How many tonnes of rock does it take to make a battery?
The answer to that will vary from deposit to deposit, and from commodity to commodity, but the question nevertheless is an intriguing one, and may yet come to be a new informal metric for the measurement of a project’s viability.
Take Amur Minerals Corporation (LON:AMC) for instance, which has nickel at the Kun-Manie deposit in the Far East of Russia. A typical Tesla battery will contain around 50 kilograms of nickel, so with Amur’s average grade of 0.8% and projected recoveries of 80%, it’ll be about eight ore tonnes.
So far so good, but what does it really mean? Well, one way of looking at it is to compare Amur’s grades with other companies, like for example Royal Nickel (TSE:RNX). The Royal Nickel Dumont project ranks, like Kun-Manie, among the largest undeveloped nickel sulphide deposits in the world.
But there is a crucial difference. Grades at Dumont run at around 0.26% and projected recoveries are set to be around 42%. When you plug in those numbers to the Tesla calculation it turns out that Royal Nickel will need to mine around 40 tonnes of ore to match the battery productivity of Amur’s eight tonnes.
Because Dumont is so large there will be economies of scale and it still looks set to generate an internal rate of return of just 15.2% after tax on the US$2bn project. But it’s an intriguing comparison nonetheless, and goes a long way towards demonstrating the relative attractiveness of some mines over others.
To put it in simple terms, to transport the ore required to manufacture each electric vehicle battery, Royal Nickel is going to need around 5 times more pit haulage capacity than Amur. That’s a lot of trucks when you consider Amur itself will need about 10 to 15 Cat 785D trucks.
When in production, Dumont is likely to be the fifth biggest nickel sulphide project in the world, behind Voisey’s Bay, Sudbury, the Chinese operations run by Jinchuan, and of course the mines of the industry behemoth Norilsk (MCX:GMKN). It would be interesting to run the same set of numbers across the Norilsk portfolio, given that Norilsk and Amur both operate in Russia in relatively remote locations.
The key difference, of course, is that Norilsk is an established and long-standing player, while Amur has yet to make it into production.
But progress towards that end continues at a good strong pace, according to chief executive Robin Young.
“We are starting to put together our strategy for next year,” he says.
“What we want to do is benchmark the project, to set out where we stand in relation to the economics, and to work out what we can do to get to first production as soon as possible.”
The results of an imminent pre-feasibility study are likely to be “substantial and quite positive,” according to Young.
They will show a project with a mine plan, a mining schedule, a mill design, a plan to transport concentrate to the local railhead, and a logistics agreement to get concentrate to the smelter.
“That’s the fastest way to production,” says Young, “and it’s suitable and acceptable to the banks.”
Russia and China
Almost equally crucial is that it’s acceptable to the Russian government too. Amur now seasoned in the ways of operating in Russia and tends to see itself as having an “Asian-centric” focus these days.
The product will likely go south, across the border into China, while almost all the operational functions will be Russian.
“The Russians and Chinese are comfortable with us,” says Young. “We’ve been there so long.”
For the Russians, the benefits are simple enough: the economic stimulus that such a large project will create, including jobs and secondary employment.
“The Russian government is quite keen to get projects like ours up and running,” says Young. Incentives around taxes and royalties provide the company with plenty of motivation to get up and running, and what’s more, because they only run for a limited time, to get the maximum amount of metal out of the ground as soon as possible.
But it’s the Chinese connection that in the end could prove crucial. At some point soon Young is going to have to go into the market for significant sums of debt and equity finance to get Kun-Manie built, always assuming that a buyer doesn’t step in, that is.
When he does, Western banks will certainly have a role to play, but so too will the Chinese. And it’ll be towards China that Amur looks to for potential offtake agreements and joint venture partners.
“I would anticipate that someone will step up, although I can’t really say when that will be,” says Young.
“We’re flexible. All our plans and designs work on the basis that we’ll go it alone, but we know that as more and more information becomes available there’ll be more focus on what we have.”
September is likely to be a big month for Amur, with the upcoming pre-feasibility study, and it’s a good bet that the company will be on the receiving end of a lot of attention from the market. Young is all set to initiate a new marketing drive, and it will be interesting to see what kind of traction the shares are able to get.