Afternoon all, Lifted Dryblower's musings on Nickel and Rio Tinto's exit from Fortaleza. Thank you "Mining News" for the story. Cheers, Carl.
Dryblower: It's all in the timing
Tuesday, December 30, 2003 'TWAS the night before Christmas, when all through the house not a creature was stirring etc etc ... except in the house at No 6 St James's Square, London, where some extremely interesting views appear to have been formed about the outlook for the metal which has outperformed all others in 2003.
Nickel, the wonder metal of the past 12 months, has been moved down the menu for 2004 by one of the world's biggest mining houses, Rio Tinto.
The Christmas Eve announcement that Rio is selling its Fortaleza nickel mine in Brazil to Votorantim Metals for up to US$90 million scored minimal mention in the media over the festive season – but the significance of the sale could be much more than a few paragraphs on MiningNews.net or a handful of wire services.
The real message for Dryblower lies in the timing of the sale, and a decision by the world's biggest player in the metals game to effectively quit a commodity which seems to sit very comfortably with its most profitable division, iron ore.
Like iron, nickel is consumed by steel makers and there has always been a logic which says steel makers like to deal with a supplier which can meet most of their bulk material needs. It's why BHP Billiton supplies iron and manganese, and is keen to expand its nickel interests via the proposed Ravensthorpe nickel project in Western Australia.
Rio, on the other hand, appears to believe that either Fortaleza is not big enough to justify management time – a real possibility given that the mine is only producing between 6000 and 8000 tonnes of nickel a year.
Or, Rio believes that now is just a good time to be selling nickel assets – now that's much more interesting.
The truth, in Dryblower's view, is probably a combination of both the size and time – but the message is the same: the world's leader has decided that nickel, when everyone else is buying, is in fact a sell.
The timing of the Fortaleza sale is fascinating. It took place in a week when the nickel price on the London Metal Exchange hit a 14-year high of US$16,000 a tonne, and there were forecasts floating around that the metal was heading for the stratosphere of US$20,000, and beyond.
New nickel floats were flooding the Australian stock market, and the average speculator could not get enough of the nickel story – right down to endless (and incredibly boring) reports of the Poseidon nickel boom written by people who could not possible remember what it was like, or who may not even have been born at the time.
Nickel, as Dryblower well knows, is a fabulously fickle metal. Sky-high on Monday, in the cellar by Friday.
Rio, in a move which has the potential one day to be seen as an astute picking of the top of the market (or as close as anyone ever gets), has voted with its feet and walked away from a nickel mine at a time when many others are walking in.
What does this all mean? Well, in Dryblower's opinion it is a sign that some very smart players in the mining game are making an early call that the first nickel boom of the 21st century is close to its peak.
There may be another six-to-12 months in the boom, and that will be fun. But, the nature of past nickel booms is that none have lasted long and the best profits are made selling on the way up the price spike – never on the way down.
With those sobering thoughts, largely courtesy of Rio's Christmas Eve exit from Fortaleza, Dryblower wishes everyone out their in cyberland a healthy and prosperous 2004.
