March/April 2008

The supply-demand game

Explaining and predicting the price of nickel

By D. Zlotnikov

Courtesy of Xstrata

There is a high demand for nickel in the world today. There are few who would disagree with that statement. Beyond that point, however, opinions differ greatly on what this demand means for the future of nickel prices and production.

Dave Constable, vice president of investor relations at Canadian FNX Mining Company, believes that the price will remain high and demand will continue to outstrip the available supply.

Laterites – nickel’s new frontier

When it comes to predicting the future supply of nickel, it is necessary to take into account the geology of deposits. Constable offered his insights, which stem from the finer points of the production side and his background as a geologist.

“Nickel deposits mainly come in two forms,” explained Constable. “There are the sulphides, which accounted for most of the worldwide production until now, and the laterites, which contain about 70 per cent of the world’s reserves of nickel, but only account for about 40 per cent of today’s production.”

Nickel laterites, according to Constable, are a much more challenging type of ore from which to extract the metal.

“Laterites formed when sulphide deposits were weathered by nature over millions of years,” explained Constable.“This left iron, magnesium, silicon and, of course, nickel.” The reason the nickel is there, however, is because the high temperatures (lateritic deposits mostly occur within 15 degrees of the equator) and moisture failed to extract it, even after millions of years.The miner’s challenge, then, is to accomplish what nature couldn’t, and do so in a cost-effective way.

Much in the same way that heavy oil has a higher cost base, explained Constable, laterites cannot be profitable below a certain price point.

“Up to now, we dealt with sulphide nickel, which was relatively inexpensive to bring to production and involved predictable technology, so we saw prices of $3 to $3.50/lb worldwide, and those were used to evaluate the viability of new projects. Now we have more and more laterite projects coming online. These are increasingly expensive, increasingly over budget and late coming online, and there’s a long tail bringing them up to production.”

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