Redemption for the Devil’s Metal

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Nickel is a shiny silvery-white metal which does not tarnish in air. The metal has been used since 3,500BC but it was not until 1751 that the chemical element itself was isolated. Apparently the element’s name means “Old Nick” and stems from German mining mythology as the old timers unable to recover copper from copper-nickel ores saw it as the Devil’s metal.

The metal is used mainly in corrosion resistant alloys with 59% of world nickel mining disappearing into stainless steel for use in anything from cookware and kitchen appliances through to watches and surgical instruments. Another 21% goes into other steel alloys and super alloys; with 11% used in plating and coins.

Nickel is found as either a sulphide or a laterite. Currently 58% of world nickel production comes from sulphides even though it represents just 27% of the global reserves. The world is fast running out of nickel sulphide because these ores are fairly straight forward to process. The future supplies of nickel will rely on the nickel mining laterites as these now represent the majority of the world reserves. Laterites are mainly found on the surface in tropical areas where weathering serves to concentrate the grade of the nickel. In the main such deposits are very large tonnage low grade deposits close to the surface making them ideal for open pit mining. It is harder to liberate nickel from laterites which has forced some producers to resort to expensive techniques such as high pressure acid leaching. Not all laterites are the same and much depends on the proportions limonites and saprolites, which are the two nickel ores in laterites deposits. Limonites are highly enriched in iron as magnesium and silica have been leached out lie in a layer above saprolites is the silicate type of the ore. In some places, limonites have been pretty well eroded away which is good news for miners as there is a well-proven process for the treatment of saprolite-dominant laterites which is smelting to produce ferronickel that is sold directly to stainless steel producers.

Brazil is fast growing nickel producers but it is not really that surprising as the country remains under explored despite being strongly pro-mining. New nickel mines are popping up in the emerging nickel Carajas District in Para State in North Brazil. Here the majors such as Anglo America, Xstrata and Vale have been granted mining licences. The latest nickel mine into production was Vale’s Onca Puma in 2011 which is using smelting to produce ferronickel and represents the fourth such operation in Brazil that is using this tried and tested method. They could well be joined by Horizonte Minerals whose saprolite dominant Araguaia project has all the making of becoming a world class ferronickel class project. Not bad for a junior that has a market capitalisation of just £42 million.

At the beginning of 2006 the price of nickel stood at $7 a pound but within eighteen months the price had climbed to over $24 per pound on the back of strong demand from rising stainless steel production. However the credit crisis and the economic downturn saw prices slump to $4 a pound in 2008. Since then the continued urbanisation of developing economies like China, India and Brazil have helping to drive world demand for nickel which climbed to $12.50 a pound in 2010. The nickel price sits around the $8.80 level but with strong fundamentals at play here it looks set to climb comfortably higher. To meet forecasted demand, more than 90,000 tonnes of new nickel capacity needs to come on stream every year, much of this is to meet China’ insatiable appetite. The increased demand will be met from laterites projects and it is now expected that they will account for 50% of world nickel mining by the end of 2013.

There have been difficulties in bringing new projects on stream which is not surprising given that many rely on new technologies. Delays in new production coming to market coupled with the fast growing nickel Exchange Traded Funds (EFT) market which could soak up supplies and boost. It probably with such thoughts in mind that Numis in September upped its expectation that nickel would trade at an average of $11.25 per pound in 2012. That has now been topped by Societe Generale that is now forecasting nickel prices averaging over $12 per pound.