Hi all A good article in today's AJM, looking at the POS/BHP...

Hi all
A good article in today's AJM, looking at the POS/BHP offtake deal, in the context of Ni price fluctuations and the progress of other Ni players - SIR and Western Areas.  SIR has a LOT of work to do, and a long lead time, plus a mountain of debt...  before Nova starts to produce.  Good luck to them - I'm sure it will work out fine - but the contrast with POS low debt, short time frame to production, and our low low MC is pretty startling!

Here is the article:

BHP eyes offtakes as it readies Nickel West for sale
by Oliver Probert— created Oct 09, 2014 01:04 PM
Eager for supply of its under-utilised concentrator and smelter, BHP Billiton has inked a deal with Poseidon and is likely eying more with Sirius and Western Areas. A volatile nickel price is the backdrop to talks.

BHP's Nickel West operations are not a part of the miner's 'four pillar' target business model.
Nickel West, the business unit of BHP Billiton responsible for its WA nickel mining and smelting assets, has been up for sale for several months, with the general consensus suggesting commodities giant Glencore and Chinese nickel producer Jinchuan are the last two potential buyers left in the race.

But the closure of BHP’s Perseverance mine in late 2013 has left the Kalgoorlie smelter, a key Nickel West asset, running at just 90% capacity in recent times.

As a result, analysts are suggesting several offtake agreements between BHP and local nickel mining juniors may soon be signed, and there is also the potential for whoever buys Nickel West to snap up one or more of these juniors in the process.

One nickel junior which has just signed an offtake agreement with Nickel West is Poseidon Nickel.

Poseidon and BHP make for strange bedfellows – Andrew ‘Twiggy’ Forrest, who in his role as founder of Fortescue Metals Group has come head to head with BHP in Australia’s highest court, is the junior’s key shareholder and financier – but Poseidon has nickel concentrate, and BHP wants it, so it’s a win-win deal, once any personal issues are set aside.

If one side is getting more of a ‘Win with a capital W’ in this deal, though, it is almost definitely Poseidon. The junior says the BHP Billiton offtake deal will slash its Windarra mine start-up costs by $240m, to just $111m.

Managing director David Singleton said last week that while the company had already invested $100m million in readying the mine for start-up, the agreement drastically altered the financing dynamics, leaving Poseidon with only an $11m or so commitment to commence its first ore output.

Under the offtake agreement, Poseidon will mine Windarra and haul its ore to Nickel West’s existing concentrator at Leinster for toll treatment into a smeltable grade concentrate.

Nickel West will purchase all of the concentrate produced.

First ore deliveries are due no later than February 2015, and the agreement is for an initial period of two years, ending in February 2017.

Nickel West has the option to extend the contract term by one or two contract years.

“The Company is now well progressed on funding options to support the commencement of ore deliveries in the timescales envisaged,” Singleton said. “Once Windarra funding is in place, we will be pulling first ore within six months.”

The contract is for a minimum quantity of 350,000 tonnes of ore per annum, and a maximum of 500,000 tonnes which can be extended to 700,000 tonnes by mutual agreement.

Between January and September this year, the nickel spot price surged 58% to almost US$20,000 a tonne. An ore export ban in Indonesia, and the potential of a similar ban in the Philippines, helped lift the spot price through the first half of the year.

In the past four weeks, however, the price has dropped almost 25%, to roughly US$16,000, with large stockpiles and increasing laterite nickel supply from the Philippines spooking markets.

A commodity which can see almost 60% expansion, then 25% contraction in price in less than a year is unlikely to be a breeding ground for market confidence, and that thought marred last week’s Australian Nickel Conference, held in Perth.

Nonetheless, many juniors expressed confidence in their assets and the nickel sector at the get-together.

Poseidon Nickel’s Singleton spoke about the BHP deal at the conference, for example, and offtake speculation also took in Sirius Resources and Western Areas.

Sirius Resources’ director of exploration Jeff Foster said at the conference that the company’s Nova nickel mine is expected to deliver its maiden offtake agreement as early as December 2014.

“On the key issues of financing and offtake, we are finalising debt finance for Nova and aim to have financial close by December,” he said.

“Our offtake discussions are at an advanced stage with strong competition and good terms on the table and our expectation is to have the first of these offtake contracts in place also by the end of December.”

While he no-doubt hopes for the best for the global nickel sector, Foster is confident that Nova, with a C1 cash cost of $1.66 per pound and an all-in sustaining cost of $2.32 per pound for concentrate, is “cycle proof”.

“In other words, more than 75% of nickel mines worldwide would have to be losing money before Nova does,” Foster said.

Nova is expected to have an underground mine life of 10 years producing up to 26,000 tonnes per annum nickel concentrate and 11,000 tonnes of copper concentrate.

Its mining lease and native title agreement are already granted and Mr Foster said most major development contracts for the construction work were at tender review stage.

First on site activities will focus on the concurrent construction of the mining village, road, jet capable airstrip and commencement of mining the boxcut and decline. First ore is expected in the second quarter of 2016 and first concentrate six months later.

Meanwhile, Western Areas managing director Dan Lougher, spoke at the conference to express his confidence in the nickel sector.

“The reduction in global nickel supply commenced in calendar 2013 with a number of mines closing and we can now expect the production of nickel pig iron in China to fall potentially by up to 60% in 2015 as this output relies on the now closed access to nickel laterite imports from Indonesia,” Lougher said.

“If this Chinese capacity cannot be sufficiently replaced in the short to medium term, it will create a longer-term shortfall in supply.

“In addition to this, there is increasing global stainless steel demand and this will further drive higher nickel demand.

“This potential is being mirrored by US and European mills which are now cautiously optimistic on the outlook for stainless steel.”

However, the Western Areas executive described the nickel market as hosting “a lot of noise at the moment” with some uncertainty about Russia’s nickel intentions and speculation around the potential Philippines ore export ban.

Western Areas, already producing nickel, has achieved a reduction in the past year in its production cash costs to A$2.50 per pound in concentrate. Now the company is looking to nickel concentrate output of 24,500 – 25,500 tonnes for FY15 from its WA mines.

Lougher said Western Areas, which annually sells around 55 million pounds of nickel in concentrate, remained heavily leveraged to the nickel price and fluctuations in the exchange rate between the greenback and the Australian dollar.

“We are a cash machine in the right environment,” he said.

Western Areas is reportedly running a tender process over some offtake from its Forrestania nickel operation, and Lougher has said all potential Nickel West buyers were also talking with Western Areas about the available offtake, according to a News Corp. report.

Western Areas already has a 12,000 tonne per annum offtake deal in place with Nickel West, through to 2017. It also has a rolling two-year deal to supply 13,000 tonnes of concentrate to Jinchuan, one of the rumoured Nickel West bidders.
http://www.theajmonline.com.au/mini...s-offtakes-as-it-readies-nickel-west-for-sale