A Canadian miner is preparing to ship nickel from the revived Ravensthorpe mine.
FORGET next month’s Melbourne Cup, there’s a much more interesting race being run near the tiny south coast town of Ravensthorpe, where the prize is measured in the billions of dollars.
While 24 horses are doing a circuit of the Flemington track on November 1, a team of engineers, metallurgists and financiers will be putting the finishing touches to the rebirth of the failed Ravensthorpe nickel project.
The role of the engineers and metallurgists in retrofitting new bits and pieces to the $3 billion project that BHP Billiton virtually gave away for about 11 cents in the dollar is easy to understand; the role of financiers perhaps less so.
However, the Ravensthorpe revival is as much an exercise in money as it is in mineral processing technology, because getting the financial numbers right could prove to be as difficult as getting the complex high-pressure, acid-leach process performing as promised.
First Quantum, a company listed in Canada which has specialised in turning around other people’s mining mistakes, has been beavering away at Ravensthorpe since early last year, spending an estimated $200 million modifying the original plant for which it paid BHP Billiton $350 million.
In theory, the low-ball purchase price made First Quantum a winner long before it ships its first nickel from Ravensthorpe, an event scheduled for the end of November.
Because it acquired a ‘Rolls Royce’ mineral processing facility (BHP Billiton has a reputation for excellence in construction, if not operations) the job of First Quantum is to ‘make better’ the troublesome elements, with the luxury of not having to run the plant as hard as its builder because its capital outlay has been a lot less.
When finished, First Quantum will own a nickel business theoretically capable of producing 39,000 tonnes of nickel a year for the first five years, and 28,000t a year over a planned life of 32 years.
Theory is currently meeting reality because while the team from First Quantum is understood to be pleased with the technical modifications to the Ravensthorpe plant, the world nickel market has been unkind; and that’s where the financiers have a role to play.
After First Quantum bought the project the nickel price rose from around $US9 a pound to briefly flirt with $US13/lb, before retreating in recent weeks to around $US8.60/lb, pushed lower by uncertain demand in China and a flood of low-grade nickel ore hitting the market.
Said quickly (with a nickel price around US40 cents per pound less than when Ravensthorpe was bought) and it doesn’t sound too painful for First Quantum.
But that price slide is somewhat worse than meets the eye because the price fall on conversion to Australian dollars is bigger, thanks to the rise in the exchange rate from US89 cents when the deal was done to around US97 cents today.
In Australian dollars, the nickel price has fallen from around $10.20/lb when BHP Billiton sold to around $8.90 today, a fall of about 14.6 per cent.
Australia-listed nickel miners, such as Western Areas, Mincor and Minara, have felt the chill winds of the lower nickel price, while on the Toronto Stock Exchange First Quantum shares have dropped from a peak in May of $C29.60 to a low last week of $C12.60 – before rebounding to trade around $C16.50.
There is another aspect to Ravensthorpe that will be worrying the people in charge of finance at First Quantum – costs, especially for skilled labour in Western Australia, which have exploded during the past two years.
That means First Quantum is relaunching Ravensthorpe (and developing a second nickel mine at Kevitsa in Finland) into a climate of falling nickel prices, rising costs, and with a new chief financial officer in charge of the numbers after the resignation in August of Mark Bolton.
Interestingly, a little light might have been thrown on Ravensthorpe when its manager of government and community relations, Dave Coggin, spoke at the Australian Nickel Conference in Perth late last month.
Unfortunately he said little new, but did raise the odd eyebrow by prefacing his remarks that he could not give specific details about Ravensthorpe because he had been placed on a gag order by First Quantum’s executive management.
Gag order or not, the results of the Ravensthorpe nickel race will eventually be known, if for no other reason than all races must eventually be run and won (or lost), even the Melbourne Cup.
Net cast wide
NICKEL is not alone suffering from squeezed profit margins. A harder hit sector is retail, and if anyone selling stuff in shops (or investing in a shopping centre) expects a quick turn-around, they’re likely to be disappointed.
Consumers, worried by rising interest rates and financial uncertainty, are becoming increasingly skilful at using the internet to shop; and while there’s not much new in that statement, there are deep thinkers starting to ask questions about who’s next to be hit by the net.
In the same way as real estate, music, books, car sales and jobs have migrated to the all-powerful net, there is now concern that products such as premium clothing and wine will be next to move.
One study claims that within five years up to 30 per cent of high-cost clothing sales will have moved to the net, along with 25 per cent of wine sales.
Traditional retailers will scramble to offer a ‘bricks and clicks’ solution, with shoppers able to browse the net while comforted with the option of returning to a shop if they get it wrong, but there seems little doubt the pure-net retailers will retain a big price advantage.
A quarter saved
AS a final interesting thought, here is a number to think about – 24 per cent. Why is it interesting? Because 24 per cent is the current estimated global savings rate.
In other words, 24 cents of every dollar earned around the globe is currently being squirreled away. It is not only the highest savings rate for decades, but because people are saving and not spending it’s a reason why the global economy is struggling to grow.
“Difficulties are things that show what men are.”