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First Quantum Buys BHP Mine, May Restart in 18 Months

http://www.bloomberg.com/apps/data?pid=avimage&iid=iMBwH8poormU

Dec. 9/09 (Bloomberg) -- First Quantum Minerals Ltd., a copper producer in Africa, agreed to buy BHP Billiton Ltd.’sshuttered Ravensthorpe nickel mine for $340 million and aims to restart operations as part of a plan to diversify output.

First Quantum will resume production from the plant within 18 months of the purchase being completed, Chief Executive Officer Philip Pascall said on a Web cast today. The Vancouver- based company sees average production of 38,000 metric tons a year over the next five years, he said.

“We see a break-even cash flow from 18 months,” Pascall said. The company plans to invest $145 million upgrading the plant and sees production costs of about $5 a pound, he said.

Plunging prices forced BHP in January to close the $2.2 billion mine in Western Australia, eight months after it opened. Ravensthorpe is the second nickel project purchased in the last two years by First Quantum’s Pascall, who’s betting on a rebound in global demand from stainless steel mills.

“Low-cost, high-grade nickel sulphide deposits are running out of ore, underpinning the price,” Alex Passmore, head of metals and mining at Paterson Securities Ltd., said by phone from Perth. Ravensthorpe needs investment of about A$300 million ($272 million) to A$400 million “to get it up and running, in addition to the purchase price,” he said.

Rising Nickel Prices

Nickel prices in London have gained 37 percent this year, and Credit Suisse Group AG last month increased its forecast for 2010 and 2011 by as much as 25 percent. World nickel consumption outpaced output by 9,400 tons in September, resulting in a third monthly production deficit, the International Nickel Study Group said last month.

“Nickel’s downside is limited,” Pascall said. First Quantum aims to be a lower-cost producer, allowing it to take advantage of “spiking nickel prices when demand rises.”

First Quantum had cash of $808 million as of Sept. 30 and $300 million in available debt, the company said in a November presentation on its Web site. BHP booked a one-time charge of $3.6 billion in the 12 months through June for closing the mine. BHP in November 2008 cited changes to the rate of production ramp up and projected future capital costs at Ravensthorpe, as well as the drop in prices, for the charges.

“This was a considered investment that all layers of management defended the economics of at the time,” said Shaun Giacomo, who helps manage $2 billion, including BHP shares, at SG Asset Management Pte. in Singapore. “It appears to be loose change for BHP. They are probably just glad to see the end of a bad investment.”

‘Discoveries And Acquisitions’

First Quantum agreed in April 2008 to buy Scandinavian Minerals Ltd. for about C$281 million ($264 million) to add a nickel mine in Finland. The company’s strategy is “built on discoveries and acquisitions,” it said in November.

“Our exceptional balance sheet, strong cash flow from the company’s existing operations and the realistic capital cost base for Ravensthorpe provide us with the time and flexibility to address the commissioning and operational issues previously encountered,” Pascall said.

The Ravensthorpe open cut mine had reserves of 235 million tons of nickel ore, with capacity to produce 50,000 tons a year of contained nickel and 1,400 tons of cobalt, according to an October 2008 presentation on BHP’s Web site.

A pretax charge of about $630 million will be reversed this half following the sale and reported as an exceptional item, BHP said in a statement today.

Stainless steel, used in the construction, transport and home goods industries, is the main market for nickel.

To contact the reporter for this story: Rebecca Keenan in Melbourne atrkeenan5@bloomberg.net; Firat Kayakiran in London atfkayakiran@bloomberg.net

Last Updated: December 9, 2009 07:43 EST

 

LONDON (Dow Jones)--Union members at Vale Inco's Sudbury, Ontario, nickel operations Thursday voted against an offer presented by the company following an earlier breakdown in exploratory talks.

Sudbury union members voted 88.7% against the offer Thursday. Members at Port Colborne will vote Friday, the union said.

"Hopefully this sends a message to Vale to get back to the bargaining table," a United Steelworkers representative said, adding the latest Vale proposal wasn't that much different from previous offers.

