Nickel stocks have garnered attention since the electric vehicle (EV) revolution. Nickel is a component in lithium-ion batteries. Batteries account for 10% of nickel demand at present, but it is expected to grow to over 50% in 10-15 years. As per BloombergNEF report, battery-sector demand for nickel is expected to grow threefold from 400,745 tonnes in 2022 to about 1.5 million tonnes in 2030.
Nickel Stocks Surge on Supply Shortage
However, not all nickel can be used for EV batteries. They need “class one” nickel, and Russia holds about 17% global capacity of this nickel. The United States, on the other hand, doesn’t have sufficient domestic nickel resources and relies on Canada, Norway, Australia, and Finland for its nickel needs.
This gap in demand and supply was visible to Tesla’s CEO Elon Musk in 2020 itself. In the 2020 earnings call, Musk told nickel producers, “Please mine more nickel. Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way.”
If supply wasn’t tight enough, the Russia-Ukraine war created an added level of uncertainty in the high-grade nickel supply. Hence, nickel prices bounced so high that London Metal Exchange had to suspend nickel trading for a week in March. The supply conditions are unlikely to ease anytime soon, and rising demand could keep nickel prices high. High nickel price is driving nickel stocks in 2022.
Top Five Nickel Stocks for 2022
The current situation and the EV revolution make nickel stocks a good investment for 2022.
In my list, I have excluded Russia-based Norilsk Nickel, the world’s largest nickel miner, because of geopolitical tensions with Russia.
Since Norilsk Nickel is out of the list, the world’s second-largest nickel producer, Vale, makes the top of my list. Vale mines nickel in Brazil, Canada, Indonesia, and New Caledonia. The Brazilian miner produced 168,000 metric tons of finished nickel in 2021, ~10,000 metric tons below Norilsk Nickel’s 178,200 metric tons. Vale expects to boost nickel production by 9% to 175,000-190,000 metric tons in 2022.
Vale earns 10% of its revenue from nickel and the remaining from mining cobalt and copper, iron ore and manganese. It signed a multi-year supply agreement with Tesla in 2021 to buy nickel from its Goro mine in New Caledonia. In its latest quarterly results, Vale’s revenue and adjusted EBITDA fell 14% and 29%, respectively, as lower sales volume offset higher copper and nickel prices.
Vale stock surged over 18% year-to-date but is down 29% from its 52-week high. This is a good time to buy the mining stock as it rides the EV and supply shortage rally in 2022. However, Vale is not a preferred stock for ESG (environment, social, and governance) investors.
One of the world’s largest diversified mining and commodity trading company, Glencore, is my second pick. The Switzerland-based company has nickel assets in Asia, Australia, Canada, and Europe. It is developing “next-generation nickel mines” in Canada, which are expected to commission in 2024-25. It aims to reach net-zero emissions by 2050, which could bode well with ESG investors.
Coming to nickel, Glencore earns only 5% of its revenue from nickel. But it is the world’s third-largest nickel producer, producing 102,300 metric tons in 2021. It plans to produce 118,000 metric tons of nickel in 2022 (up 15%). It is also a major recycler of nickel-bearing products like batteries.
Glencore stock surged over 23% year-to-date and is trading closer to its 52-week high. I generally do not recommend buying metal stocks at their high, but this stock can give you the EV and nickel edge.
The next on the list is the fourth-largest nickel producer BHP Group, with assets stretched across five continents: Asia, Europe, Australia, and North and South America. The Australian miner is a supplier for Tesla and sold over 85% of its nickel output to the EV battery industry in 2021.
BHP produced 89,000 metric tonnes of nickel in 2021and expects to produce 85,000-95,000 metric tonnes in 2022. It currently mines Nickel West in Western Australia (which accounts for 3% of its revenue) and is expanding its nickel business. BHP invested $40 million in a Tanzania nickel project in early 2022 and is looking to acquire Canadian nickel deposit owner Noront Resources.
Apart from nickel, BHP produces copper, iron ore, and other metals. It is not a preferred ESG stock because of its thermal coal business. But the company is offloading its fossil fuel business in favour of nickel amid the industry-wide shift toward decarbonization.
BHP stock surged over 11% year-to-date and is trading 18% below its 52-week high.
The above three stocks are mining giants that pay dividends and have strong volumes and market cap. Here are two Canadian small-cap, pure-play nickel stocks that can give you better exposure to nickel prices.
The next stock on my list is another Tesla supplier Talon Metals. Even though the company is nowhere in the top nickel producers of the world, it is a buy for three reasons:
- Talon Metals is a Canadian miner that is developing Tamarack Nickel-Copper-Cobalt Project in Minnesota in a joint venture with Rio Tinto.
- Tamarack mine is a high-grade nickel sulphide deposit and the only hope of the United States’ domestic supply of battery-grade nickel.
- In the light of the Russia-Ukraine war, U.S. President Joe Biden has added nickel to the 1950 Defense Production Act that promotes domestic production.
Talon Metals is looking for environment-friendly ways to mine nickel from the Tamarack mine and expects to make it operational by 2026. Talon is yet to generate any revenue, making it a risky bet.
Canada Nickel Company
Canada Nickel is developing the Crawford Nickel-Cobalt project in Ontario, which is believed to have the capacity to produce 42,000 tons of nickel annually. This could make it one of the world’s largest nickel mines. The company targets to have the feasibility study ready by 2022. It aims to produce environmentally friendly zero-carbon nickel, making it a preferred choice for ESG investors.
However, the company has not yet started earning revenue. Its growth depends on the successful execution of its mine operations, making it a speculative bet. Moreover, it is a small-cap stock with lower trade volumes. I won’t deny that it is a high-risk stock, but it could deliver significant growth if the mine becomes operational. Hence, the stock is at the bottom of my list.
Nickel Stocks: Final Takeaway
Nickel is currently in its up-cycle as demand overtakes supply. The next five to eight years are crucial for nickel stocks as the EV wave boosts demand and high nickel price encourages miners to mine the metal. The above stocks will give you a good balance of growth and dividend, risk and reward.
Disclosure: The author holds no position mentioned in this article. Freedom Stocks has a disclosure policy.