Yesterday in Perth the WA Mines Minister, Norman Moore, formally opened the 2009 Paydirt Australian Nickel Conference, which continues today. The long-term nickel floor price has “turned the corner” and will continue to rise over coming decades even though there will be periods the base metal grapples with wild price fluctuations within a new “super cycle”. That forecast was by resources adviser, Martin Pyle, Principal of Perth-based Martin Pyle Consulting. “It is clear the global financial crisis impacted construction and transport, major factors in the associated reduction in stainless steel demand and therefore nickel in the short- term,” Pyle said. “The bottom line is that the nickel price has grown 5-6% (on average) for the past decade and none of the analysis suggests it will be any different going forward. In fact, forecasts of 500,000 t/y in new nickel demand by 2020 now look conservative.”I am expecting that the long-term price, although influenced by the short-term spot price, will be in the top end of the range of between $6.00-7.50/lb – and that does not fully account for the emergence of a new super cycle driven by demand growth from China.”The firmer price will also be underpinned by increasing evidence of the importance of nickel in emerging new alternative energy forms such as nuclear, solar and wind. All of these have strong elements of nickel within their project componentry. Nickel also has the added appeal of high recyclability and in every sense, is the ‘metal of the future’.”The rich nickel mineralisation of Western Australia’s Kambalda district will underpin the immediate growth of Mincor Resources, at the expense of new acquisitions. Managing Director, David Moore, said the continued growth of the successful decade long nickel mining business built up by the company would evolve around further exploration and enhancement of the existing mining business. “It is not a great time be acquiring but is a great time to be exploring.”
This could eventually include the recommissioning of the Miitel mine, currently on a care and maintenance basis. Moore’s address coincided with the celebration by Mincor in recent weeks of its 100,000th tonne of equity production of nickel concentrate from Kambalda. “There will be further growth paths through our Australia-wide base metal exploration endeavours but our key growth is the existing Kambalda business. The Miitel is a sleeping giant and a very significant producer and we will bring it back on line when we think the time is right – but the time is not yet right. If we decide to re-open, it would only take three months between that decision and achieving full production. Miitel has around 430,000 t of reserve at around 3% Ni, including 100,000 t of developed ore available to super-charge Miitel’s restart.
Western Areas, one of Australia’s major nickel producers, flagged a doubling in nickel metal output to 20,000 t/y in calendar 2010, as the metal’s price continues to push above $19,000/t. Addressing the second and final day, today, of the conference, Western Areas’ Managing Director, Julian Hanna, said the company had achieved all its major targets in the past 12 months and “is now poised to double our annual output through our major nickel mining interests in Western Australia.
“We are then looking from the end of next year to achieve sustained production at around 25,000 t/y primarily though our Spotted Quoll and Flying Fox mines on the way to becoming Australia’s second largest and highest grade nickel producer. Our objective is to reach this output performance while maintaining a cost target of between $2.00 and $2.50/lb before smelting and refining. This is achievable as Flying Fox is already emerging as one of the lowest cash cost nickel mines in Australia.
“Spotted Quoll, as our second flagship operation, can also contribute to that cash profile as it has a high grade open pit where development commenced this week.”
On the sector’s future, Mr Hanna said the industry needed another “world class” nickel sulphide discovery as smelters globally were being increasingly supplied by mature mines facing higher costs. “To put this in context, some 40% of global nickel sulphide production comes out of discoveries made as far back as 120 years ago. There have been worthwhile and useful smaller discoveries since but not on the scale necessary to sustain smelters in the long term. Laterites will be needed in the mix to meet market demand but will always face high capital costs to establish.”
Heron Resources is looking, mainly in China and Australia, for a partner to develop its 1,000 Mt (averaging 0.7%Ni) Kalgoorlie Nickel Project (KNP), in Western Australia.Heron Managing Director Mathew Longworth said that the project had emerged as one of the five largest deposits in the world and had a potential life-of-mine well in excess of 30 years. “We believe there is significant interest in nickel laterite deposits, we have a blank sheet in terms of opportunities for partners to further optimise the flow sheet and current engineering and to enter this totally new project and undisturbed deposit at low cost.
“For any new partner, they have the chance to shape the timing and rate of development so that KNP’s emergence as a major mine fits in with the equities cycle that allows construction in the lows and mining in the cycle highs, not the other way around has been the recent history in the sector. Particularly, the international search will be promoting the opportunity for a KNP partner to reduce the project’s capital costs through modulised construction.”
A prefeasibility study has been completed and the company is currently optimising the project, with engineering work expected to start next week.
The new Brazilian nickel mine owned by Australia’s Mirabela Nickel has the potential to deliver 4% of total global production and become a “significant world producer”. Mirabela’s Managing Director, Nick Poll, said an initial annual output of 26,000 t had been scheduled for the maiden start-up period at the Santa Rita open-cut located halfway along Brazil’s eastern coast. First concentrate is due to be produced in November following mining start-up in August this year with the open-pit having a current estimated life of 19 years and a combined open-pit and underground operation of at least double that.
