Nickel hungry BHP will be watching talks between Western Areas and IGO
The next stage of consolidation in the WA nickel industry is under way, with talks between IGO and Western Areas threatening to give BHP a headache.
The next stage of consolidation in the WA nickel industry is under way, with talks between IGO and Western Areas threatening to give new BHP nickel boss Jess Farrell a headache in her first few weeks on the job.
Outgoing Nickel West boss Eddy Haegel has helped make BHP’s WA nickel assets far more self-reliant than they once were.
But Nickel West is still reliant on WA’s junior miners to feed its Kalgoorlie nickel smelter, and BHP’s much vaunted deal to sell nickel sulphate to electric car maker Tesla ultimately hangs on its ability to reliably deliver output from Kalgoorlie.
That means BHP will be watching the long-mooted consolidation of smaller producers with a keen eye, particularly now Western Areas has confirmed it is in “preliminary” takeover talks with IGO.
Sources say a cash and scrip deal worth more than $1bn is under discussion, with price the main barrier.
Cashed up from the $903m sale of its stake in the Tropicana gold mine, IGO completed a $1.4bn acquisition of a part-share in Tianqi Lithium’s WA assets in July, and has been on the hunt for new nickel assets as its Nova mine in the state’s south runs out of life. Nova has only about four years life remaining, without further exploration success, and IGO boss Peter Bradford has made no secret of his desire to get hold of more nickel assets to make it a bigger player in battery metals. IGO has previously made an unsuccessful tilt at Kimberley nickel miner Panoramic Resources, and was briefly a shareholder in Queensland zinc miner New Century as that company eyed a bid for Vale’s Goro operations in New Caledonia.
In July it agreed to pay legendary WA prospector Mark Creasy $45m for his Silver Knight project, hoping it might provide the feed to keep Nova’s mill running.
A tie-up with Western Areas would prime IGO to consolidate WA’s nickel sulphide sector, given Western Areas also owns a 20 per cent stake in Panoramic.
But there is a broader play running. Half of the concentrate produced by Western Areas Forrestania nickel hub goes to BHP, with the other half to China’s Jinchuan. Nova’s output is split between BHP and Trafigura.
Mincor Resources, which will deliver first ore from its Cassini mine by the end of the year, will supply BHP until 2025.
Although Western Areas Forrestania operations are slated to close within four years, it has just launched offtake talks for output from its Odysseus mine, which sits smack between BHP’s nickel operations with Leinster to its south and Mt Keith – and BHP’s new Honeymoon Well project – to the north. With a 10 year mine life, Odysseus is one of the best near-term assets in WA, and also contains the nearby Mt Goode deposit, another 50 million tonnes of lower grade nickel ore.
Sources say Western Areas had been trying to put together its own consolidation play ahead of the IGO approach, with the company said to have been in close talks with Mincor – although those talks broke down.
Consolidating any combination of IGO, Western Areas and Mincor would give the combined entity a far stronger negotiating position with BHP.
BHP has demonstrated it is again prepared to make on-market takeover bids, through its $350m attempt to snatch Canada’s Noront Resources from Andrew Forrest’s Wyloo Metals in July, in an attempt to win a major footprint in an early stage, but potentially significant, nickel basin play.
The question now is whether it is prepared to splash some cash to protect its dominant position a little closer to its historic home in nickel.
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