BASE METALS

Australian nickel miners must grin and bear it well into 2009

Western Australia (WA), now a major focal point for global nickel supply with its high grade sulphide mines and more recent nickel-cobalt laterite open cuts, is reeling with the sudden recession for base metals with the outlook most sobering for the now high cost nickel laterite mining and refining projects.

Author: Ross Louthean
Posted: Wednesday , 22 Oct 2008

PERTH - 

The annual Paydirt Australian Nickel Conference opened in Perth today with more questions than answers for this sector with few speakers offering any panaceas for a return to a healthy nickel price until at least well into next year.

A positive point from today's programme included the new State Mines Minister Norman Moore promising remedies for the massive backlog in project and licence approvals that developed under the previous socialist Labor governments. Positive comments also came from some of the State's mid-tier nickel miners that they were cashed up, debt free and had flexibility in mining to keep costs down should a low metal price continue well into next year.

Moore said the disastrous Varanus Island gas supply project had impacted on WA industry and hit remote nickel projects with the Cawse lateritic nickel mine closing and it has remained closed through nickel-cobalt prices and the high cost of sulphuric acid in the refining process.

Moore said nickel was now WA's third most important resources sector, having contributed $A5.3 billion ($US3.56 B) in value in 2007-08, only surpassed by iron ore and the petroleum sector.

"There are 12 operating nickel producers in WA and about 250 companies exploring for nickel in almost 170 projects. This is of enormous importance to the State in terms of investment and employment in regional areas.  And, of course, there are the royalties from nickel mining, with this contributing almost $A160 million in the last financial year," Moore said.

Carey Smith of Alto Capital Research told delegates the high nickel prices of 2006 and 2007 "are gone."

He said a realistic outlook for nickel prices over the next few years is around $US15,000-17,000 per tonne "but producers should take heart from an expected doubling in demand over current levels by 2030."

"The price collapse has gone from an average for the 2007 full year of $US38,023/t to a current $US10,155/t," Smith said.

The outlook going forward will be that the junior end of the market will struggle over the next couple of years with little or no capital available for exploration let alone project development.

"Only the most financially sound laterite projects will get off the ground - and that demands an average grade of at least 1.5% nickel or higher. Numerous nickel mines are expected to shut down globally as profits turn to losses."

As with other metals, such as the platinum group metal family, high priced nickel resulted in substitution and one lower range stainless steel - nickel's main market - does not utilise nickel.

Smith said Alto Capital expects nickel demand to increase over the next 10 years with demand likely to double the current level of 1.4 Mt per annum by 2030.

"In addition, as commodities are consumed, it is getting increasingly difficult to replace the depleted resources at a reasonable price and add to this increasing demand from China, India and the rest of Asia.

"As a result, nickel prices in three years time will be substantially higher than present but unlikely to reach the levels of 2007."

Delegates were told by keynote speaker, Stephen Barnett that nickel is the one metal that can contribute to a reduction in greenhouse gases.

Barnett, President of the Brussels-based Nickel Institute said nickel's sustainable characteristics were the "green factors" argument that the industry had to put to governments and the community as a climate contributor, not as a hazardous material.

"Nickel has a long life, materials used and produced from nickel tend to be around a long time and are used and used again as a recyclable resource, and are major components of energy facilities such as emission-saving nuclear power plants," Barnett said

"Nickel and nickel technology are proving sustainable, and are the solution to many manufacturing challenges, alloys needed in hydro power stations or for high strength blades in wind turbines - all contributors to clean air and emission reductions.

"So prominent are these nickel contributors that 7% of patents issued in the United States each year now refer to nickel in one form or another in some technological innovation.

David Moore, chief executive of Australia's third largest nickel producer, Mincor Resources NL (ASX: MCR) said his company was well placed to withstand the current global meltdown in equities and financial markets and is ready to ‘flex" its production options as opportunities present.

Mincor was the first of the companies to take over mines in the Kambalda region from WMC Resources (later absorbed by BHP Billiton) in 2001 and began with resources of 45,000 tonnes contained nickel and now has 160,000t of resources and reserves after having mined 100,000t of contained nickel In that time it has provided shareholders with $A70 M ($US47.1 M) worth of dividends.

Mincor has $A90 M ($US60.54 M) in the bank and has no debt and is still targeting producing 20,000 tpa of contained nickel.

Julian Hanna, managing director of Western Areas NL (ASX: WSA) which has developed high grade mines in the Forrestania region, said the nickel price will bounce back early next year, and that was a prediction supported by Chinese metals traders.

"The Central Committee in China is fully aware of the need to keep its own resources and infrastructure momentum going. "I see the current collapsed nickel price, down to around $US4.70/lb, as a real anomaly. I do not believe it will sit there for very much longer and will rebound rapidly," he said.

"This was reinforced during a recent tour of Chinese nickel smelters and mines where they expect the bounce back around Chinese New Year - which coincides with our Australia Day - and we agree with that," he said.

He said the "happy zone" for the nickel price is between $US10-15/lb.

"We regard $US8/lb as to where it starts to negatively impact production and while it has headed below that recently, we expect it to return to sensible levels from early 2009."

Hanna warned equity markets against "too hard" a marking down of the metal, arguing that 5% and 3% nickel ores in Australia remained the highest value commodities per tonne of mined ore.