New Caledonia’s Prony Resources said on Wednesday Tesla Inc had agreed to purchase more than 42,000 tonnes of nickel in a multi-year deal.
The pact would make Prony Resources a key supplier of the metal to the U.S. electric car maker.
Prony, which bought the loss-making nickel operations in the French territory from Brazil’s Vale SA this year, added it aims to produce 44,000 tonnes of nickel by 2024, double its expected 2021 output. It will also embark on cost cuts as well as efforts to clean up waste from the nickel plant.
Electric vehicle makers have made securing sufficient supplies of nickel – a key ingredient in automotive batteries – a top priority and are particularly keen to seek out sustainable and low-carbon nickel supplies.
Tesla, which serves as an adviser on product and sustainability standards to Prony, also signed a deal to take supply from BHP’s nickel operations in Australia earlier this year.
Prony did not disclose how many years the deal with Tesla will run for.
The automaker is expected to deploy around 30,000 tonnes of nickel in batteries this year and is likely to rapidly ramp up its nickel consumption in the coming years, said Steven Brown, a Sydney-based independent expert on battery minerals.
Prony expects the nickel market to return to a surplus for four years from 2022 partly as top producer Indonesia will boost supply – albeit in a process that is emissions heavy. But by 2026 demand for nickel from the battery sector should be “exponential”, outstripping supply again, it said.
In the meantime, however, Prony has begun a hedging program to manage price risk and has locked in prices of at least $20,000 a tonne for 5,000 tonnes, it added.
LME nickel prices have risen some 20% over the past 12 months and are currently trading at $19,100 a tonne.
Prony is 51%-owned by New Caledonia’s provincial authorities and other local interests, while global energy trader Trafigura has a 19% stake and the rest is held by a joint venture between Prony Resources management and investment firm Agio Global.