weekend australian article on nickel, inc sir , page-3

You mean this ????
Has been posted under the thread "Nickel gives off nice shine"



Nickel gives off nice shine

BY: TIM TREADGOLD From: The Australian September 29, 2012 12:00AM


Mincor chief executive David Moore has been riding the nickel cycle for a decade. Picture: Megan Lewis Source: The Australian
FIRST in, first out. That has always been the way nickel behaves in a conventional metal-price cycle and it seems to be doing it again, though it would be a brave man to shout "nickel boom!".

A smarter way for investors to treat news from the market in Australian nickel stocks is to see recent events as a bellwether for the wider family of base metals, including its least-loved members zinc and lead.

Eye-catching upward shareprice moves by local nickel producers such as Mincor, Mirabela, Panoramic and Independence across the past two months have been explained partially by a rush into hard physical assets as the US and Europe try to inflate their way out of recession.

Gold has also been a big beneficiary of the shift away from government bonds and other forms of official promissory notes that risk being degraded by long-lasting, ultra-low interest rates and high levels of inflation.


Nickel, however, is being driven only partially by the fear of inflation. There are also some fundamentally positive factors at work, including:

lAlmost four years of depressed nickel prices, which have been below the break-even price for more than 30 per cent of the worlds nickel mines.

lThose low prices have seen production decline even as demand for stainless steel, the principal consumer of nickel, has risen.

lOne cause of the low prices, the development of a destructive source of supply called pig-iron nickel, is being phased out.

lLow levels of investment in major new mines to meet future demand, and equally low levels of discovery of new nickel deposits.

It is those four factors, plus the excitement of recent exploration news, that also help explain the spectacular price rises posted by several nickel explorers, led by Sirius Resources. Sirius has risen from penny-dreadful obscurity, trading at about 6c a share three months ago, to more than $2.

Companies with exploration tenements close to the Nova discovery of Sirius include Sheffield Resources, Matsa and Buxton.

Another nickel explorer to react spectacularly to changes in the nickel market is Marmota Energy, which has hit visible nickel and copper during drilling near Tarcoola in South Australia's Gawler Craton. Last week Marmota, which started life looking for uranium, rocketed up by 800 per cent from 3c to 29c across two hectic trading days. It is now trading around 7.1c.

Taken together, the available evidence points to nickel reacting as it has since the original Australian nickel boom of 1968 when similar factors, including supply shortfalls resulting from severe industrial strife in Canada's world-leading nickel mines, preceded the Poseidon boom.

It was the Poseidon era that gave Australian investors a feel of how nickel behaves as the first of the base metals (a group that includes zinc, lead, copper and aluminium) to react to market forces.

Nickel traditionally has been first to feel the effects of a cyclical slump in demand and price, and first out of the slump. The next few months will reveal whether there is anything traditional abut the current cycle, with opinion divided and with too much political interference in markets to get a clear view of what comes next.

One man confident the nickel worm has turned is Mincor chief executive David Moore. He has been riding the nickel cycle since the company acquired former assets of Western Mining Corporation (WMC) at Kambalda in Western Australia a decade ago.

"Nickel always overshoots and undershoots in the metal-price cycle," Moore says. "The price went way too low after the global financial crisis, and it still has further to rise if investment in new mines is to be encouraged.

"At $US8 a pound most producers can scrape by, but to get new investment, prices need to rise above $US10 a pound."

Moore's view of the nickel market is echoed by the biggest producer of the metal, Russia's Norilsk Nickel. Two weeks ago, in reply to questions submitted to the company by the Bloomberg news service, Norilsk said that, at a price of $US16,000 a tonne ($US8 a pound), an estimated 30 per cent of global nickel output was unprofitable. At $US15,000 a tonne ($US7.50 a pound) an estimated 45 per cent of output would be unprofitable.

Helping kill the nickel market in the past four years has been the development of the pig-iron nickel business, which is based on shipping unprocessed, low-grade (1 per cent nickel) ore to China from open-cut pits in Indonesia and The Philippines. Indonesia in particular objected to the practice and banned it earlier this year, with the removal of some pig-iron nickel from the market likely to help conventional metal producers.

The changes in the nickel market are starting to be seen in the price of the metal, which has risen from less than $US7 a pound as recently as mid-August to a latest price of $US8.27 a pound.

Stockbroking firm Citi has told clients the nickel price will continue to recover as the supply of low-grade Indonesian material dries up. Canadian broker TD Securities reckons nickel will trade at $US8.50 a pound in the first quarter of next year, rising to $US9 a pound in the second quarter.

Moore's view is that nickel entered a destructive phase of its price cycle several years ago, when the price moved below $US8 a pound. "It's been happening (supply drying up) for two years already, so nickel is just running ahead of the pack," he says.

The pack Moore refers to is the wider base metal complex, where several metals have been in a supply destructive price-phase for the past year. Zinc, a favourite of the world's biggest commodity trader, Glencore, has been showing signs of recovery in the past month, rising from US84c a pound to US94c a pound. Leadhas been moving even more swiftly, up from US83c a pound to $US1.03 a pound.

The challenge for investors is to judge whether what's happening in the base metals sector is a wider recovery or the result of hot money flowing out of low-yield bank deposits and government bonds into speculative trading situations. My view is nickel is playing its time-honoured role of bellwether metal. It is signalling a recovery, but it could be reacting ahead of a more widespread recovery.

For that to happen, global industrial production needs to recover from its present anaemic level, and picking the time of a worldwide revival is anyone's guess given the debt problems confronting the US and Europe.

Please support our advertisers