Looking forward to some action when the core is sighted.Found...

Looking forward to some action when the core is sighted.
Found this today and worth a read..

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Nickel sweetens platinum miners
David McKay
Posted: Mon, 29 Jan 2007
http://www.miningmx.com/platinum/601720.htm

[miningmx.com] -- THE improvement in the nickel price this year has provided an interesting boost to the fortunes of South Africa’s platinum companies which produce the metal as part of the platinum group metal (PGM) family.


Other PGM metals have been contributing as well. Rhodium, for instance, comprises about 19% of Anglo Platinum’s 2006 revenue profile and gained 84% over the past year. After trading at a record $6,300/oz on May 23, the metal is currently at $5,775/oz. And ruthenium, described by JP Morgan as “the forgotten metal”, has struck a new record of $700/oz, and could go higher. “We believe there is a very good chance that this forgotten metal will move well into four digits soon,” Steve Shepherd, JP Morgan’s platinum analyst, said in a recent note.

Overall, 2006 was extremely kind to the country’s platinum production – and now South Africa’s highest earning mineral export. And there’s more to come.

The nickel price rocketed to a record high of nearly $33,950/tonne on January 18 after inventories on Britain’s London Metal Exchange fell 82% in the past 12 months, Bloomberg News reported. Stockpiles were 62,300 tonnes, equal to less than two days global consumption. The price increase was up 15% since the beginning of the year.

Peter Breese, chief operating officer of LionOre International, which last year produced and 34,000 tonnes of nickel, said the price improvements were related to the massive barriers to entry. About 70% of the world’s nickel reserves are held in a difficult-to-extract laterite form.

“We’ve seen the capital cost of some projects double and timelines stretch out,” said Breese.

LionOre owns half of the Nkomati Nickel project with the balance owned by African Rainbow Minerals. The partners are involved currently produce only 5,000 tonne/year from the mine but they hope to build it to 22,000 tonnes/year from 2010, following two expansion programmes.

LionOre intends, therefore, to produce as much nickel as quickly as it can. Providing market guidance to shareholders, it said recently production could increase to about 45,000 tonnes. “We’ve got an opportunity at all our operations to produce more metal by bringing it on quicker than expected, and lifting capacity,” Breese said.

One question is, however, whether nickel’s run will last. Its price improvement is related to demand for stainless steel. Numis Corporation, a UK broker, said there was scope for a sharp correction, although much depended on how much stainless steel China uses.

“Our forecast price for this year is around $22,000/tonne, followed by $19,000/tonne in 2008,” said John Meyer in a recent research note. Nickel averaged $23,214/tonne last year.

Cathie Markus, a director for Impala Platinum, said prices at these levels make nickel the second most important revenue generator after platinum. Whether this will be reflected in the next financial reporting period is a moot point as the nickel price rally only began in earnest during December.

And assuming the nickel price was to be maintained at its (high) current level, a further 6% would be added to Anglo Platinum’s earnings, said Mark Smith, an analyst for Canadian stockbroker, RBC Capital Markets. Companies that produce the most UG2, a type of platinum-bearing ore, are most exposed to the nickel price.

“It certainly helps with the basket price of our metals,” said Glyn Lewis, MD of Northam Platinum. At current nickel prices, Northam grosses 8% higher. But the bottom line impact is a modest 1%, said Lewis.

The gyrations in the nickel price will do little to take the steam out of platinum stocks which are expected to have another good year of strong cash generation and expansion newsflow. “They’re the most defensive way of playing the rand,” said Smith. “Roughly 70% of world platinum production comes from South Africa,” he said.


Click Here to subscribe to our daily newsletterThere’s also significant comfort that platinum prices will stay above $1,000/oz for the next 18 months. “This has created confidence in the cash flows of the platinum producers and they’ll soon begin to attract a multiple for this,” said Smith.

Merrill Lynch said in a report dated January 15 that further update trading statements were likely from South Africa’s platinum producers. Special dividends may also follow. “Again, without exception, free-cash flow generation at the PGM producers is at record levels and we believe all companies have the potential to surprise with lower-than-trend dividend cover, and, or, special dividends,” the stockbroker said.

And while the platinum price settles at around $1,000/oz – down on its $1,140/oz in 2006 – the palladium price could begin to regain ground. “The outcome is that we forecast the average palladium price in 2008 to be $455/oz, well up on the 2006 average of $320/oz,” said Shepherd.