By Ernest Scheyder

(Reuters) – Tesla Inc has signed its first U.S. nickel supply deal, choosing Talon Metals Corp’s Tamarack mine project in Minnesota due to plans to make the electric vehicle battery metal in a way it considers more environmentally friendly.

The deal, announced on Monday, comes as demand for nickel is expected to jump over the next decade as EVs go mainstream. Nickel bolsters energy storage in a battery’s cathode, which in turn extends an EV’s range.

Tesla Chief Executive Elon Musk in 2020 pleaded with the mining industry to produce more nickel “in an environmentally sensitive way.” Musk also derided U.S. nickel production as “objectively very lame”.

By sourcing from Talon’s Minnesota project, a joint venture with Rio Tinto slated to open by 2026, Musk secures a key U.S. source of the metal for Tesla battery factories in Texas and Nevada, while also reducing the company’s supply lines. The automaker last year signed nickel supply deals with BHP in Australia and from New Caledonia.

Indonesia is the world’s largest nickel producer, but miners there typically use energy-intensive technology to extract the metal and deploy controversial waste disposal practices, including dumping waste rock in waterways.

Talon Metals plans to use technology it hopes will allow it to suck carbon dioxide out of the atmosphere and chemically bind it – and thus permanently store it – to rocks found inside its Tamarack project in northern Minnesota. The process, which is still being tested, would effectively let Talon market nickel as carbon neutral, a huge appeal for Musk and Tesla.

“Responsible sourcing of battery materials has long been a focus for Tesla,” Drew Baglino, a Tesla executive, said in a press release.

Tesla plans to buy 75,000 tonnes of nickel concentrate over six years, as well as smaller amounts of cobalt and iron ore, at London Metals Exchange-listed prices. It was not immediately clear where Tesla will refine the nickel concentrate. The United States does not have a nickel refinery.

Shares of Talon were halted just before the news was released. Shares of Tesla closed Monday up 3%.

“Talon is excited to support Tesla’s mission to accelerate the transition to renewable energy,” Henri van Rooyen, Talon’s CEO, said in a statement.

In 2020, the automaker inked a deal for lithium supply with Piedmont Lithium Inc for its Texas battery plant, but the deal was halted last year amidst rising opposition in North Carolina to Piedmont’s proposed mine.

(Reporting by Ernest Scheyder; editing by Richard Pullin)