The strike at Vale's Canadian operations has entered its eight month. About 3,100 union members are on strike, while 1,200 non-unionized staff continue to work. The striking workers have been receiving strike pay, which is about 25% of normal monthly pay.

There were exploratory talks between the union and Vale Inco, a subsidiary of Brazilian miner Vale SA (VALE), that ended without a resolution at the weekend.

Vale's Sudbury operations produced 43,000 metric tons of nickel in 2009, 49% less than in 2008. Its Voisey's Bay mine in eastern Canada produced 40,000 tons, down 43% on year.

-By Devon Maylie, Dow Jones Newswires; +44 (0)20 7842 9483; devon.maylie@dowjones.com

Vale Nickel Miners Don’t See Strike Ending Soon 

Dec. 7/09 (Bloomberg) -- Vale SA workers are set to extend a strike at a nickel mine in Canada after a five-month walkout that took about 10 percent of world supplies off the market and pushed up prices.

Vale and United Steelworkers’ Union negotiators are at an impasse on issues that prompted workers to walk off the job in July, with no talks planned, Cory McPhee, a Vale spokesman in Toronto, said today. Rick Bertrand, a USW vice president in Sudbury, Ontario, said there’s no sign of a return to work “any time soon.”

About 3,300 of almost 4,600 employees at Sudbury halted work on July 13 after talks broke down over a labor contract, paralyzing output and leading to the longest strike in Vale’s 67-year history. Workers joined the strike in August at its Voisey’s Bay mine, Labrador. Rio de Janeiro-based Vale is the world’s second-biggest nickel producer.

The strike tightened nickel supplies and boosted premiums paid for the metal in the U.S. Midwest by 25 percent, Maartje Collignon, an analyst at research group CRU in London, said in an e-mail today. The fee is added to the spot price of London Metal Exchange traded nickel for immediate delivery and reached 36.2 cents a pound in November, according to the CRU.

Nickel output at Sudbury, Vale’s biggest nickel mine, slumped 74 percent in the third quarter from a year earlier to 5,000 metric tons, while Voisey’s Bay output shrank 88 percent to 3,000 tons, Vale said in its third-quarter production report.

Tighter Market

“The strike has quite clearly tightened up the market in the U.S.,” David Wilson, a Societe Generale SA analyst, said Dec. 4 by telephone from London. “There is quite a big tonnage that has been removed from the market.”

Globally, about 1.4 million tons of nickel is produced, and steel producers use about two-thirds of total output, he said. If the strikes continue next year and demand improves from the stainless steel industry, the nickel market will tighten and push prices higher, Wilson said. Prices also may rally because of a delay in Vale’s 60,000 tons-a-year Goro nickel operation in New Caledonia.

Goro will start operations at a level of about 6,000 tons a year, Vale said last quarter.

Sao Paulo-based Barclays Capital analyst Leonardo Correa said in a Nov. 19 interview that Goro, whose start-up was delayed by an acid spill during construction in April, won’t produce more than 2,000 tons of metal in 2009.

‘Price Push’

“The price could spike to $22,000 to $23,000,” said Societe Generale’s Wilson. Three-month nickel traded at $16,050 a ton, rising 0.3 percent, at 4:50 p.m. in London.

London-based publication Metal Bulletin reported Dec. 4 that the world’s biggest nickel producer, MMC Norilsk Nickel, is seeking new concentrate supplies for its Harjavalta smelter in Finland following the expiration of a Vale supply contract.

Vale’s McPhee declined to comment on the report and said he had no specific information on stocks, supplies or contracts.

Vale said Oct. 1 it resumed partial operations at Sudbury’s Clarabelle mill with non-striking employees, processing ore bought from Canada’s FNX Mining Company Inc.

“Partial production” is also occurring at some of Sudbury’s mines, “largely focused on production of copper concentrates,” McPhee said today. “We’re training people to restart the smelter to produce a nickel product, maybe anode.”

