Costs put miners in nickel pickle

Believe it or not, nickel is booming. And it’s minting billionaires, just not in Australia.

Thanks to its low-cost surface mining, cheap labour and close Chinese connections, Indonesia has snatched global nickel leadership; and it’s squeezing Australia out of the game.

Lim Hariyanto Wijaya Sarwono and Garibaldi Tohir are two of the new breed of wealthy Indonesian nickel entrepreneurs with fortunes estimated by Forbes magazine at $US4.2 billion and $US3.3 billion, respectively.

Both men and their families have other business interests, including palm oil and copper mining, but it’s a revolution in the way nickel is mined and processed in Indonesia, using Chinese technology, that has lifted them up the ranks of Indonesia’s mega rich.

The difference between what’s happening in the nickel industries of Australia and Indonesia is all about cost.

An easy test is to compare share prices. Australian nickel companies that have survived the 40 per cent collapse in the price of the metal over the past 12 months are all down sharply. Lunnon Metals is down 65 per cent. Poseidon Nickel is down 73 per cent. Panoramic Resources is bankrupt.

An outlier is Nickel Industries, which is only down 27 per cent; but that’s because it produces its nickel in Indonesia, where the falling nickel price has hurt but not been fatal.

What should have Australian governments worried is that Indonesia’s cost advantage will enable it to move quickly towards making batteries for a home-grown electric vehicle industry.

Two events last month highlight the difference between the two countries.

In Australia, there was a crisis meeting of nickel miners followed by a promise of government help in the form of royalty relief. A similar meeting with lithium miners covered the same ground.

In Indonesia, China’s BYD – the world’s biggest maker of electric cars – announced a $US1.3 billion investment in an EV factory capable of producing 150,000 vehicles a year.

Battery and EV makers have brushed aside complaints from Australian nickel miners about Indonesia’s poor environmental credentials (high energy use in production) and the environmental damage caused by surface mining. Also failing to gain traction is the claim that Australian nickel is better suited for use in batteries.

The reality is that in the battery business, as with most businesses, the cost of the finished product wins every time.

Best known for his iron ore fortune and hydrogen ambitions, Andrew Forrest has been an outspoken critic of Indonesia’s nickel industry, referring to its metal as “dirty nickel”.

That view was taken up by the man in charge of Mr Forrest’s nickel business, Luca Giacovazzi, who said after last month’s meeting of nickel miners and government ministers that Australian buyers of EVs deserved to know that the batteries in their vehicles were not made with dirty nickel.

Unfortunately for Messrs Giacovazzi and Forrest, not many EV buyers will ask that question because nickel is a small part of the overall EV cost. It would be a surprise to find anyone who owns an EV discussing the green merits of its battery.

Playing the environment, social and governance (ESG) card when it comes to nickel is as pointless as it has been with other metals, as two examples demonstrate.

Back in the 1990s a South African goldminer, Durban Roodeport Deeps, launched a product called ‘green gold’ with the branding a result of reprocessing old tailings dumps. The green tag was ignored and DRD’s gold got exactly the same price as all other gold.

ESG claims have also flopped in the marketing of diamonds. Whereas there was once concern over blood diamonds from war-torn Sierra Leone, it was rarely a question asked in jewellery stores at the height of the campaign against them and is never asked today.

Perhaps the best example of why low costs beat high costs every time can be found in the success of the Bunnings hardware chain, which has created a strong following because of low prices for everyday products.

Indonesia’s nickel might not be green but no-one, apart from Mr Forrest and a handful of fully committed environmentalists, cares.

Green nickel claims are also an attempt to dodge the fact that Australian nickel has become uncompetitive and is likely to remain that way as the federal government’s new labour laws are introduced, along with ever-toughening environmental rules.

The only hope for Australian nickel is a price recovery and perhaps a realisation by carmakers that they’re taking a risk by only buying Indonesian nickel and not supporting alternative sources of supply.