Was Teck-Cominco doing the wedding chicken dance? One foot
in, one foot out, and then you do a dizzy twirl. Talk about
cold feet, it's enough to totally confuse a columnist on
deadline.
And now the remaining two partners on Inco's dance card - a
dark haired exotic suitor who dances to a wild Latin salsa
rhythm while the other light-haired westerner two-steps to a
banjo beat - are circling for a showdown at, dare I say it the
"OK Coral."
The real object of their affection is not Inco's feminine
charms but her geological jewels especially that non-descript
silvery-white metal called nickel.
On Aug. 16, the spot or cash price of nickel skyrocketed to $15.10 (US) per pound or $33,300 per metric ton. The three-month contract price hit a historic high of $13.15 per pound or $29,200 per metric ton. The price has effectively doubled since the beginning of the year.
Last Wednesday, the London Metal Exchange (LME) imposed trading
restrictions on the metal. In a news release, Simon Heale, LME
CEO said, "Nickel stocks are at historically low levels and we
now have a genuine material shortage. Our first priority is to
ensure that trading remains orderly and to prevent the risk of
settlement defaults."
The trading restrictions did push the price of nickel down a
bit in early Thursday morning trading.
Less than a decade ago, in October and December of 1998, the
LME price for nickel plummeted to $1.76 a pound, the lowest
level ever if you factored in inflation.
There is no doubt that the "hedge fund boys" are influencing
some of the price increase. But, by far, the fundamental issue
is exploding Chinese demand for stainless steel -which uses
about 70 percent of nickel produced - and a shortage of supply.
Large high-grade nickel deposits are rare. The world mine
production of nickel is small (1.34 million metric tons per
year) compared to copper (15 million/Mt) or aluminum (26
million/Mt) so its price is more volatile and higher.
The Sudbury Basin is still the second largest sulphide
nickel deposit in the world.
By comparison, Voisey Bay, Newfoundland and Thompson, Manitoba
nickel deposits each contain only about 10 percent of the
volume of nickel found in this enormous deposit. Only the
enormously rich Norilsk nickel mines found in Russia's frozen
Siberian north contain more nickel than the Basin.
The three major laterite projects that should bring some
relief to the nickel shortages - Goro in New Caledonia,
Ravensthorpe in Australia and Vermelho in Brazil - are all
behind schedule and their costs are escalating. They will be
using HPAL technology which has yet to be shown effective in
operations as large as these - bigger than 50,000 metric tons
per year. That doesn't mean that the projects won't work,
however, you may see more production problems and delays than
expected.
In
www.miningnews.net
, an Australian website, Minara CEO Peter Johnson, who
miraculously saved the troubled laterite project at Murrin
Murrin in Western Australia, said, "…The market is being overly
optimistic about the big laterite operations at Ravensthorpe
and Goro being able to quickly reach capacity."
This just may be the perfect storm for nickel shortages that
may last for the rest of decade. I have said this a million
times, globally, there are no other more politically-stable,
and geologically promising nickel mining camps than the Sudbury
Basin.
Combine this with the established infrastructure, support
services and the one of most efficient and highly trained
workforces in the world and you will see continued investment
well into the next decade.
In a July 24 Associated Press article headlined Market Spotlight: Nickel, Peter Goudie, Inco's marketing executive vice president, called 2006 "the tightest nickel market we have ever seen."
It is not only the inventories on the LME that are decreasing
quickly, we observed a shortage throughout the supply chain."
The company expects a 30,000 ton deficit this year.
European merchant banker, Fortis Bank, stated in its August
2006 metals research paper that, "…Nickel's fundamentals are
looking very attractive through to the end of the decade; the
current nickel bull-run may endure for much longer than anyone
anticipates."
There is no community in Canada that has suffered as much from the commodity slump of the past 30 years than Sudbury. This nickel boom will be longer and stronger that anything we have seen in a generation and half. Enjoy the party. You deserve your moment, no I should say decade or longer, in the sun.
 Stan Sudol is a Toronto-based communications consultant/policy analyst who writes extensively on mining[email protected].
