steep decline in nickel price suspends mining

FROM $20/LB ’07 TO $8/LB ‘08
Steep decline in nickel price suspends mining operations, may slow project timetables
A 65% overall decline in the nickel price since early 2007 has caused several international nickel producers to reconsider their project timetables and prompted the suspension of higher-cost operations.

Author: Dorothy Kosich
Posted: Wednesday , 20 Aug 2008

RENO, NV -



Weakening Chinese demand, which has sent nickel prices spiraling downward, is taking its toll on nickel mines and projects internationally as both Xstrata and Russia's Industrial Metallurgical Holding both announced Tuesday that they were suspending some operations to reduce nickel production.

Meanwhile, BHP Billiton's Ravensthorpe laterite development project could also be in trouble if nickel prices continued to hover around the $8 per pound mark.

Nickel prices have spiraled downward from $20 per pound since early 2007 to the current average of $8 per pound. Price on the LME closed at $8.50/lb Tuesday.

Swiss mega-miner Xstrata Nickel announced it was suspending the Falconbridge Dominicana Falcondo nickel mining and processing operation in the Dominican Republic, specifically citing market conditions as the culprit. "This is due to a combination of extremely high oil prices, which represent the majority of the site's costs, and lower nickel prices," a Xstrata news release announced Tuesday.

The shutdown is planned for four months during which time furnace repairs and maintenance activities will be performed. "The suspension will also enable the acceleration of feasibility studies into the energy conversion project, to switch the operation's power source from oil to coal, and the development of the Loma Miranda project, which will provide a new higher-grade mining area for Falcondo and extend the mine life."

In the statement, Xstrata Nickel CEO Ian Pearce said, "The resumption of activities will be assessed based on market conditions, which are expected to improve towards the end of 2008."

Analysts noted that Falcondo had the highest operating cost of Xstrata's nickel operations. The plant produced 29,000 metric tons of nickel annually.

Bloomberg reported Wednesday that Russia's Industrial Metallurgical Holding reduced output Tuesday by as much as 40 percent. The company, which produces about 5% of Russia's total nickel production, shut a total of four furnaces at the Reznickel plant and the Uhaleynickel facility.

Industrial spokesman Pavel Kovalenko told Bloomberg, "At current prices even this production volume is not profitable." The cutbacks are indefinite and output will be restored when prices rise, he added. Industrial Metallurgical produce 14,144 metric tons of nickel last year.

BHP Billiton CFO Alex Vanselow warned Tuesday that planned Ravensthorpe nickel mine and complex processing plant in Western Australia would not make an acceptable profit at prices lower than the current $8 per pound. Vaneslow told The Australian newspaper that nickel prices needed for break-even earnings before interest and tax on the ramp up of the project were probably toward the lower end of US$5 to $8/lb.

Meanwhile nickel futures prices were down by as much as 26% mainly due to higher inventory and poor demand from stainless steel mills. The anticipated world mine production this year is expected to increase 8.4% to 1.6 million tonnes.

The LOM nickel market has undergone frequent corrections at $51,800 [per tonne] levels, and is currently trading near $18,000 levels for nearly a 65% decline since May 2007.

China's Ji'en Nickel seems to be bucking the pessimistic trend, announcing to Interfax China Monday that it is building a 150,000-tonne nickel project in the Jilin Province, which is planned to begin production in 2009.

However, mining analyst Xu Aidong of Beijing Antaike Information told Interfax that Ji'en Nickel had planned its project in 2006 when nickel prices were high. The actual commissioning of the project will depend on the nickel market, he asserted.

The company experienced lower net profits in the first half of this year, attributing the earnings decline to high power costs, declining demand from stainless steel mills, China's high stockpiles of laterite ore, and declining nickel prices.