Intimidation Tactics

“This talk about a restart is a publicity stunt designed to intimidate the union members and the community,” USW’s Bertrand said Nov. 13 outside Vale’s Rio headquarters. “We don’t see any production at Sudbury rather than what was already on the ground when the strike began.”

Barclay’s Correa said he didn’t see “any sense in keeping Sudbury shut” amid rising nickel prices. Sudbury’s nickel cash cost are about $3 per pound, the analyst said.

To contact the reporter on this story: Diana Kinch in Rio de Janeiro atdkinch1@bloomberg.netAnna Stablum in London atastablum@bloomberg.net.

 

 

Nickel May Surpass $55,000 a Ton This Year, Standard Bank Says

By Debarati Roy

April 27 (Bloomberg) -- Nickel prices may surpass this year's record as supplies of the metal used to make steel resistant to corrosion lags behind demand, Standard Bank said.

Nickel may rise above $55,000 a metric ton, exceeding the April 24 peak of $50,200 a ton, Michael Skinner, an analyst at Standard Bank in London, said in an interview yesterday.

Nickel has more than doubled in the past year because of rising demand by Chinese stainless-steel and delays to projects announced by miners including BHP Billiton Ltd. China's output of the alloy used in kitchen sinks may rise 37 percent this year to 7.35 million metric tons, metals research firm Heinz H. Pariser said March 21.

``It is unlikely supply will be able to match demand before 2008,'' Skinner said in Mumbai. ``People will remain bullish in the short and medium term.''

A four-month strike by Eramet SA workers in New Caledonia reduced the company's output by 50 metric tons a day, 27 percent of its 185-ton daily rate, since Sept. 25. The strike ended in January. BHP said Nov. 30 that its Ravensthorpe nickel project in Australia will be delayed by as much as a year as costs rose.

Not everyone's agrees.

Nickel prices may fall in the second half of this year as China may substitute the metal for cheaper ingredients because of a surge in prices, Goldman Sachs JBWere Pty. said.

``We are increasingly concerned that brisk growth in low- grade ferronickel production in China has the potential to return the global nickel market to surplus from 2008,'' Goldman analyst Ian Preston said in a report dated yesterday.

Nickel Substitute

The metal will average $16.82 a pound ($37,081 a ton) this year, according to Goldman. Its forecast ``implies a very sharp price correction over the next few months,'' suggesting a second-half average price of $14.25 a pound. Nickel for delivery in three months gained 0.2 percent to $47,100 a metric tons on the London Metal Exchange, ending three straight days of losses.

China's imports of laterite, a lower grade form of nickel, are forecast to rise more than 59 percent this year to exceed 6 million tons, from 3.77 million tons in 2006, Xu Aidong, analyst with Beijing Antaike Information Co., said last month.

Posco, the world's fourth-largest steelmaker, said April 25 it will increase output of a nickel-free stainless-steel product fivefold by next year amid soaring prices for the metal. The alloy accounts for about a quarter of Posco's sales.

Still, the move by stainless steel makers to use little or no nickel won't immediately curb demand, Skinner said.

``The prices will remain strong since it will be a while before the substitution effect can be felt,'' he said.

To contact the reporter on this story: Debarati Roy in Mumbai at droy5@bloomberg.net

Last Updated: April 27, 2007 04:03 EDT

 

No End In Sight For Nickel Strength
27/04/2007 By: Greg Peel

No End In Sight For Nickel Strength

2006 saw an interesting development in the global nickel market. As prices surged to new, previously unthought of highs, a new market developed in "direct shipping laterite ore" which actually had the effect of reducing the 2006 deficit below that which had been previously anticipated.

But even this had little effect on the price.

Nickel ore is found globally in two major forms – sulphide and laterite. Laterite is exceedingly more abundant at 72% of known resources, yet sulphide represents 58% of nickel production. This is because nickel laterites suffer from complex mineralogy, notoriously low grades and very high processing costs. Laterite mining has a history of longer-than-expected production ramp-ups and cost overruns. On average, one hundred tonnes of laterite ore needs to be mined and processed to produce one tonne of nickel.

