no bust for this boom yet...

Source: www.miningnews.net

No bust for this boom yet
Monday, 4 December 2006

ONE man's fish, as the French say, is another man's poisson and never was this truer than last week as a series of mining operations hit problems and Dryblower muttered to himself: "That's good!"

Keeping his opinion quiet was especially advisable anywhere near shareholders of Lafayette Mining, Tanami Gold or Herald Resources, three of the companies to suffer setbacks at mines in production or mines planned.

Before explaining what's good about a typhoon hitting Lafayette's Rapu Rapu copper and zinc mine in the Philippines, or Tanami suffering low recoveries in its Coyote gold mine, or Herald suffering a cost blow-out at its proposed Dairi zinc mine, it is worth considering this point ? all three events happened in the one week.

What's more, these setbacks were not alone as mines around the world failed to deliver as promised. It was the concentration of events that made last week so interesting in that it demonstrated that it is "supply-side shocks", not demand, which will see the boom lasting even longer than the most optimistic forecast.

Looked at as individual events, and each example seems relatively small beer. Whether Tanami produces 600oz of gold a week or 1000oz is really neither here nor there to the global gold market.

But it's a different story with a fourth supply-side shock ? that of BHP Billiton and its increasingly expensive (and late) Ravensthorpe nickel mine.

As with the Tanami example, there is an aspect that is irrelevant. In this case, it's the world market that is worried while shareholders in BHP Billiton are largely unconcerned whether a single new mine costs $1 billion or $2 billion. There is so much cash coming from other mines that delays at Ravensthorpe are of little consequence to the company.

The market, however, is acutely worried about a promised 50,000 tonnes of nickel being late to arrive. Ravensthorpe was the big example of what happened last week, and the impact of the delay was seen immediately in the market where the price of the nickel rose by about 4%.

Once you digest the Ravensthorpe effect, it is possible to see last week as a window on the world of mineral supply because each little setback added to pressures in a market already under pressure.

Tick off the events over just five days:


BHP Billiton admits that Ravensthorpe's budget is double the original budget and production will be a year late,
Lafayette goes into a trading halt when Rapu Rapu is walloped by a typhoon slowing its delivery of copper and zinc to a market desperate for both metals,
Herald says Dairi will cost a lot more to build, and that means more zinc being late to market,
Tanami has a production hiccup at Coyote, a little less gold reaches the market, and
Fortescue says it will be a little late in delivering iron ore from its Cloud Break project, a small event ? but another pointer to the boom lasting longer.
As Blower considered this list of supply-side shocks, large and small, two other thoughts occurred: Firstly, that they did all happen (or were freshly reported) over just five days, and secondly, that this is only a list of what happened to a group of Australian companies.

If you use a multiplier, and that is statistically valid in these circumstances, you can add a time component and a geographic component. Time ? in that we are experiencing week-after-week of delays and postponed mines because of budget problems, and geographic because the same things we're watching here are happening across the mining world.

Stronger for longer? For sure!