An electric vehicle advertisement will often portray a car gliding past a picturesque wind farm, as the global share of renewable energy production increases. But the origins of raw materials for the battery are far less scenic.
The supply chain issues for cobalt are well known, and battery and carmakers have worked hard to avoid buying cobalt from artisanal operations in the Democratic Republic of Congo because of child labour.
But nickel, an increasingly important ingredient, has its own issues. The world’s second-largest nickel producer runs a mine built by Stalin’s prisoners in the Arctic Circle and its sulphur dioxide emissions have given its host town, Norilsk, the reputation as Russia’s most polluted city. Norilsk Nickel (MSC:GMKN), known as Nornickel, has been open about its SO2 emissions for years, but has committed to cutting them hugely through technology that converts these emissions into sulfuric acid and then gypsum. Between 1990 and 2011, the European Environment Agency said sulphur oxide output fell 82 per cent within the European Union through a combination of technology shifts and spending on pollution fixes.
Norilsk, which also produces copper and platinum group metals, laid out a 10-year plan this week that includes production forecasts out to 2030 and emission reduction spending. Its capital expenditure forecast climbs from $2.5bn-$2.8bn (£1.9bn-£2.2bn) in 2020 to $3.5bn-$4bn between 2022 and 2025. A 15-30 per cent increase in nickel output from last year’s 217,000 tonnes (t) is the goal, with any increase representing a sizeable addition to the global nickel market of 2.3mt this year. Macquarie Bank forecasts prices to go from its current $14,500/t level to $19,000/t in 2023.
At the same time, dividends will come down from 2023, the company said. Payouts are currently governed by an agreement between the company’s billionaire major shareholders, Vladimir Potanin and Oleg Deripaska, and the policy is currently an extraordinary 60 per cent of cash profits, and this expires in 2022.
Nornickel vice president for strategy Sergey Dubovitsky told us the company did not want to become “uninvestible” under tighter environmental expectations. “All our production assets were built in the Soviet times,” he said. “For many other smelters, where you already fit in the environmental solution, it wasn't there for us.” Nornickel shut down its smelter inside the town of Norilsk in 2016, and says by 2023 it will launch a sulphur plant at another smelter to drop SO2 emissions by 45 per cent compared with 2015 levels in the company's Polar division. In the Kola division, a shutdown of some smelting operations and a copper line will cut SO2 emissions 85 per cent on the unit's 2015 levels by 2021. Mr Dubovitsky said previous difficulties around exporting sulphuric acid from the Arctic Circle operations had prevented cuts to SO2 emissions in the past as it would have cost “10 space stations” to make a real difference.
Nornickel can point to one positive on its emissions, outside of the acid rain and smog in Norilsk. It says it is one of the lowest CO2 emitters in the nickel mining industry, although its scope 1 and 2 (direct and power-related emissions, respectively) output of 10m tonnes of CO2 a year is measured using a Russian standard. This focus on improving the image of Nornickel as a supplier is important for its buyers in the electric vehicle and battery space. Benchmark Minerals Intelligence analyst Andy Leyland told us these supply chains were under far more scrutiny than those for internal combustion engine cars.
“When car companies are looking at long-term purchasing plans they actually really do consider where the materials are coming from and what the environmental impact of that material is,” he said. “They don't want their electric vehicle programmes to be tarnished with negative environmental stories or negative sustainability stories, whether that be cobalt from the DRC, lithium operations that can impact water tables, or indeed any industrial area prone to creating a lot of pollution.”
