RENO (Mineweb.com) -- In a presentation to a Hong Kong conference on Thursday, Inco President and COO Peter C. Jones predicted that underlying nickel demand will exceed 7% this year, based on 10% growth in stainless steel production. Actually, Jones insisted his demand forecasts were conservative since scrap stockpiles in former Soviet Union nations are exhausted and scrap generation in China is limited. Underlying nickel demand for non-stainless steel uses is expected to increase 7% as well, he added.
"When we consider how China fits into the equation, the nickel supply/ demand situation becomes even more intriguing," Jones told the CSLA Investors Forum in Hong Kong. "China's nickel demand has soared more than 20% in each of the past four years. ...We believe that about two-thirds of China's nickel consumption goes to meeting domestic demand, leaving only about one-third for exported products." In fact, he added, "estimated nickel demand in China and Hong Kong in July was the second highest monthly level ever."
World nickel demand should climb in the second half of this year, as the expansion of Chinese stainless steel capacity is consuming more than 40,000 extra tons of primary nickel annually, according to Jones. China's regulators are advocating expansion of electricity generation, oil extraction capacity, and water and transportation infrastructure. "None of this can happen without lots of nickel," he declared.
Nickel supplies will continue to be tight even as miners produce at high or record levels. "The bottom line is that pressure on the nickel supply should continue at least through 2006," according to Jones. Inco is busy permitting its Voisey's Bay project, while BHP Billiton has announced it will build the Ravensthorpe project. Inco expects to make a final decision on whether to proceed with its Goro nickel project in New Caledonia in October.
Projected supply from these three projects is expected to be phased in from 2006 to 2010, said Jones. Most greenfield nickel projects are still in the feasibility stage, he said, and will take seven to 10 years to bring on stream including permitting times. Many of these deposits cannot be developed at a reasonable long-term price, he added.
"From a market perspective, the reality is that approximately half of production of Voisey's Bay will simply replace purchased feeds and some higher mine production from our existing operations in Canada. Only about half or 25,000 tons of nickel from Voisey's Bay will represent new nickel to the market," according to Jones. Nevertheless, he added, "nickel is a tough and technically-challenging business, as many companies have found out." Jones said it will require a minimum long-term nickel price of over $3.50 per pound to justify the required investment to support new production from undeveloped projects.
Although Inco expects to produce a total of 500 million to 510 million pounds of nickel this year, Jones said, the company's costs are under pressure from rising energy costs, external nickel feed, pension and benefits costs, and lower PGM production. Energy costs rose 10-cents per pound of nickel produced in 2003. Pension plans will cost $112 million or 2-cents per share this year, said Jones.
The company expects to produce 400,000 ounces of PGM metals this year. Inco is hedging 29% of its platinum production at $634/oz as of June 30, 2004. He predicted that the company's overall nickel cash unit costs of sales, after by-product credits, should be about US$2.25 to $2.35. Unit cash costs from Inco's own mine production this year should be $1.85 per pound, Jones added. "With Voisey's Bay and Goro, we have ambitious plans over the next few years," declared Jones. "But I want you to understand that our strong property positions in the Sudbury Basin, in New Caledonia and in Indonesia--and the exploration potential they hold--give us the ability to expand well beyond 2007."
Inco's capex for 2004 is estimated at just under $1 billion before pledged government support and partner contributions. Cash flow from operations, before changes in working capital and capex, is projected to be $1.2 billion, according to Jones. The company's debt-to-capitalization ratio as of June 30, 2004, was 26% with a cash balance of $774 million. The company's market capitalization is $6.4 billion.
Jones is also scheduled to speak at the Merrill Lynch 10th Annual Mining Conference in Toronto on Friday.
ASX Price at posting:
0.0¢ Sentiment: Hold Disclosure: Held
(20min delay)