Elon Musk called for greater nickel production last week, sending the price of the metal skyward. Nickel is a key ingredient in batteries used in electric vehicles (EVs). Musk is looking to cut the cost of batteries, which are a major component of the price of EVs. The eccentric billionaire added that his company could offer a long-term contact for nickel producers, stating: "Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way."
Nickel makes batteries more energy dense, so they can last longer between charges, increasing the range of electric vehicles. The nickel price fell from around US$14,000 a tonne at the start of the year to around US$11,000 a tonne in March on virus fears. Covid-19 subsequently disrupted mines and refineries globally, with a shortage of supply pushing the price back up to around US$13,500 a tonne currently.
So, if you want to get on the nickel bandwagon, here are 2 ASX shares with exposure to the metal.
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Western Areas Ltd (ASX: WSA)
Western Areas is a leading nickel producer with 2 of the highest grade nickel mines in the world. The company has operations located 400km east of Perth in Western Australia (WA). It is currently developing a third mine 30km north of Leinster in WA.
Western Areas released its quarterly activities report last week. The company produced 20,926 nickel tonnes in concentrate, which was 99.7% of guidance. According to the company, unplanned downtime throughout June relating to power supply accounted for the shortfall. Western Areas reports that it finished the FY20 financial year with $144.8 million cash at bank and no debt. The most significant cashflow item for the quarter was the $28.6 million paid for a 19.9% investment in Panoramic Resources Ltd (ASX: PAN).
Panoramic Resources
Panoramic Resources is a mining and exploration company with expertise in nickel, copper, and cobalt sulphide projects. It operates a nickel sulphide mine and processing plant in the East Kimberley region of WA, the Savannah Nickel Project. Panoramic decided to suspend operations at Savannah on 15 April. The decision was based on the combination of significant operational uncertainty, disruptions, and cost escalation caused by COVID-19 restrictions. Prior to the suspension, 16,459 tonnes of ore were mined.
Panoramic recently undertook a $128 million capital raising to repay debt facilities and provide funds for working capital purposes. This will also fund certain development activities at Savannah and some exploration activities.
Foolish takeaway
EV producers are looking to reduce the use of cobalt in EVs due to soaring costs. This means they are turning to nickel. ASX nickel shares should see increasing demand as use of electric vehicles increases.
