Dec '11/Jan '12

Nickel

Awaiting the revolution

By E. Moore

Analysts generally agree on the future of the nickel market, but the timeframe is difficult to judge. A global oversupply of the metal has been on the horizon for years. But anticipated new major nickel projects have been slow to start up, confounding forecasts each year.

There is reason to boost production. Asia’s current hunger for raw materials extends to nickel, primarily used in making alloys. RBC Capital Markets predicts a growth in global nickel demand of 8.6 per cent in 2011 and 10.1 per cent in 2012. Most will be used in the production of stainless steel (65 per cent of nickel consumption in 2010) or other alloys. China, as with other commodities, is a driving force in the demand’s growth. The country accounted for 33 per cent of global nickel consumption in 2010, and looks to generate a comparatively high 19.4 per cent yearly demand growth in 2011 and 2012.

For now, nickel operators have not matched that demand. However, by 2015, RBC expects worldwide nickel production to increase by 574,000 tonnes – more than a third of the 1.55 million tonnes estimated by the U.S. Geological Survey in 2010. The delay has chiefly technical origins: a number of planned projects rely on new processing methods for the more challenging, yet plentiful, laterite ores that will account for the majority of future production. More than two-thirds of the world’s nickel ores are laterites, but they only account for 40 per cent of current production, thanks to their comparatively high processing cost. New demand has changed financial reckoning, but the technical kinks still need ironing out.

The Canadian equation

Canadian nickel operations, both existing and planned, have a technical advantage in that they exclusively mine sulphide ores. Expansions here also adhere more closely to schedule. Xstrata Nickel’s Raglan Mine in northern Quebec will be expanded from an annual production rate of 26,000 to 32,000 tonnes by 2014; its Fraser Morgan project in Sudbury will add another 6,000 tonnes per year of nickel starting in 2013; and its new Nickel Rim South project is expected to produce 18,000 tonnes in 2011. Quadra FNX Mining Ltd.’s Levack Complex is also expanding by an additional 16,000 tonnes by 2012. A new mine, Ursa Major Minerals’ Shakespeare project near Sudbury, began commercial production in 2010, producing about 596 tonnes.

Canadian operations have not been free of difficulty, however. In August 2009, Vale halted its Voisey’s Bay operations during a workers’ strike, just as another strike at the company’s Sudbury operations was concluding. Voisey’s Bay did not resume full production until April 2011. Other smaller mines also suspended operations due to operational problems.

A precarious balance

Because an oversupply seems imminent, investors have not been kind to nickel. RBC’s 2011 average price forecast for the metal is only US$8.50 per pound, compared with $12 earlier this year. At prices in the $8 range, some producers will go out of business.

Mark Selby, senior vice-president, business development, of Toronto-based Royal Nickel Corporation, takes the common view that high-cost producers in China will bear the brunt of low nickel prices. These producers make a steel feedstock called nickel pig iron. “Even if you got in a surplus generated by this new capacity online, it would be largely offset by price drops that mean a certain amount of nickel pig iron capacity is shut down,” Selby says. “There’s already talk of nickel pig iron starting to curb production in China, which will balance the market more quickly than many people expect.”

Royal Nickel recently completed a prefeasibility study on its $1.1 billion Dumont nickel project in Quebec. Beginning in 2015, the project would produce 44,000 tonnes per year over a 19-year mine life, followed by 12 years of processing lower grade stockpiles. Selby believes it will be one of few new supply sources after the currently planned projects finally come online. “Most of these projects that have been under construction for the last four or five years have been around on the drawing board for 30 or 40 years,” he says. “They’ve basically cleaned out the cupboard for projects that have been sitting on the shelf.”

CaNickel Mining Limited, formerly Crowflight Minerals Inc., is in the process of ramping up its operation at the Bucko Lake Mine in Manitoba to 1,000 tonnes per day by the end of 2011. The company, which put the mine back into production last April, is also pursuing a winter drilling program near the mine.

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