 

Because of the high cost of laterite processing, smaller miners have previously not bothered with this abundant source as the cost exceeded the potential revenue. But now that the nickel price is in excess of US$23/lb, laterite ore can be processed commercially. Smaller miners do not have to invest in expensive processing plants. Instead, they simply ship the ore and sell it to supply-starved plants that have this capacity already. The high cost of shipping so much ore still falls short of prices achieved. Thus we now have a market in "direct shipping" laterite ore. Most of 2006's supply came from the Philippines and New Caledonia.

Canaccord Adams had previously predicted a global nickel deficit of 50,000t in 2006, but the end result was 28,000t due to the laterite invasion. If there's a lot more of this stuff lying around, then one could assume the nickel price will soon come under threat. Nearly all of the world's major currently proposed greenfield projects are laterite.

However, Canaccord is not assuming this to be the case. Were the nickel price to slip below its current levels, laterite mining, due to its high costs, would be the first to cease. Thus there is still a price support mechanism.

Canaccord estimates global nickel supply reached 1.34mt last year, representing a 4% increase. Demand reached 1.37mt, for a very strong consumption growth of 7.4%. And we all know where that came from.

While the Western world increased its nickel consumption by 4.4% in 2006, which was a stark rebound from the 4.7% fall of 2005, Chinese consumption increased by a ridiculous 25%, exceeding even the ridiculous figure of 23.5% in 2005. The major driver all round was a 12.4% increase in global stainless production. Global inventories at the end of 2006 had fallen, on Canaccord's estimates, to a very low 86,000t, or 3.3 weeks of consumption.

For 2007 Canaccord sees supply growth of 7.2% to 1.44mt, bolstered by direct shipping laterite ore. Consumption is expected to be 1.45mt, representing growth of 5.9%. China will contribute 17.4% and the Western world 3.5%. The deficit will fall to 13,000t, but available nickel inventories will fall to 73,000t or 2.6 weeks of consumption.

As we progress into time, Canaccord still cannot see supply outstripping demand. 2008 should bring 1.49mt of nickel but consumption will 1.52mt. The supply figure includes delays to Inco's giant Goro project and BHP Billiton's (BHP) Ravensthorpe project, still offset by direct shipping laterite ore. Inventories will fall to 45,000t or 1.5 weeks. This will be considered critical.

By 2009 several new projects should have started up, but tightness will remain. Production will reach 1.56mt and consumption 1.59mt. Following the Beijing Olympics Chinese consumption growth will fall to 9.6%. In theory, at this point all available nickel inventories will have been consumed. If there are no stocks available, says Canaccord, then only a high price for nickel can reduce demand.

Thus the implication is that significantly high nickel prices will be required through to the end of the decade in order to reduce forecast consumption levels in line with available inventories.

As far as the supply side is concerned, the biggest barrier is rising costs. These costs stem from a lack of engineering talent, higher contractor rates, and higher equipment and material costs. They were always a barrier, but they are now becoming prohibitive. Estimates suggest the cost of new nickel capacity has risen to US$18/lb, representing an average project scope of US$1.8bn, and it can only rise further.

At some point, the cycle will finally cool off, notes Canaccord. Most resource analysts still assume a long term nickel price of US$5.00-5.50/lb. But that seems a long way off at present, and many greenfield projects will likely be delayed until such time as costs become less prohibitive (thus only extending the delay).

Adding to the likelihood of extended high prices is consolidation in the market. Four companies – Norilsk Nickel, CVRD, Xstrata and BHP Billiton (BHP) – control 48% of the global mined nickel market and 56% of the refined market. This compares to global aluminium, copper and zinc where the top four producers only represent 35%, 31% and 23% of their respective markets. (This is explained to some extent by the fact that global nickel production is about 1.4mt, compared to 34mt, 17mt and 10mt for the other metals).