“This will be the second largest open cut nickel sulphide mine in the world and we have the opportunity to double total mine output, which would account for about 4% of global output, if we elect to eventually develop the higher grade underground ore resources,” Poll said. “However, while we are undertaking drilling and other studies on Santa Rita’s underground, we are focused on getting the open pit up and running smoothly and to achieve positive cash flow positions by March next year at anticipated cash costs of around $2.88/lb.
“We intend to complete a full feasibility study on the underground project next year. If the study comes in as expected, then we would expect to commence underground development as soon as possible. An underground project of this size would take up to five years to reach full capacity and could have a mine life between 25 and 40 years. Drilling of underground resources is expected to recommence once the Santa Rita operation is cash flow positive.”
Santa Rita has total open-pit Proven and Probable reserves of 121 Mt at 0.6% Ni, containing 726,000 t of nickel. Mining is expected to ramp up to full capacity of 6.4 Mt/y over the next year. The initial underground resource has been estimated at 87.5 Mt at 0.79% Ni and 0.23% Cu with substantial opportunity Poll says, for reserve addition because of the mineralisation’s potential at depth. Mirabela is targeting an underground resource of between 150-200 Mt.
Another view on pricing was that nickel can expect to trade between $8,500 and $17,000/t over the next few years as the unwinding of global stimulus packages takes a negative impact on resources-based commodities, according to a leading Australian nickel analyst. Research Analyst with Alto Capital, Carey Smith, said that while the worst of the global financial crisis appears over, challenges still abound. “US and European growth can be expected to be sluggish over the next 12 months as demand for commodities eases.” Smith said.
“The current commodity prices – including nickel in excess of $19,000/t – cannot be justified by current supply and demand fundamentals. We should expect an easing to a low of around $11,000/t in 2011 – still a good price – before recovering slightly to around $14,000/t by calendar 2014.
“While the prices will ease, mid-cap Australian nickel producers are trading around fair value and should remain strong at least for another few months.”
Smith said downward price pressure would also result from current global stockpiles of 35 days of consumption compared to historic supply stocks of 10 days. “This is the highest stockpile level since the fall of the Soviet Union in December 1991 and there are additional but unknown quantities being held in China and Russia.
“Price easing will also be fuelled by the fact the spate of mine closures globally has not been enough yet to offset weak nickel demand and the winding back of global stimulus packages estimated in size at a total of $7,000 trillion. To put those stimulus packages in perspective, that is over nine times the size of the Australian economy and enough to acquire the whole pool of combined Australian mid-cap nickel producers. With this stimulus momentum removed, any increase in global consumption will be dependent on continuing growth in Asia and assuming that global recession does not double dip into a global depression.
“China – which accounts for 50% of global steel production – will be pivotal but it needs US and European consumers to start spending again, increasing its import levels.”
Australian nickel project developers and miners were advised to keep their debt financing strategies simple and focused in the wake of last year’s low price for the metal and a change in the axis of traditional sources of mine financing. PCF Capital Group Director – Corporate Finance, John Correia, said such project proponents should ensure that existing or potential lenders had a good understanding of their business.
“A number of European and US banks have withdrawn from the Australian syndicated market, and this has increased the refinancing risk for larger companies. As a result, Asian banks’ participation in Australian syndicated financing has increased, backed by the strong saving culture which underpins robust balance sheets for Asian banks. That said, a number of other lenders have since had reaffirmation as to their participation in the mining finance sector in Australia, which is good news for Australian junior and mid cap companies looking for expansion or development capital.
“One fallout from the turmoil of the past 12 months has been some banks behaving badly with corporate issues overriding relationship concerns. This has created great stress amongst some companies which have been forced into alternative funding arrangements to satisfy recalcitrant lenders.
“Australia’s nickel proponents have to adopt going forward, a sensible approach about their debt funding options including how much time such a process would take, the likely cost and the reality of generating significant competitive tensions. They should also ensure that potential lenders really do have a good understanding of the mining sector in general and their project in particular.
“Companies should also ensure that they have adequate liquidity support for unplanned events, which should work hand in hand with whatever debt arrangements the company is trying to achieve. This helps avoid any nasty surprises for both the company and lenders if things don’t go according to plan.”
Mr Correia said this rethink of financing issues was necessary as while world refined nickel production is expected to ease about 7% in 2009 to 1.28 Mt, it would recover and climb towards 1.44 Mt – a 16% improvement – a trend necessitating likely financing support for new developments.
He said recent media reports stated that whilst China was a bright spot for commodities at present, there were some views that China alone could not rally commodity markets and the rest of the world would have to catch up to support current price levels. “In addition, lenders continue to use price assumptions in their modelling which are conservative and below current actual prices. Potential borrowers should be cognisant of that as they consider their various funding options. Notwithstanding these concerns, there certainly appears to be a general mood of recovery both in equity and debt markets and cautious optimism about the outlook for the nickel price over the longer term.”