OPINION: Keen to secure access to raw materials, some heavy-hitting Japanese corporations are reviving interest in WA’s nickel sector.
Western Australia’s near-extinct nickel industry is showing signs of life after three bruising years. Leading the charge is the almost-forgotten $3.2 billion Goongarrie project near Kalgoorlie, which is edging towards development thanks to a Japanese hunt for raw materials not controlled by China.
Two of Japan’s big trading companies – Sumitomo and Mitsubishi – are investing close to $100 million in a definitive feasibility study (DFS) being managed by the local partner in the project, Ardea Resources.
A steady drip of news about Goongarrie started last year with an increase in field work, the awarding of DFS engineering contracts, and foreign investment approval for the Japanese partners in the project from the Australian government.
While most of those moves failed to excite investors, that changed late last year as China tightened its control of the Indonesian nickel industry, which produces 65 per cent of the world’s nickel.
Accordingly, Ardea’s share price moved sharply upwards.
A 55 per cent rise – from 31 cents in December to a high for the year of 48 cents in late February – was the first clear sign that Goongarrie might finally make its way off the drawing board after more than 30 years of planning.
Ardea’s share price has retreated from last month’s peak, but the stock has been one of Australia’s best-performing non-gold miners, aided by hints of a recovery in the nickel price, which remains depressed at $US16,434 a tonne but is up 7 per cent since the start of the year.
The active participation of the Japanese companies, with the support of the Japanese government, is similar to the role of another big Japanese company, Mitsui, in the decision of Rio Tinto to proceed with the development of the long-dormant Rhodes Ridge iron ore project in the Pilbara.
Japan has also been critical in the development of WA’s rare earth industry after Chinese market manipulation in 2010 threatened supplies of essential material to Japan.
This led to a funding deal headed by Sojitz Corporation, another trading company, which largely paid for the Mt Weld mine of Lynas Rare Earths north of Kalgoorlie.
The similarities between Rhodes Ridge, Mt Weld, and Goongarrie are profound, with each driven by Japan’s hunt for supplies of raw material out of Chinese reach.
Rare earths were the most obvious industry attracting Japanese interest, but the Rhodes Ridge iron ore project also qualifies as an example of Japan shoring-up future supply, given Chinese moves to control the emerging African iron ore industry through involvement in the giant Simandou mine in Guinea.
Goongarrie is of interest to Japan under its Critical Minerals Supply Chain Security Plan, because of the way Chinese investors effectively control Indonesia’s nickel industry (and the implications for supplying worldwide demand for batteries).
Cobalt, another battery metal controlled by China, is also expected to be produced at Goongarrie, a project based on low-grade, near-surface ore that requires intense processing.
Goongarrie ore and the likely processing route have comparisons with the Murrin Murrin nickel mine of the 1990s, which was developed by Andrew Forrest when he ran Anaconda Nickel but is now owned by global commodities giant Glencore.
Mining will be the simplest part of the Goongarrie project, with most of the raw material located in a series of shallow orebodies close to the Goldfields Highway running north from Kalgoorlie.
Processing is the complicated part, requiring high-pressure, acid-leaching in autoclaves similar to those at Murrin Murrin.
Costing by Ardea is encouraging, with the company claiming Goongarrie will have a life-of-mine operating cost (after cobalt credits) of $US5,763/t of nickel, well below the current market price and competitive with Indonesian projects.
The challenges for Ardea are to overcome Goongarrie’s 30 years of unfulfilled promise, which have placed it in the too-hard basket, and to source the estimated capital cost of $3.2 billion.
If those hurdles can be cleared, the revival of WA’s once-important nickel industry might be a big step closer.