Canaccord suggests that this level of control in the nickel market will ensure a level of "discipline of supply". Usually when metal prices run up there is a rush to start new projects which ultimately leads to oversupply and price collapse. There is no advantage in the big four rushing out their new projects quickly, lest they see the nickel price subside. Already both CVRD and Xstrata have pushed back start-up dates for major projects.

And the demand side will still be all down to China. In 2000, China's nickel consumption increased by 50% to hit 65,000t, or 5.8% of global consumption. Consumption growth has not quite been so staggering since, but in 2006 China consumed 250,000t of nickel or 18.3% of global consumption. Over 2000-06, China's stainless steel production has increased from 524,000t to 4.8mt. Unless it suffers a spectacular economic collapse, China is expected to be consuming over 400,000t of nickel per annum by 2010.

It is going to take an extremely high nickel price to curtail nickel consumption, says Canaccord.

In the longer term – 2012 and beyond – Canaccord still believes the outlook for nickel remains "extremely encouraging". The current slate of greenfield developments should be easily absorbed by the market given there appears no end in sight to China's insatiable appetite. The high cost of ramp-up will also place a dampener on supply, including from laterite sources. And industry consolidation will ensure supply cannot get out of hand anyway.

 

Issue Date: 9/1/2006, Posted On: 9/1/2006 

Nickel prices no chump change; causing headaches for boatbuilders 
Marine hardware manufacturers are feeling the effects of the rising cost for nickel alloys, a primary component of stainless steel.

Nickel prices have more than doubled since September 2005, from $7 a pound last year to almost $15 a pound today, according to http://www.metalprices.com , an industry Web site that tracks prices on the London Metal Exchange.

A drawdown in nickel inventories has raised the price of some stainless steel products by 15 percent to 18 percent from the past year, according to one hardware manufacturer. Stainless steel is commonly used in everything from propellers to hardware to steering wheels.

“The majority of boats in the industry could not be put together without stainless steel,” says Matt Bridgewater, president of Gem Products, a marine hardware manufacturer based in Orange Park, Fla. “This is going to affect everybody.”

Prices for some grades of stainless steel have risen even higher. Molybdenum, a type of stainless steel with higher nickel content than generic blends, increased from $4 a pound in 2004 to more than $24 a pound today, according to John Pugh, president and owner of Marine Hardware in Redmond, Wash.

Pugh says the problem isn’t with just nickel. He said prices for all metals have risen in recent years. Stainless steel products went up last year, too, but he said that got lost in the copper increases. This year, it’s nickel prices that have “skyrocketed,” he said.

“All of the metal parts on entry-level boats to superyachts are going to have a 20-percent increase in costs this year,” said Pugh.

Bridgewater says there’s no way hardware manufacturers can absorb those increases. They’re going to have to pass on the higher costs to boatbuilders. He says that makes it tough for builders who already took orders at their recent dealer meetings.

What makes things even tougher, he continued, is that hardware manufacturers can’t get fixed pricing on stainless steel for more than 30 days out. They used to be able to lock in prices for a year. One vendor he spoke with said stainless steel shipments are delayed for about six weeks, and prices are subject to change at the time of delivery.

“They’re moving to a quotation system at the time of shipment,” Bridgewater said.

Pugh said hardware manufacturers can insulate themselves, somewhat, by buying metal futures or stocking up on materials. However, that would require a commitment from the boatbuilder to purchase a certain amount of products.

“The most anyone can do is lock in the price for one model year,” he said.

As for the delays in stainless steel shipments, he said, “You can always buy your way to the front of the line.”

In the long run, however, Pugh said the marine industry may have to consider alternative materials for some boat components, such as more sophisticated plastics.

“The price of metal used to be pretty cheap as far as the cost of a boat,” he said. “Now we may have to go back and analyze ways to reduce metal and lighten the boat. All of the boatbuilders are coming to us, saying we need price reductions.”

Bridgewater said he expects nickel prices to level off as supplies increase to match demand. However, he said that may not happen until the middle of next year.

— Melanie Winters

 

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