Western Areas mentionedhttps://www.mineweb.com/mineweb/view/mineweb/en/page36?oid=99563&sn=Detail
Rising from the nickel wreckage
Investors flock to listed nickel stocks, as profitability returns to the
global sector, and spot prices flirt with multi month highs.
Author: Barry Sergeant
Posted: Wednesday , 24 Feb 2010
JOHANNESBURG -
Prices for nickel, sometimes referred to as the most volatile of any
commodity, have found sharp traction over the past year, and survivors
of the price tsunami are rising gently from the wreckage. One outcome is
that measured against other global mining subsectors, listed nickel
stocks are relatively among the most in-demand.
After touching as much as USD 25.00/lb around mid-2007, nickel prices
looked set to break below USD 4.00/lb within the past 12 months, but
have since more than doubled. The price devastation impacted even BHP
Billiton, the world's biggest diversified resources stock, which took
the shock decision to shut the relatively new Ravensthorpe mine in
Australia.
On 21 January 2009, BHP Billiton announced the suspension, along with
the processing of a mixed nickel cobalt hydroxide product at Yabulu.
Charges relating to impairment, increased provisions for contract
cancellation, redundancy and other closure costs added up to USD 3.6bn,
excluding the loss from operations of Ravensthorpe nickel operations for
part of the 2009 fiscal year of USD 173m.
Earlier, sky high prices for nickel had inspired some of the biggest
mining takeovers of the 2002 to 2008 commodities supercycle. In 2007,
Vale blew USD 18.9bn on Inco, and Norilsk tossed USD 5.8bn at LionOre
shareholders. In 2006 Xstrata waved goodbye to USD 18.8bn upon the
acquisition of Falconbridge, only to remain heavily in the nickel faith,
throwing another USD 2.8bn at the acquisition of Australia's Jubilee in
2008.
Demand issues aside, the supply side of nickel was kicked savagely
between the legs by the advent of a reborn nickel pig iron. The first
component is the availability of tropical laterite ores, typified by
that available at Acoje in the Philippines. The ore is gifted limonite
(usually grading 47% to 59% iron, 0.8 to 1.5% nickel, along with trace
cobalt), essentially a low-grade iron ore, a pig iron oxide.
The second component was the development by certain steel smelters in
China of a process where nickel limonite ore is blended with
conventional iron ore, producing feed material for stainless steel.
Havoc ensued.
The relevant Chinese smelters are generally able to use stranded power,
lowering costs, and are flexible, swinging into action when spot nickel
prices rise above certain levels. The overall phenomenon now appears to
be a permanent feature of the global nickel sector, forcing adaption,
characterised by radical restructuring, extending as far as closures.
The sector is now on the rise again, sometimes with new players, such as
First Quantum, which has bought Ravensthorpe.
Profits and cash flow are again rising for nickel players who have stuck
it out; Australia's Western Areas, which owns two of the world's highest
grade nickel deposits in Flying Fox and Spotted Quoll, has reported a
209% increase in interim revenues for the six months to 31 December
2009. Operating cash flow increased massively to AUD 50.4m from AUD 3.8m
in the comparable 2008 period.
Norilsk and PT Aneka Tambang, among the world's biggest nickel
producers, are yet to report for 2009. Xstrata's nickel EBIDTA for 2009
was reported as USD 387m, compared to USD 2.9bn in 2007. BHP Billiton's
nickel division posted underlying earnings of USD 200m for the second
half of 2009, compared to a brutal loss of USD 752m in the second half
of 2008.
Brazilian supergroup Vale, world No 2 in nickel after Norilsk, probably
sums up the outlook for most in the nickel sector in saying: "We expect
a strong demand for nickel during 2010".