Bruised nickel miners look for price lift

Nickel miners in Western Australia will be hoping a recent improvement in prices for the base metal sets a trend for the year ahead.

The nickel price slumped last year but has shown signs of recovery in January, with prices edging towards $US9.50 ($A8.88) a pound.

This was a significant improvement on the $US8.51 average in the six months to the end of December, which was a decline from the $US11.61 recorded in the same period a year earlier.

Perth-based broking firm Hartleys predicts nickel will sit around its 2011 second-half average over the next two years before gradually improving to a median price of almost $US10 in 2014.

However, this has not brightened a gloomy situation for nickel miners, which have been hit hard by market conditions.

Western Areas, the state’s third-largest nickel producer, said the lower price was primarily responsible for profits falling 64 per cent during the six months to December 31.

Panoramic Resources has forecast an after-tax loss of $3 million to $4 million for the half-year to December 31, while Independence Group has also predicted a loss without yet saying how much.

“Based on the information available to date, including current commodity prices, the directors expect the December 2011 quarter result to be an improvement on the September quarter, however, it is nevertheless envisaged that there will be … an after-tax loss for the half,” Independence said in a statement.

And despite the challenges in the sector, Canada’s First Quantum Minerals continues to progress the Ravensthorpe nickel mine bought from BHP Billiton following its closure in 2009.

BHP Billiton sent a warning sign through the industry earlier this month when it revealed that up to 155 jobs would be cut from its Nickel West business.

The move was aimed at curbing activity and restructuring roles in reaction to a depressed nickel price and the strong Australian dollar.

Nickel West was planning to restructure functional support areas of its business, mostly based in Perth, to streamline the company.

Following this announcement, BHP Billiton conceded that production at the Mount Keith mine in the northern Goldfields would be scaled back for at least 12 months.

Western Areas managing director Dan Lougher played down any prospect of the company following BHP Billiton’s lead by cutting jobs as a response to market conditions, instead indicating the company was more likely to expand.

“We maintain that we are not containing or slowing down any of our operations or projects,” Mr Lougher said.

“We keep an eye on all of our peer groups’ assets in Western Australia – we have a very good understanding of their resource, reserve and cost positions. We don’t see at the moment that there are any that we would really jump at to add to our portfolio.”

Given market conditions, analysts regarded Western Areas’ $24 million profit in the half a positive outcome, with Goldman Sachs and RBC Capital rating the result as “better than expected”.

And, with nickel prices heading towards $US10 a pound in the early part of this year, the company said shareholders could expect a strong finish to the financial year as production remained solid.

Whether or not BHP Billiton’s recent decisions are the first step towards selling its nickel assets like analysts have envisioned, Mr Lougher believes there could be takers.

“Possibly there could be some interest if BHP decided they were moving out of nickel,” he said.