Talon Metals to supply nickel to Tesla from Tamarack project in Minnesota

Talon Metals (TSX: TLO) has signed a deal with electric vehicle maker Tesla to provide 75,000 tonnes of nickel in concentrate over a six year period from the Tamarack nickel-copper-cobalt project in which it owns 51% and Rio Tinto (NYSE: RIO; LSE: RIO; ASX: RIO) 49%.

The agreement is conditional on Talon Metals earning a 60% stake in the project in central Minnesota, 1.6 km west of Duluth. To earn a 60% stake, Talon must complete a feasibility study on the project and pay Rio Tinto US$10 million.

The 12,545 hectare project consists of the Tamarack North and Tamarack South projects.

The company declined a request for an interview about the agreement with Tesla and said via email that it is “letting the release speak for itself.”

The purchase price of the nickel will be linked to the LME nickel price and according to Talon, the parties “have also agreed to share in by-product revenues, including from iron and cobalt.” In addition, “Talon and Tesla will work together to optimize nickel concentrate grades and metal recoveries,” Talon states in a corporate presentation on its website, and “Tesla has a preferential right to negotiate the purchase of additional nickel concentrate.”

The Tamarack project contains 3.93 million indicated tonnes grading 1.91% nickel, 1.02% copper, 0.05% cobalt, 0.41 gram platinum per tonne, 0.26 gram palladium per tonne and 0.20 gram gold per tonne (2.62% nickel equivalent). Inferred resources add 7.16 million tonnes grading 1.11% nickel, 0.68% copper, 0.03% cobalt, and 0.26 gram platinum, 0.16 gram palladium and 0.14 gram gold (1.57% nickel equivalent). The resource used a cut-off grade of 0.5% nickel.

Core sample from drilhole 20TK0278 at Tamarack. Credit: Talon Metals.

According to an updated preliminary economic assessment released in February 2021, the company envisions a shallow underground mine accessed by ramp that is amenable to bulk mining methods. The early stage study outlined a mine life of nine years with the first ore extracted within two years of construction. The study estimated 10.8 million tonnes would be mined at 1.34% nickel (or 1.85% nickel-equivalent) and at a rate of 3,600 tonnes per day.

The PEA noted that the company has the option of producing nickel sulphates for the EV market; nickel concentrates to be used for refined nickel powders for EVs; and nickel concentrate for the stainless steel market.

Under a nickel powder scenario, where nickel concentrates would be produced at site and thereafter used to produce refined nickel powder by a third party for the EV market, initial capex and working capital were estimated to be US$316 million with an after-tax payback period of 1.5 years, a post-tax net present value (NPV) of US$567 million and after-tax internal rate of return (RR) of 48.3%.

Under a nickel sulphide scenario, where nickel sulphates would be produced at site for the EV market, initial capex and working capital would come to US$553 million with a payback after-tax of 2.1 years, an NPV of US$569 million and IRR of 31.9%.

Under a nickel concentrate scenario, where the nickel concentrates produced at site would be sold to a smelter, which produce LME grade nickel mainly for the stainless steel market, initial capex and working capital would be US$316 million with a post-tax payback period of 1.6 years, an NPV of US$520 million and an IRR of 45.6%.

The numbers in each scenario were based on a base case nickel price of US$8 per lb. and a copper price of US$3.00 per pound.

According to the company’s most recent corporate presentation, its major shareholders are Resource Capital Funds (19.0%), the Pallinghurst Group (19.0%), Rio Tinto (5.8%), and management and directors (3.7%).

Over the last year Talon has traded in a range of 44¢ and 90¢ and at presstime in Toronto was trading at 73¢.

The junior has about 702.5 million common shares outstanding for a market cap of about $512.8 million.