise of funds investing in ESG rated projects. Recently, CEOs of large mining companies such as Rio Tinto have gone out of their way to make public statements about their policies and plans as it pertains to ESG. Other companies that have had historic ESG related issues, such as Glencore, have extensive information available regarding their ESG polices on their website and included in disclosure.
Yet ESG itself is in flux and with no accepted governing body or generally accepted compliance standards, companies are left to figure out for themselves what ESG compliance means as they work towards a rating or public disclosure. There are countless consultants and agencies that are prepared to advise companies, rate them for a fee or in some cases only rate if requested to do so by an investor. Recently large rating agencies such as S&P have acquired ESG rating agencies in an attempt to add the service to their platforms. Ultimately, funds and other allocators of capital to the mining industry will dictate what it means to be “ESG compliant” or to have a rating that is sufficiently high enough for investors to invest. In the meantime, nickel companies will have to navigate a less than clear path to find development dollars.
For investors and consumers thinking about how ESG principles may pertain to nickel production and development of future projects it is important to understand the primary nickel ore bodies, production methods and locations of the world’s nickel endowment. There is no perfect solution, but it is worth noting that the cleaner you want your nickel (sustainability, carbon footprint, tailings, processing etc), the more it is going to cost to produce it.
Sulphide vs Laterite Processing Routes
Nickel is produced from two primary resource types, sulphide ores and oxide ores more commonly referred to as laterites. Sulphide deposits tend to be located outside of the tropics (although there are a smattering of deposits in South America, South Africa and Australia). Sulphide deposits are predominantly exploited in Russia, Canada, Scandinavian countries, China and Australia. Laterites are distributed in the tropics with Indonesia, Australia, New Caledonia, Philippines, Papua New Guinea, Cuba, Brazil and other countries hosting the majority of the laterite resources.
Approximately 70% of the world’s nickel resources are in the form of laterites with the remainder in sulphides. However, until the late 1990s 70% of global nickel production was from the exploitation of sulphides. It is only with the “HPAL wave” of 1990 (Anaconda Nickel, Cawse, Bulong, and later Coral Bay) that laterites were viewed as serious contenders to sulphide operations or the production of primary (class 1) nickel. I would also note that 100% of FeNi production (which is considered class II) comes from laterite deposits and this also led to the explosion of NPI production in the 2000s which pushed laterites into the dominant source of refined nickel that we now have (combined class I and II).
Production of class 1 nickel from sulphides is much more energy efficient than laterites. As a general rule, it takes approximately three times the amount of energy to produce one tonne of nickel from a laterite operation as it does to produce the same tonne from a sulphide operation. This is because sulphide resources contain sulphur which is a free fuel source when processing the ore into an upgraded product.
Sulphide ores can be easily refined into class I metal through traditional low carbon footprint technologies. Mining and concentrating where you utilise the run of mine ore and put it through a flotation circuit, in turn upgrading the ore from a low-grade concentrate (say 3 % Ni) to a much higher grade (up to 25% in some cases). This allows the miner to reject the majority of the material mined before complex processing takes place, reducing costs. In addition, chemicals used are not typically harsh (organics) and rejected material can easily be impounded back into the depleted mine or a facility at the mine site. The resulting concentrate can then be smelted to remove the sulphur and generate a valuable by-product (H2SO4) and refined into metal where virtually 99% of the feed material can be recovered as product or by-product generating non-or-little waste. A classic example of this is Sherritt’s Fort Saskatchewan refinery that currently emits zero solid or liquid waste.
Laterites that are processed pyrometallurgically require significant energy as you are melting the entire amount of ore to produce a nickel rich iron product. The energy comes from either burning fossil fuels (diesel, coal, etc.) or in some instances hydroelectric power. This generates an incredible amount of CO2 if you don’t have access to hydroelectric power. In the case of NPI production, where nickel recovery and concentration is even less, the energy footprint is significantly higher per unit of nickel recovered. Laterite ores must also be dried before pyrometallurgical treatment to remove the 30-40% moisture most have. This usually involves combusting a fuel and using direct gas to heat the ore and evaporate the ore. This results in huge dust pollution in and around pyrometallurgical facilities.
