nickel price & ravensthorpe article.

This article might be of interest to nickel stockholders and to Heron holders.....to fill in time!!!
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Dryblower on nickel going vertical and First Quantums deal of the century


Tuesday, 6 April 2010 -- MINING NEWS --


FOUR months ago a pound of nickel cost less than $US7. Just before Easter, nickel cost $11.31/lb. Its this 61.5% increase which has helped Dryblower visualise the smiles at First Quantum Minerals and the scowls at BHP Billiton.


Why the two faces? Because late last year Canada-based First Quantum was buying a nickel asset at the low price and BHP Billiton was selling.

The asset in question is the infamous Ravensthorpe laterite nickel project near the south coast of Western Australia.

It is infamous because (a) it never worked as designed, (b) it was the fourth failed (or semi-failed) laterite nickel venture in WA, and (c) the bad taste left by Ravensthorpe sparked speculation that BHP Billiton might make a wholesale exit from nickel.

First Quantum, naturally, sees things a little differently. It sees Ravensthorpe as a future licence to print money, and while the jury might be out on that score it will be returning a verdict soon, and the decision should be positive.

Translated: BHP Billiton sold too cheaply and First Quantum got a bargain.

Even if restarting Ravensthorpe proves more difficult than anyone imagines, the process is getting underway with a head start measured at a 61.5% boost to revenue.

Perhaps it is unfair of Dryblower to poke fun at BHP Billiton. It was the company which sank around $US3 billion into the mine and its associated processing plant, getting in return from the sale around US11c in the dollar and the name of a fresh failure to hang on its wall of dogs.

Ravensthorpe joins Hartley platinum, Beenup titanium minerals, Magma copper, hot briquetted iron and the disaster yet to be quantified the wasted effort in trying to lock rivals out of the Pilbara iron ore industry by refusing access to rail and port facilities.

This final point is not yet widely acknowledged to be a disaster, but will be in time because all that BHP Billiton (and its co-accused, Rio Tinto) succeeded in doing was create a hero in Andrew Forrest, anger customers and generate a climate of distrust which should see the proposed merger of BHP and Rio iron ore assets canned by anti-monopoly regulators.

Dryblower digresses, though it is always fun to contemplate the management (and financial) bloopers of big companies which have a habit of lecturing the rest of the world while never realising that at times they are the emperor without clothes.

Nickel is the current example of the naked emperor because what has been happening on the base metal markets, and at Ravensthorpe itself, is fascinating.

Like a high-speed worm, the supply-demand equation for nickel and copper has made a rapid turn, effectively guaranteeing that First Quantum delivers a spectacular win for its investors.

The latest word from the company is that modifications to the Ravensthorpe nickel-processing circuit are costing more than expected, having blown out from an initial estimate of $US120 million to $150 million.

Notionally, that lifts the cost of Ravensthorpe to First Quantum to around $US490 million (purchase price plus renovations), with the challenge ahead of making the project work as promised, or as close to it as possible.

The plan remains to have Ravensthorpe produce around 39,000 tonnes of nickel a year for the first five years, and to then average 28,000t for the rest of the forecast 30-year life.

Dryblower has always believed that BHP Billiton was overly ambitious with its attempt at processing laterite nickel ore, and now reckons First Quantum is at risk of pushing too hard. Far better, it would seem, to settle for a lower target, learn how the process works, and then grow it slowly.

The recent rise in the price of nickel is certainly in First Quantums favour. Even if it settled for 28,000t every year, a simple equation shows how much the nickel price rise has changed the outlook.

At the time Ravensthorpe was acquired, 28,000t of nickel was worth about $US392 million. Today, at $11.31/lb, the same amount of nickel is worth $633 million.

In other words, First Quantum will generate sufficient revenue (not profit) to cover its $490 million purchase from just 283 days of operation.

There are, obviously, very big assumptions in that example, starting with a belief that Ravensthorpe can ever be made to work efficiently.

But, if it can, then First Quantum has indeed pulled off the deal of the century.