Nickel Ore
Send this article to a friend
Print this page

» Xstrata bid to leave Nkomati intact
» High nickel price could damage demand
» Nickel sweetens platinum miners
» Bank funding not critical for LionOre
» ARM, LionOre to expand Nkomati nickel
» LionOre capex rockets


Nickel prices sustainable in short term
Allan Seccombe
Posted: Mon, 26 Mar 2007

[miningmx.com] -- NICKEL prices will be sustained by market fundamentals in the short term, but in the longer term higher prices could damage the stainless steel market, said LionOre CEO Colin Steyn.

Jim Lennon, a commodities analyst with Macquarie Bank told a nickel conference prices would stay strong until 2010 and the average price for the key ingredient in stainless steel would rise 34% during 2007.

Xstrata Nickel has launched an all-cash takeover bid for LionOre, which has nickel projects in Botswana, South Africa and Australia. The offer has received approval from the LionOre board and their recommendation that shareholders accept the offer.

“We believe nickel prices are at unprecedented highs and if it goes considerably higher it will be value destructive for the stainless steel market and affect stainless steel supplies going forward,” Steyn said on a conference call to explain the transaction.
not sustainable in the longer term
“In the short term there are short-term shortages and these prices can be sustained, but they are not sustainable in the longer term,” he said.

At current cash nickel prices of $45,610/tonne or $20.69/pound, it would take Xstrata fewer than four years to pay back the acquisition price, said Numis Securities analyst Simon Toyne.

The long-term sustainable price for nickel is between $5.50 and $6 a pound, Lennon said.

Numis has a forecast of an average $15/lb for 2007.

Nickel prices will rise to an average $32,518/tonne in 2007 from $24,271 in 2006, MarketWatch reported Lennon as telling the conference.

The nickel market will record a surplus of 7,000 tonnes in 2007 from last year’s 51,000 tonne deficit. Consumption growth will ease to 2.9% this year from nearly 12% last year, and is expected to grow to 7.4% next year, Lennon said.

Stainless steel prices in parts of Europe have fallen by a quarter, Reuters report him as saying.

“There is a mini collapse taking place in stainless steel markets in Europe over the last couple of weeks,” he said.

Click Here to subscribe to our daily newsletter
LME stocks of nickel were up 618 tonnes by the end of last week to give a 4,392 tonnes, which is about half a day’s worth of global consumption, the newswire reported.

There were some analysts who liked the transaction, but there were others who said LionOre, which will produce 44,300 tonnes of nickel this year, had sold out cheaply.

There is the chance that another company could make a counter bid for LionOre, one of the last pure nickel plays. The share price is reflecting a break fee of C$0.60 on top of the C$18.50 offer from Xstrata, said an analyst.

LionOre’s shares shot up to a high of C$19.40 in Toronto before pulling back to last trade at C$19.04.

Xstrata has spare capacity at its smelting and refining facilities, which could be filled by LionOre material, Toyne said.

“By channelling an increasing proportion of LionOre feed through Xstrata’s surplus processing capacity a greater portion of the value chain will be retained within the combined group,” he said in a note.

“The acquisition of LionOre would make Xstrata roughly vertically balanced. As with most metal industries, the returns on nickel processing are far lower than those on mining, especially in the current environment,” he said.

Xstrata also brings the financial firepower necessary to develop LionOre’s Honeymoon Well nickel project in Australia, he said.

“Xstrata would also bring the capital to develop the very large Honeymoon Well project in Australia, which we believe had been marginalised somewhat by LionOre’s focus on Activox (in Botswana), but could add 40,000 tonnes per annum over a number of decades,” he said.