Hard data on laterites. Production increasing somewhat, costs off the wall
AUSTRALIA: AUSTRALIAN NICKEL LATERITES BUILD PRODUCTION.
By Tim Treadgold - 26 Jun 2000 10:26GMT
PERTH, June 26 (Reuters) - Nickel production at Australia's three new laterite mines is running at about 40 percent of capacity and improving steadily despite ongoing problems, metals analysts said on Monday.
However, a renewed focus on cost control has seen interest in the cutting edge process wane amid market scepticism that the technology can deliver forecast production costs.
Collective output from the new producers in the June quarter, which ends on Friday, is tipped to have reached 6,300 tonnes, most from Anaconda Nickel Ltd's Murrin Murrin project.
Annual capacity of the three plants is about 64,000 tonnes a year, dominated by the Anaconda's Murrin Murrin, rated at 45,000 tonnes of nickel a year. The Bulong project of Preston Resources Ltd and the Cawse project of Centaur Mining and Exploration Ltd are each rated at about 9,500 tonnes.
All three are using largely untried pressure acid leach technology and have suffered plant failures and other commissioning problems, sending world nickel markets gyrating. Production issues remain but are being overcome, analysts said.
"The issue now is not whether they can produce nickel but how they can manage their costs," said Peter Main from stockbroking firm Hartley Poynton Ltd.
"Their costs haven't come down as had been expected. I think they need a bit more time but I doubt whether they will get down to the feasibility (study) levels. I think they'll only get down to around US$1.50 (a pound)."
COSTS NOT PRODUCTION NOW THE KEY
In early studies, the laterite nickel producers forecast sustainable metal production at less than US$1 a pound.
"They might get it down to the US$1.30 or US$1.50 range but that will take some time," Greg Chessell from Paterson Ord Minnett said.
John Macdonald from CIBC World Markets said the laterite projects appeared to be improving, ironically as interest faded.
"There is a bit of interest in metal markets but most fund managers are not expecting any of them to come good," Macdonald said. "There is a degree of dismay about the whole thing."
Main said Cawse was the most successful of the new projects.
"They'll do in excess of 2,000 tonnes this quarter but the problem which everyone is watching very closely is the cost structure. They haven't come down as people were expecting and will take about another six months to get costs under control.
"The Cawse plant is running exceptionally well, it's now a case of fine tuning and pulling the costs down."
Main said Bulong was expected to come back on line this week after a six week shutdown for repairs. He believes the project produced about 750 tonnes of nickel in the quarter.
Murrin Murrin was forecast to have produced between 3,300 and 3,600 tonnes of nickel.
"I think the market will be a little disappointed with the result," Main said. "They still have a way to go."
"We're not even talking costs there (at Murrin Murrin) yet, they're still being capitalised, but ... they're probably in the range of US$5 to US$8 a pound."
Chessell said there had been projections last year of Cawse producing up to 10,000 tonnes of nickel at US54c in 1999/00.
"They're going to be a bit short on tonnes but their costs are going to be about four times the projection," Chessell said.
Bulong costs had been running at about US$4 a pound, he said.
Metal production costs at Murrin Murrin were hard to calculate because between $A50 million and $A80 million was being spent per quarter on completing the plant.
But production issues at the mines were being resolved.
"The big question is balance sheet," he said. "I'd rate production as probably the second or third most important issue.
"Balance sheet and the ability to improve things so they can generate positive cash flow is the key."
Anaconda shares closed on Monday up eight cents at A$2.60, Centaur was a cent lower at 11 cents and Preston remained suspended, having last traded at 27 cents in October last year.
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