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Trafigura builds stake in battery Ni future

Oct 12, 2020 | 12:01 PM | London | Archie Hunter, Amy Hinton

Finland is building up Europe's next stage of battery metal evolution with Terrafame’s new battery chemical plant, and trading house Trafigura is squarely in the mix.

With Terrafame, Finland’s government has resurrected the assets of formerly defunct Talvivaara Mining, and is shaping up to bring about the world’s largest nickel sulfate plant early next year.

Having initially invested in Terrafame back in 2017, Trafigura has been growing its stake over time through two tranches of equity-linked financing provided by its Galena Asset Management arm, all with material offtake facilities attached.

At present, Galena would hold 44.3% of Terrafame if all its options were exercised, almost treble its initial position.

Terrafame’s new battery chemical plant will come online by the end of the first quarter of 2021 and - with a nickel sulfate production capacity of 170,000 tonnes per year – will effectively double global supply of the preferential battery-grade material.

“We no longer talk of ourselves as a nickel producer or the biggest nickel mine in Europe. Our purpose statement has changed in line with the business on which we are focusing, which is the EV [electric vehicle] sector,” Terrafame chief executive officer Joni Lukkaroinen told Fastmarkets.

The plant’s inception is timely, with the buzz surrounding EV demand for class 1 nickel units, and the demand itself, continuing to grow.

Global nickel consumption of preferential battery-grade nickel sulfate in battery precursor production increased by 28% year on year in 2019 to 162,000 tonnes, from 126,562 tonnes in 2018.

Nickel sulfate’s star continues to rise, following Tesla CEO Elon Musk’s promise of “giant contracts” to companies that could guarantee supply that was “clean” of the mining industry’s traditional labor and environmental issues, for the carmaker’s new energy vehicle (NEV) batteries.

Race for ‘green’ nickel
Musk’s statement set off a flurry of miners around the world racing to burnish their environmental credentials, but Terrafame has a greater claim than most; utilizing a bioheap leaching process to produce nickel sulfates, the company says its carbon footprint is 60% lower than industry standards.

This is in contrast to what has long been assumed to be the mainstay of production: controversial high pressure acid leaching (HPAL) facilities popularized in Indonesia.

“Customers are keen on sustainability. That is why electrification is moving ahead. European consumers are keen on the provenance of their metal and how it is mined – no child labor, no deep sea tailings – all of these are ‘no goes’ for consumers,” Lukkaroinen told Fastmarkets.

Offtake deal

As per Trafigura’s contractual agreement with Terrafame, whose battery chemicals plant it has funded through two tranches of financing, the trader will act as exclusive sales agent for all nickel and cobalt output from the plant when it comes online in 2021 until 2027.

But while the contract allows the trader to act in the capacity of agent for the plant’s nickel sulfate output over the period, it has no ownership rights thereto. This also applies to the companies zinc concentrate production.

Lukkaroinen confirmed to Fastmarkets that Trafigura is driving the green revolution from the top down via its investment in its operations, promoting green credentials among Terrafame’s owners.

“Trafigura are a big promoter of our plant. They have been the largest part of our battery chemical investment and are driving green initiatives and sustainable mining and refining operations. They have been very good owners for us to help us move in the right direction,” Lukkaroinen said.

“We are obviously the most sustainable solution for EV manufacturers when it comes to nickel and cobalt,” he added.

And with Europe pushing to become a center of new energy vehicle production for the future, Trafigura’s offtake will provide prime access to a growing market.

“Since the US-China trade war and since Covid-19, the battery industry and car industry have gotten paranoid about long supply chains, especially when there’s a geopolitical element,” Fastmarkets head of battery metal analysis William Adams said. “Having your nickel sulfate being produced a truck’s distance away [from the new battery plants being built in Europe] rather than shipping distances is important. It’s local.”

Europe vs Asia

But while confidence is high in the ongoing electrification of European cars and Terrafame’s ability to sate nickel demand arising therefrom, the market there remains immature in comparison to that of Asia.

Adams projects that batteries holding the equivalent of 400 gigawatt hours will be produced each year in Europe by 2025, which would need equivalent nickel demand of 280,000 tonnes per year, which is still some years off.

While the company will focus on Europe when the market hits sufficient maturity, other markets are an option until then.

“We need to look globally, particularly with today’s value chain. Yes, there is European EV production, but cathode-active material and precursor production there is not very big,” Lukkaroinen said.

Terrafame estimated that 1.6 million battery electric vehicles (BEVs) were sold worldwide in 2019 and expects this figure to reach nearly 9 million cars by 2025, but the Asian market still accounts for the majority.

China Association of Automobile Manufacturers (CAAM) figures say regional NEV sales rose by 26% year on year in August to 109,000 units.

“When we start production, we will sell to the Asian market. But in the long term we believe a big part of our production will find its way to European [original equipment manufacturers].”

And looking outside of Europe with its current offtake negotiations could potentially leave a seat for Terrafame to negotiate with the likes of Tesla, which has turned its attention to Europe.

Musk announced on Wednesday October 7 that production of Tesla’s new Model Y EV will begin at the firm’s Berlin Giga factory – using high-density, high-nickel 4680 batteries – next year.

And with European battery precursors looking outside of the continent, and other global EV producers looking in, the supply chain for the world’s hottest new commodity could be falling into place.

(A previous version of this article stated that Trafigura would have a full material offtake of nickel and cobalt from Terrafame's battery chemcial plant, it will in fact be the exclusive agent, indicating a difference in title and ownership.)