10/09/2008 - 22:00

Hurdles remain for nickel miners

10/09/2008 - 22:00

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The nickel industry in Western Australia, like the nickel price, has experienced highs and lows over the years.

Hurdles remain for nickel miners

The nickel industry in Western Australia, like the nickel price, has experienced highs and lows over the years.

Now it is going through a lull, after nickel prices retreated from the highs they experienced just 12 to 18 months ago.

The sector's biggest project, BHP Billiton's $2.5 billion Ravensthorpe nickel mine, was commissioned earlier this year, but it is doubtful that the project would have started in the current climate.

The downturn was highlighted by Anaconda Nickel's recent decision to defer a $300 million expansion of its Murrin Murrin nickel operation in the eastern Goldfields.

Historically, WA has been the only state to produce nickel, hosting the country's largest nickel reserves, with more than 90 per cent of total economic demonstrated resources.

Australia holds the largest share of the world's EDR with 37 per cent and exports more than $5.5 billion in nickel products each year, according to the Australian Bureau of Statistics.

In 2006, Australia was the world's third largest producer, accounting for 12 per cent of estimated global nickel output.

Despite falling prices, the value of nickel mining now surpasses gold production as the mainstay of the Goldfields-Esperance region, with an earlier period of strong nickel prices encouraging the redevelopment of many mines that were close to closure or had closed.

However, few nickel companies have escaped the growing cost and delay headaches that have plagued most projects in the resources space.

In July, small miner Fox Resources announced the winding down of underground mining at its Radio Hill operation in WA and deferred another nickel project after the drop in metal prices.

Fox said in a statement the start of the "key deposit" Sholl B2 nickel project would also be deferred until 2009, following the fall in nickel price.

In July, the price of nickel slumped to a two-year low of just more than $US20,000 a tonne on the London Metal Exchange amid a supply surplus for the steelmaking ingredient.

But BHP Billiton's Ravensthorpe mine may prove to be a shining light in a sector plagued by disappointment and failure.

The mine is by far the largest nickel development in WA, which currently has four major nickel projects under way worth nearly $3 billion.

BHP earlier this year completed development of the mine, which has not been immune to current operating conditions, suffering delays and massive cost blowouts of 70 per cent in less than a year after the company issued its first cost increase.

BHP originally signed off on a $1.1 billion investment for Ravensthorpe in March 2004 as part of an integrated development with the Yabulu nickel refinery near Townsville in Queensland.

The mine is expected to produce about 50,000t of nickel a year when it's fully operational and will employ a process combining acid leach and atmospheric leach to produce nickel and cobalt product.

Hartleys resource analyst Andrew Muir said with current low nickel prices, other smaller nickel projects in WA might not see the light of day.

"Iron ore prices are high and are likely to remain high in the medium term, but zinc and nickel are looking much weaker," Mr Muir said.

"These projects that are under consideration, zinc and nickel particularly, I think will have to be a little doubtful about whether they actually go ahead."

All eyes will be on Russian nickel and palladium producer Norilsk Nickel's $800 million Honeymoon Well project south-east of Wiluna, which could produce up to 45,000t of the metal each year.

BHP's $595 million Perseverence Deeps project, located 10 kilometres north of Leinster in WA, is undergoing a prefeasibility study, as is GME Resources' NiWest Nickel Laterite Heap Leach project north-east of Leonora, worth about $455 million.

If the nickel price can make a resurgence, Heron Resources and CVRD Inco's Kalgoorlie nickel project is likely to get off the ground by its projected start-up date of 2013.

A scoping study completed in April last year estimated it would take $1.4 billion to develop a project producing 40,000t of nickel a year.

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