Q+A-Australia to reactivate some, not all nickel output
Wed Nov 3, 2010 7:56am GMT
By James Regan
SYDNEY Nov 3 (Reuters) - Australia is on the verge of restoring some nickel production idled or delayed during the global financial crisis as prices plummeted, though not all producers are prepared to restart.
Nickel CMNI3 has staged a near-uninterrupted price recovery since falling below $10,000 a tonne in early 2009 and stands at more than $23,600.
Here are questions and answers about future Australian nickel production and its impact on the world market:
HOW MUCH NICKEL WAS REMOVED DURING THE FINANCIAL CRISIS?
In total 21,000 tonnes of Australian mine production was removed in the fiscal year to June 2009, or about 2 percent of global output. In addition, the giant Ravensthorpe nickel mine and the Avebury mine were shut shortly after opening by BHP Billiton (BHP.AX: Quote) and Oz Minerals (OZL.AX: Quote) respectively, removing 63,000 tonnes more of promised production, or 5 percent of world output.
WHEN WILL THESE TWO PROJECTS BE REACTIVATED?
Both mines could restart in 2011.
Canada's First Quantum Minerals (FM.TO: Quote) bought Ravensthorpe from BHP Billiton in February.
About $190 million was being spent to bring the mine back into production by May 2011 at a reduced annual rate of 39,000 tonnes, Philip Pascall, First Quantum's chief executive, told a Perth resources seminar recently.
Minmetals of China's Australian arm, MMG, acquired the Avebury mine as part of a wider acquisition of Oz Minerals assets and will decide by the end of this year whether to restart after evaluating a A$3 million study.
The mine is set to yield 8,500 tonnes of nickel a year, all going to Chinese refiner Jinchuan Group under an exclusive supply pact before being shut. The pact with Jinchuan still stands.
"We are looking for that very long-term stability to make sure that once we do reopen, we can maintain a profitable operation," a spokeswoman for MMG said.
HAS ANYONE RESTARTED?
Just one. Mincor Resources (MCR.AX: Quote) in June reopened its Miitel mine at its old rate of 4,500 tonnes a year after an 18- month shutdown.
ARE THERE OTHER POTENTIAL RESTARTS?
Possibly. Panoramic Resources (PAN.AX: Quote) has looked at acquiring the Australian nickel mines closed by Norilsk Nickel (GMKN.MM: Quote) of Russia, which are under review and capable of yielding 10,000 tonnes a year. Fellow Australian Independence Group (IGO.AX: Quote) also has been mentioned as a possible suitor.
Less likely is a restart of the Blair Mine, closed in December 2008 by Australian Mines Ltd after producing 6,958 tonnes. All the underground mining equipment was later sold
Xstrata (XTA.L: Quote) has yet to indicate when it might reactivate its Sinclair mine, which produced 6,000 tonnes annually before being shut in April 2009.
WHY WAS SO MUCH NICKEL TAKEN OFF LINE IN AUSTRALIA?
Production costs started to exceed selling prices as demand for nickel used to make stainless steel waned.
IF NICKEL PRICES ARE UP, WHY NOT RESTART ALL IDLE CAPACITY?
Some producers are waiting for stronger evidence that nickel is set for a long-term recovery before committing to expensive restarts. Reactivating mines and plants requires rehiring staff, purchasing equipment and opening shipping and transport lines.
"The prices have been quite strong recently, but we're also looking for that long-term stability of a price above $20,000 a tonne ($9 a pound)," said the MMG spokeswoman. "Even though nickel has traded above that level, the price is still considered to be quite volatile."
WHAT'S THE OUTLOOK FOR NICKEL?
Mixed. London Metal Exchange stocks have dropped to around 126,000 tonnes from a peak of about 160,000 tonnes, suggesting consumption is up.
Still, most analysts are using using long-term nickel prices of between $6-7 a pound (13,200-15,400/tonne). This is less than the roughly $9 a pound ($20,000-tonne) minimum most Australian nickel miners operate on. (Editing by Clarence Fernandez)
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