Where is New Caledonian nickel going?

In La Tribune 22/03/2024

The main cause of the crisis in New Caledonia’s nickel industry is the lack of foresight from New Caledonian ecosystems.

In the south, local politicians have no political vision of the nickel industry, they have invested little in understanding these markets, and rely as always on the assistance of Paris public finance to solve nickel’s profitability problems. In particular, it was painful to hear on November 28, 2013 “with France we have our cake and eat it too” (sic) during the program “la preuve par 4”, the subject of which was “Can we do without money from France?”.

The crudeness of such a statement illustrates a whole state of mind. This short-term political vision clashes with the necessary long-term economic solutions.  In fact, the 2016 state loans to SLN, a subsidiary of the Eramet group, did not solve any problems since the industrial strategy was bad. These irrepayable loans were erased by Paris making, and as same strategies cause same deleterious effects, new Parisian subsidies were again provided to the SLN in 2024. A good action for bad reasons will always end in a tragedy.

For other reasons, more than a billion dollars had been contributed to the balance sheet of Prony Resources when it was created in 2021 – more than 400 million by the French state, 500 million by the Brazilian group Vale which resold the company, and around a hundred million by the new shareholders, including Trafigura. But at the end of 2023 it was a fiasco, and again new subsidies were provided by Paris to Prony in 2024, to avoid the disappearance of the company.

Political incompetence

This deleterious political doctrine is compounded by political incompetence when it comes to the nickel market. Elected officials have floated the idea of a nickel OPEC to stabilize prices, but not everyone is Saudi Arabia. Back in 2012 and 2013 during two conferences in Nouméa, I explained to local politicians the illusion behind this idea, that Indonesia would become more of a competitor than a partner: with what skills did Nouméa hope to manage a nickel neighbor nearly ten times its size, which now wants a price ceiling of $18,000 per tonne of nickel to counteract the disappearance of nickel from the battery market?

In the north of New Caledonia, the situation is different. Here, there has long been a guide: the “nickel doctrine”. This political vision does not necessarily seek giant profitability from the mining industry, but uses its financial flows, profits and resources for local development, according to the “trickle-down” theory dear to the French president. On the one hand, it comes from mining to feed the Caledonian refinery in Korea, the world leader in terms of profitability. It also comes from the construction and operation of Koniambo. Just as the southern plants are subsidized by the state, the KNS plant is subsidized by Glencore for a simple reason. Originally, the northern plant’s nominal production cost was $8,000 per tonne. The problem is that this nominal point was never reached, because Glencore was unable to reach it although it was financing. A new partner with engineering capabilities would inherit a great mine.

Faced with this situation, what action can the public authorities take?

Firstly, the French government and Brussels have been contaminated by “rare metals” fake news. Because of this contamination, Paris could fall into the trap and be tempted to further manage nickel mining.
If it did so, it would be a mistake, because on the one hand it has demonstrated over the last 50 years that it has no capacity to manage mining activities. On the other hand, in recent years, it has demonstrated its inability to understand and resolve complex situations (nuclear, education, health, reindustrialization). In the case of New Caledonian nickel, the example of this trial and error is the energy solution of a small modular nuclear reactor that could be operational on site in… 10 to 15 years, i.e. very late. The performative communication of politics does not go well with the immediacy of industry.

Attracting new investors

As for the involvement of new private investors, the northern mine is a good candidate for a new partner. It has very competitive ore transport architecture between the mine and the plant. It is all the more attractive in that the debt owed to Glencore has already been written down in the latter’s books. Written off, it no longer exists in its accounts, and is all the more questionable for a buyer as the plant does not operate at nominal rates.

On the other hand, SLN unfortunately has no future because of its past management. Eramet’s latest statements in FT have a bizarre tone that borders on this pamphlet. But they are frank, and this frankness only makes up for the one I personally expressed in 2014.

Furthermore, the creation of Prony Resources (ex-Vale) remains a question mark, because before a solution can emerge, it will be necessary to make a real diagnosis of finance and shareholding.

Moreover, the scenario of concentrating on ore exports and closing local processing capacity is no longer relevant, as it leads to a recurrent fall in prices, due to a long-term oversupply situation. On the contrary, we need to have the courage to close unprofitable plants and concentrate production.

This calls into question the idea that New Caledonian nickel would be a strategic element in ensuring the production of batteries for electric vehicles in France and Europe. Indeed, we’re back to the “rare metals” fake-news that’s causing errors in Paris and Brussels alike. Just think that this infox has steered negotiations for Mercosur-type agreements that have killed off part of our agriculture in favor of access to “rare metals” that are anything but rare, since “rare metals” don’t exist. Pursuing a European minerals strategy for batteries under the continued sway of this infox will be a disaster.

As I wrote in la Tribune 3 years ago, electric cars are not a golden age for nickel. The facts are proving me right: Indonesia has finally understood this and is trying to safeguard the value of its production by limiting nickel prices to $18,000 per tonne. Nickel-manganese-cobalt batteries have lost ground to lithium-iron-phosphate (nickel- and cobalt-free) batteries. Recent Chinese statistics demonstrate the obvious: 70% of electric cars are equipped with LFP batteries. Chinese manufacturer BYD is the world’s leading manufacturer of electric cars and LFP batteries. This trend towards the disappearance of nickel and cobalt from batteries is now ubiquitous among all automakers.
As for lithium, another victim of the “rare metals” fake news, we are in a situation of oversupply.

It’s virtually certain that the batteries of the future will have as yet unknown metal chemistries, but the electric car of the future will run on less lithium, without nickel or cobalt.

Under these conditions, New Caledonia needs to come back down to earth, eliminate political pollution and concentrate on markets other than electric cars, i.e. on what it knows best – the stainless steel industry.