Full-speed ahead into the unknown Author: Michael Vaughan Date: 01/02/2007 Words: 505 Source: AFR Publication: The Financial Review Section: Market Wrap Page: 22
Low stockpiles, strong demand from China, an acute shortage of supply and fears of further disruptions helped drive the price of nickel to record highs in January, dragging many Australian nickel stocks into uncharted territory. Sally Malay Mining, Mincor Resources, Minara Resources, Jubilee Mines and Allegiance Mining all hit record intraday highs in the last days of January, after nickel hit a record closing price of $US38,150 per tonne on January 25.
Argo Investments managing director Rob Patterson said the strong demand for the metal made it hard to predict where prices were headed, though the group had no intention of divesting its nickel exposure in the foreseeable future.
Mid-size producers Sally Malay and Mincor jumped more than 30 per cent in January on the strength of solid December-quarter production results.
Companies such as Allegiance and Western Areas, which are bringing new mines into production, have timed their runs perfectly and their share prices also rose.
Established producers such as Jubilee Mines and Minara Resources had modest gains last month, in line with the appreciation in the nickel price.
Nickel rose 10 per cent throughout January, while copper fell by about 8 per cent, zinc shed 18 per cent and lead remained steady.
Growth stocks Oxiana and Zinifex both gave up more than 10 per cent of their value in the month and BHP Billiton also moved backwards as the nickel stocks shone.
Demand for nickel increases by about 100,000 tonnes on an annual basis, according to analysts. New supply has been slow in coming, forcing the price of the stainless steel additive upwards.
Large-scale nickel laterite projects - which require large amounts of capital expenditure on more sophisticated processing technology - have been facing delays and significant cost overruns. Late in November, BHP Billiton revealed that the cost of establishing its Ravensthorpe laterite project in Western Australia had more than doubled, to $US2.2 billion ($2.9 billion). Companhia Vale do Rio Doce's Goro mine in New Caledonia has also lagged in both time and budget. Each mine is forecast to deliver about 60,000 tonnes of nickel annually, which will have a major impact on the global market when they come online in 2008 and 2009 respectively.
London Metal Exchange stockpiles of the metal account for less than two days' global consumption, causing concern for traders.
A threat of industrial action starting today by workers at Xstrata's Sudbury nickel operation in Canada - a mine which produces 60,000 tonnes of nickel a year - pushed up the nickel price even further.
In addition, the container ship MSC Napoli ran aground off Britain in the middle of January was carrying 1000 tonnes of nickel, or about 20 per cent of LME stocks, adding further pressure to the market.
Patersons Securities analyst Alex Passmore said though these factors had helped to cause a spike in the nickel price, the market fundamentals remained strong for producers in the short-term.
This strength could underpin share price rises for some stocks.
AGM Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