The benefit of treating a laterite ore pyrometallurgically is that you utilise a greater percentage of the resource as the iron and nickel become a product, by way of example for 1,000,000 tonnes of ore mined, you might make 300,000 tonnes of product with a nickel grade of 6-10%. The remaining residue is usually a dry glass type material that is inert and can be used for earthworks or just stockpiled. It is not susceptible to leaching with rain and is relatively stable. Of all of the ways to process laterite into nickel, making NPI or FeNi results in the generation of the least hazardous solid residue which has to be dealt with.
Laterites that are processed via hydrometallurgy (such as HPAL or the limited Caron process – Cuba, Philippines, Brazil and Australia) generate inordinate amounts of waste residue that can be highly toxic if not properly treated. Treatment of laterite via HPAL generates an acidic slurry which must be neutralised and impounded properly. In addition, the liquid effluent from an HPAL operation far exceeds the facility’s ability to recycle, and great quantities of solution must be disposed of. To date there have been attempts to deal with these vast quantities of residue which include on-land tailings ponds and ocean discharge of liquids. Some facilities operate much more strict guidelines than others with the depending factor being the local government regulations, as well as access to deep sea disposal sites (an example of a well run deep sea site would be Ramu Nickel where the tailings are discharged at the same PH as the ocean, thus effectively inert).
Projects which are not located close to deep water suitable for marine tailings face a significant issue in dealing with liquid residues as a result of HPAL. Australia has an advantage as the dry conditions allow for net evaporation of the solution and safe stockpiling of the dry residue. Countries with significant rainfall such as Indonesia and no deep water access will have to build complex and significant on-land storage facilities and ensure that liquid effluent is properly treated before return to any natural waterways. In a post tailings disaster world (Brazil and Canada have both had major incidents in the past few years), this is a major consideration. Many laterite resources occur in countries with less developed environmental protections and protocols and some facilities are allowed to emit effluents which would not be considered acceptable in OECD countries.
Given the location of many laterite deposits in remote developing countries, access to skilled and trained workers may be more limited. In many cases companies operating in these jurisdictions are required to hire locals which may lack skills and qualifications to safely and effectively operate the facilities. In part, it is due to this lack of training and experience that the many of the environmental issues and safety records in these operations are higher than mature operations in Canada, Japan or Europe. Countries that now have decades of history operating nickel process plants (Indonesia, Philippines, Cuba) have better safety and environmental records than countries just entering this domain (Madagascar and New Caledonia).
For currently producing projects, time and money can be spent on tailings and other processes to attempt to make projects more environmentally sustainable and mitigate environmental impact. It is worth noting, that in many cases this is unlikely as the financial burden to make these changes would make production uneconomic at the current nickel price. Treatment of HPAL tailings at a facility producing between 40,000 to 50,000 tonnes per year of Ni can add US$500 million to the capital cost and US$ 0.50-1.00/lb to the operating cost, both significant numbers in an industry with market consensus average cash costs in 2019 ranging from US$2.98/lb to US$3.63/lb. Moreover, social issues with local stakeholders can be addressed and updated to reflect a change in generally accepted mining practices.
Many of the observations noted in this article on the differences between sulphide and laterite production or between jurisdictions will impact projects not yet in production due to a change in the capital required to put a given project in to production. As US and European allocators of capital are increasingly demanding that mining projects adhere to ESG principles (in some cases they either have internal principles they can share or a go to firm they recommend), it will be those few projects that are able to achieve a sufficiently high rating and make money that will be funded.
A project such as Giga’s Turnagain that is seeking to be carbon neutral, powered by hydroelectric and producing in Canada, may be more attractive than an Indonesian project with a tailings dam and rainfall that exceeds evaporation.
Yet the ultimate impact and consequences, however well intended, of ESG remain unclear. There could be unintended outcomes if US and European funds demand a level of ESG compliance that is not attainable due to additional cost burden of said compliance and projects in Canada and Australia go unfunded, but non ESG compliant projects in jurisdictions such as Indonesia move forward backed by money that may not have the same environmental focus.
By Anthony Milewski, Chairman, Conic Metals