Focus: Changes In Nickel Mining Herald Permanent Price Rise 02/15/2007 05:06:00 PM EST DowJones By Elisabeth Behrmann Of DOW JONES NEWSWIRES
SYDNEY, Feb 15, 2007 (Dow Jones Commodities News via Comtex) --Fundamental changes in nickel mining will mean permanently higher production costs, and pose more risks for slower ramp up, cost blowouts and environmental concerns that will keep nickel prices at high levels in the future, analysts say.
The average cost of producing one metric ton of nickel, a material mostly used in the making of stainless steel, has almost tripled between 2000 and last year. Copper production costs rose 50% by comparison during that period, Barclays Capital said in a recent report.
"In nickel, the move up reflects a shift in production patterns away from sulfide deposits toward the much more energy intensive treatment of laterite ores," Barclays said.
Around 85% of new nickel projects will use laterite ores, but a complicated mining process and a host of environmental concerns have left the nickel industry wary of further delays and more cost blowouts.
"A break even analysis of a basket of projects shows that a nickel price of around $6 per pound ($13,224 a metric ton) is required to bring on sufficient capacity in order to have a balanced market," a nickel analyst at an industry consultancy said.
While far below current London Metal Exchange nickel prices at a near record $37,500/ton, historical price averages place nickel closer to a $7,000-$9,000/ton band.
Secondly, severe time and cost problems at BHP Billiton Ltd.'s (BHP) $2.2 billion Ravensthorpe project in Australia and CVRD Inco's $3 billion Goro project in New Caledonia point to nickel demand outrunning supply in the future as China continues "its love affair with the shiny stuff," analysts say.
Nickel was the biggest gainer on the LME in 2006, more than doubling over the one year and has continued its bull run to a record $38,950/ton in January. LME stocks, a yardstick for availability in the physical market, are at a tiny half day of global consumption.
Environmental Concerns Come To The Fore
Aside from ongoing labor shortages and a difficult mining process, environmental concerns have significantly delayed Goro and CVRD's $1.1 billion Vermelho project in Brazil's Para state.
Both projects - like around half of the current laterite projects in development - use high-pressure acid leaching to extract nickel, leaving behind sulfatic liquid waste containing heavy metals.
While this poses little problem at Ravensthorpe in dry Western Australia, where the liquid waste evaporates in specially designed ponds, it is a major concern in the tropical climate of CVRD's projects in New Caledonia and Brazil, analysts say.
Liquids will go into the Amazon river system and a protected marine area in New Caledonia, with levels of dissolved metals potentially posing a threat to the environment.
And this will remain a sticking point. About 72% of the world's nickel resources are laterites, found mainly in the tropics such as Indonesia, Cuba, Brazil and New Caledonia.
Discharge from Goro has been contentious from the start, culminating in environmental activists attacking Goro installations last April, including a water pipe - showcasing the vulnerability of any future discharge pipe - and burning vehicles.
In August CVRD announced a delay of almost a year for 45,000-ton-a-year Vermelho, citing delays with environmental licensing.
The delay was due to concerns over levels of toxicity in the mining residue, analysts say.
"These projects have to wait for the (environmental) permit. If you can't build the effluent, you can't build the plant," one consultant said.
Past Lessons Learnt, To An Extent
Even though lessons have been learnt from the problematic mining of lateritic ore bodies in the past, difficulties in transposing pilot schemes onto large-scale operations, high costs and frequent maintenance downtime will remain part of the parcel, analysts say.
"It's a common theme that companies underestimate capital costs for these projects, such as Ravensthorpe and Goro, and the first generation plants of Murrin Murrin, Cawse and Bulong. More recent projects on the 'drawing board' have made more realistic estimates," Rolly Nice, a consulting metallurgical engineer on nickel laterites, said.
He advises a likely ramp up time of three years to reach all design criteria rather than the typically anticipated one to two years.
"These are complicated plants that should work well once at capacity and steady state, but it is probably fair to say that there will be ramp up problems," an analyst said.
In the late 1990s laterite ores were hailed as the future in nickel mining.
Close to the surface, they can be mined by comparatively cheap open cut mining and contain valuable cobalt. But the ore is difficult to concentrate while high temperatures lead to rapid disintegration of operating systems.
Until today Western Australia's Murrin Murrin mine is below capacity of 40,000 tons, churning out around 30,000 tons a year.
-By Elisabeth Behrmann
Dow Jones Newswires; 61-2-8235-2965
elisabeth.behrmann@dowjones.com |
