going forward

Analysts: Positive nickel outlook inspiring consolidation trend - Regional
Friday, December 2, 2005

Rising nickel prices and anticipated growth in demand are propelling a trend of consolidation in the nickel-mining sector, industry analysts told BNamericas.
Nickel demand is expected to increase primarily as a result of strong stainless steel output growth in China, and mergers and acquisitions is an increasingly important theme in the mining sector, said Dresdner Kleinwort Wasserstein's Simon Toyne.
A number of major miners, including Brazil's CVRD (NYSE: RIO) and Canada's Inco (NYSE: N), have made moves to expand their nickel interests of late.
"People are trying to gear themselves into commodities where the long-term fundamentals look attractive. [Nickel is] mainly used in stainless steel, and the growth in usage of that is probably going to be higher than the average growth in commodities as a basket," Toyne said.
Indeed, the outlook for nickel is solid, according to Barclays Capital base metals analyst Ingrid Sternby.
"The worst in the inventory cycle in the steel industry is behind, and also we are looking at a pick-up in orders from the stainless steel sector toward the first quarter of next year," said Sternby. "I think we are likely to see prices bottoming out ahead of that and gradually moving higher."
Acquisitions are an overall trend, and consolidation in the steel sector is generally a good sign for the nickel market, she added.
But "assets or companies are not cheap these days. At the same time, there's a real lack of new projects, so prepare to pay higher prices."
Toyne said bringing on stream enough projects to fulfill demand growth will be costly, and that some likely will falter due simply to the metallurgical difficulty of producing nickel.
"Fundamentally, if you are in high quality assets, which has been the case with the acquisitions that have taken place like WMC, Falconbridge, then you're going to make good money out of it," said Toyne.
Australia's WMC Resources was the world's fifth biggest nickel miner until Anglo-Australian resource group BHP Billiton (NYSE: BHP) snapped it up in August. In addition, BHP Billiton signed an agreement earlier this week with Toronto's Jaguar Nickel (TSX: JNI) to acquire the latter's Guatemalan concessions for some US$16mn.
Meanwhile, Canadian miner Inco is in the midst of solidifying a deal to takeover compatriot Falconbridge (NYSE: FAL). The combined company would be the largest nickel producer in the world.
The new Inco would hold 17.2% of Canico Resource (TSX: CNI), whose main asset is the Onça Puma nickel project in Brazil. Earlier this week, Brazilian iron ore giant CVRD acquired 93% of Canico at a price of US$750mn.
There could be other multinationals eyeing nickel, according to Toyne.
London-based Rio Tinto (LSE: RIO) has no nickel assets, and Swiss miner Xstrata (LSE: XTA) could be interested in expanding its 20% stake in Falconbridge, he said.
"It's far from clear that there won't be any interloper interference in the Inco-Falconbridge battle. You wouldn't rule out something like Rio Tinto looking at that, possibly even jointly with Xstrata. There are quite a few outcomes there."
In response, Xstrata spokesperson Marc Gonsalves said, "There is still a lot of speculation in respect to the issue of Falconbridge and Inco."
"We've been scrupulously making sure not to rule anything in or anything out nor made any comments," said Gonsalves.
Laura Superneau
BNamericas.com




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