Last year saw a recovery in metal prices dispelling the gloom and despair of the previous three years. Gold, lead, aluminium and copper have been at or near maximum values for the past year, and way above previous years’ prices.
No metal illustrates this point more so than nickel, whose rapid increase in value is driven by market forces reacting to a supply situation that is expected to worsen in the years to come. Last Autumn several commentators predicted that future nickel prices would move into the US$10,000-12,000 range, or possibly even higher, in the next few years. These have already been exceeded, with the price peaking at US$17,000/tonne in January this year. So far these price increases have failed to stifle demand and as a consequence LME stocks are at their lowest for 12 months.
Demand Driven By Stainless Steel
Nevertheless, the demand for nickel is growing, driven by the market for stainless steel, which accounts for 54% of nickel consumption in the USA and more than 60% in other countries. The next largest market is super alloys, consuming 10% of nickel production. Nickel demand has grown at a rate of 4% per year during the past decade, with 7% growth seen during the past two years - a rate most metals would envy
Geographical Demand for Nickel
Demand is up in the US, Europe and Japan, despite the absence of economic recovery. However the greatest growth in demand is in Asia and specifically China.
Inco is a major company in the nickel industry and has seen sales to China amounting to 60% of the company's total sales - a market greater than Japan and Europe combined.
New Nickel Projects
Today, according to its CEO, Scott Hand, it is in the enviable position of having two major nickel projects in the pipeline at this time of soaring demand. But it is not the only company with new nickel properties.
Falconbridge recently announced a development on the Montcalm nickel mine 70km north west of Timmns, Ontario, Canada. Other sulphide-based projects include Rio Narcea's Aquablanca project in Spain, Western Area’s Forrestania and WMC's Yakabindie projects in western Australia, and Barrick's Kabanga project in Tanzania.
Future Nickel Projects
Altogether there is some 200,000 tonnes of contained nickel metal production in the pipeline, according to the USGS Minerals Yearbook. This number is dwarfed by the future production of nickel from laterite resources. These are found around the world from Africa to Australia, and represent the weathered remains of ultrabasic rocks that are usually found deep within the earth’s crust, but are brought to the surface either by weathering or plate tectonics.
Projected Production of Nickel from Laterites
USGS estimates that around 678,000 tonnes of annual production can be expected from laterites within the next decade or so. This is against 1.22 million tonnes of production anticipated for 2003, and on paper gives reassurance to nickel consumers. However, the supply problem remains, as the majority of this new production (82% of sulphide and 89% of laterite) will not be available until 2006, with some only coming on-line at the end of the decade. This leaves expansions of existing projects and stockpiles to meet the growing demand.
Nickel Supply in the Near Future
According to Inco, the supply of additional nickel will be limited to about 300,000 tonnes in the period 2003-2005, of which 220,000 tonnes will be from expanded production at existing plants. The remainder will come from London Metal Exchange (LME) stocks and 60,000 tonnes pledged by Norilsk. If demand during this period follows the 7% growth of the past two years, this will put severe pressure on mine supply, and even at a more modest 4%, an additional 55,000 tonnes per annum will be required.
Nickel Production Problems
Declining Production at Mines
This additional demand does not take account of declining production at mines where ore bodies are being depleted, or where production problems at smelters cause loss of output. One example of this is the declining production at the Thompson mine in Manitoba, Canada, that will account for a loss of 20,000 tonnes of nickel annually
Stockpile Inventories and Production Capacities
Stockpile inventories are also at historically low levels, Earlier this year they stood at 4.7 weeks of consumption - a very slim margin. In December the LME stocks stood at just 32,000 tonnes and are now, half that level. The industry is also running at near maximum use, with minimal spare capacity in plants running at name-plate capability.
The Effect of Supply on Nickel Prices
This tightness of supply has caused nickel prices to rise from US$7,100/tonne at the beginning of the year to US$14,845/tonne in December - an increase of 109%. This rise has excited the market and led to many new exploration projects, the majority of which will not come into production for at least five years. Last month’s top price indicated a 149% increase over the year adding to the excitement.
As well as the changing market, the recovery of nickel from ores has also undergone a revolution. Nickel can now be recovery through hydrometallurgical processes for both sulphide and oxide ores.
Inco’s Nickel Projects
Inco has two projects that will be the first to supply the market in around 2005. Both projects have been delayed, but are eventually expected to provide around 50,000 tonnes of contained nickel. In both developments, Inco has developed a hydrometallurgical route for the recovery of nickel. The proprietary processes they have developed promises high nickel recoveries, together with by-product cobalt and low operating costs.
Inco’s Voisey’s Bay Project
The first of Inco’s projects to come into production in 2005/6 will be Voisey’s Bay, a large sulphide body containing a proven and probable reserve of 30 million tonnes at an overall grade of 2.85% nickel (8.5 million tonnes of contained nickel). Located on the coast of Labrador, Canada. Voisey’s Bay was discovered by Diamond Field Resources in September 1993, and was acquired by Inco in 1996. In June 2002, Inco announced that an agreement had at last been reached with the Government of Newfoundland and Labrador on a US$1.9 billion plan to develop the deposit. The agreement provides for a US$470 million mine and mill / processing plant at Voisey’s Bay, and a US$120 million research and development programme in hydrometallurgical processing, including a US$85 million demonstration plant at Argentia, Newfoundland. The demonstration plant is expected to be ready for feed at the same time as the mill starts producing concentrate in 2006.
Inco’s Goro Project
Inco’s other major nickel site due to come on stream in 2006 is Goro, located in South Province, New Caledonia, Canada. Inco claims that Goro is the best undeveloped laterite ore body in the world, with excellent average grades, 54 million tonnes of proven and probable reserves, and a very large resource base. In 1999, Inco launched a US$50 million pilot plant programme to test and refine its proprietary pressure acid leach processing technology for the laterite ore, and to train future plant operators and technicians.
In spring 2001, Inco announced it was proceeding with development of a commercial scale complex at Goro, with a planned annual capacity of about 55,000 tonnes of nickel and 4,500 tonnes of cobalt.
Impact of the Inco’s New Nickel Projects
Voisey’s Bay and Goro will increase Inco’s output by 40%, and both projects will reduce overall costs from about US$1.80/lb today to US$1.15/lb, when the mine and processing plant come on stream. At Goro, cash costs after by-product cobalt credits at US$7/lb will be around US$ 1/lb for nickel.