Lithium batteries generate opportunity for PNG mining sector

Estimating the long-term global demand for cobalt, copper and nickel is a challenging task. While the rise of electric vehicles (EVs) in recent years has increased demand for the metals used in the production of lithium batteries, technological advances could alter the components used in their makeup. Despite that concern, the demand for these minerals is expected to rise for the foreseeable future, as more nations move away from diesel-powered vehicles in an effort to curb pollution. As a result, Papua New Guinea’s mining segment is benefitting from growing demand for lithium battery components, which in turn is bolstering economic stability. “The rise of nickel and cobalt has eased PNG’s dependence on gold,” Roger Gunson, executive manager of the Mineral Resource Authority (MRA), told OBG. “This has spread the country’s risk exposure in terms of commodity price fluctuations.”

Battery Powered

Tesla, the American technology firm that specialises in EVs, uses NCA lithium batteries, a combination of 80% nickel, 15% cobalt and 5% aluminium. While the value of nickel and copper has grown steadily, cobalt prices have increased by more than 300% in recent years, rising from a $10 per pound floor price in January 2016 to $41.50 per pound in April 2018. Consequently, as the world’s fifth-largest producer of the metal, the Ramu nickel-cobalt project on the north coast of PNG has experienced a recent boost. In 2017 production at the location reached record highs and continued growth into early 2018.

According to a report released by Highlands Pacific, which holds an 8.56% stake in Ramu, the plant was running at an annual production rate of some 34,600 tonnes of nickel and more than 3300 tonnes of cobalt, which exceeds design capacity, demonstrating the success of recent initiatives to lift throughput rates (see overview). With 49m tonnes of reserves at 1.0% nickel and 0.1% cobalt, the mine is well positioned to support the global production of EV batteries. “Everyone talks about cobalt but it actually is a by-product of copper and nickel mining,” Craig Lennon, managing director and CEO of Highlands Pacific, told OBG. “Nickel, in PNG’s case, is a driving product. Ramu produces both nickel and cobalt, so growth in batteries and EVs has strong benefits for PNG and the mine,” he added.

While MCC Ramu NiCo was responsible for development and financing, Highlands Pacific’s share will grow to 11.3% at no additional cost after internal debt has been repaid, with an option to acquire an additional 9.25% at fair market value, which would increase its interest to approximately 20.55%. The Ok Tedi copper mine in the Star Mountains of Western Province has also benefitted from a rebound in copper prices. Owned by state-run Ok Tedi Mining, the location had a resilient turnaround in 2016 following a two-month closure in 2015 resulting from low water levels during the El Niño-induced drought, with revenues rose by 69% in 2016 on the back of sturdy copper price growth.

Demand

While forecasts regarding the evolution of battery components differ, under current production estimates and pre-order agreements, most technology analysts expect lithium batteries to dominate the space for at least the next decade, if not longer. With this is mind, and given the fact that the sale of EVs is expected to surpass the 60m mark by 2040, production is expected to require an additional 1.8m tonnes of nickel and 679 kilotonnes of cobalt before 2035, with demand for nickel expected to triple by 2025.

In addition to Ramu’s existing 30-year reserve stock, the country has a number of potential projects that could support the production of EVs and the long-term success of the industry, such as Frieda River copper-gold project in West Sepik Province, one of the world’s largest known undeveloped copper deposits. The Northern Province also hosts two significant nickel cobalt deposits, both of which are larger than the Ramu resource. Another potential source of significant revenue is the reopening of Panguna copper mine, which has been closed since 1989 (see analysis).