BHP's Ravensthorpe mine on brink as nickel price falls
SPECULATION is growing that BHP Billiton is about to take a tough decision on the future of its $2.2 billion Ravensthorpe laterite nickel mine in Western Australia.
There are indications that an announcement could be made in the next few days.
The speculation comes against a background of worsening news about nickel, with reports that Japanese customers will defer signing new supply contracts, and predictions that the metal will be in the doldrums throughout this year and into next.
Rumours of the pit closure at Ravensthorpe started circulating last month. Commentators have been comparing Ravensthorpe with the disaster of BHP's hot briquetted iron plant. But as recently as Thursday a spokesman was denying layoffs were planned.
It is just two months since the company announced it was taking a $US2.1 billion impairment charge for its Ravensthorpe and Yabulu nickel projects as the market for that metal went sour.
Total closure of Ravensthorpe would mean the loss of an estimated 700 jobs.
Even a slowdown of operations would be a blow for BHP, confirming that laterite nickel operations are fraught with problems.
The technical challenges of treating this type of ore have already destroyed two Australian miners and nearly finished a third, the former Anaconda Nickel.
Russia's Norilsk Nickel closed its Cawse laterite mine in Australia last year and there is no sign of it reopening.
Anaconda's successor, Minara Resources, deferred expansion at Murrin Murrin.
Nickel reached more than $US50,000 a tonne in May 2007 and its highest price last year was $US33,400 a tonne in March. Trading at the London Metal Exchange on Friday closed at $US10,855 a tonne for three-month delivery.
Even companies mining the more straightforward nickel sulphides have been unable to withstand the dramatic price cuts.
Mincor Resources, Australia's third-largest nickel producer, has shut its Miitel mine.
Mining giant Xstrata has cut its nickel production and Consolidated Minerals axed staff at its Kambalda nickel mine.
Even if BHP decides to battle on at Ravensthorpe, its chiefs must be alarmed by indicators on the outlook for nickel sales and prices.
New York-based Platts reported at the weekend that Japanese speciality steelmakers were postponing renewal of nickel supply contracts due to be negotiated this month.
These plants have nickel stockpiles that will last them to March due to cuts in steel output resulting from weak demand from the motor vehicle, shipbuilding and housing sectors.
Platt quoted one Tokyo metals trader saying he might postpone contract renewal until July -- or not renew at all -- if business did not improve.
Longer term, there is a question mark over the amount of nickel Japanese companies will buy from foreign-owned suppliers.
Sumitomo is developing a mine in Madagascar that will, from next year, meet about a quarter of Japan's demand for nickel.
The latest commodity outlook from the Commonwealth Bank concludes that the nickel price is likely to remain trapped at low levels. Even with production cuts so far and taking into account more mine closures, the bank expects nickel to be in surplus right through 2009.
This overhang would most likely persist into 2010.
The report said the nickel price had been crushed by the twin forces of an increase in production capacity and a collapse in demand.
"The nickel price has already fallen considerably from earlier highs but, in real terms, is still well above lows recorded during previous international economic slowdowns," the bank said.
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