Nickel ore mining outlook

TRENDS in US dollar nickel prices, the value of the Australian dollar and in the volume of nickel production will continue to drive industry performance during the outlook period.

Trends in US dollar nickel prices, the value of the Australian dollar and in the volume of nickel production will continue to drive industry performance during the outlook period.

Nickel prices, which soared during the current performance period, are expected to remain high during 2008, before starting to retreat by late that year or early in 2009.

The extremely high nickel prices of 2005-06 and 2006-07 in particular are expected to temper demand growth.

At the same time, new and expanded mines and processing facilities worldwide are expected to come on stream from 2009 onwards, taking some, but not all, of the pressure off prices.

In addition, New additions to capacity include Jinchuan Nickel’s new 30,000 tonne per year smelter, BHP Billiton’s 140% increase in the capacity of its Yabulu refinery in Queensland and Inco’s Goro nickel project in New Caledonia.

Nickel prices are expected to fall commencing in 2008-09, but will nonetheless remain high in historical terms.

A key factor tempering the decline in prices will be the higher cost associated with producing nickel from lateritic as opposed to sulphide deposits.

Although the mining cost associated with lateritic deposits, which are located close to the surface, are lower than for the deeper sulphide deposits, processing costs are considerably higher and processing technologies are still being developed.

As most of the new nickel projects coming on stream are based on lateritic deposits, the cost of producing nickel metal is trending up.

Australia’s nickel production is expected to rise strongly during the outlook period. Production increases are anticipated at Murrin Murrin, and output at other projects is also being lifted in response to higher prices. Some newer operations (such as Maggie Hays and Sally Malay) are also ramping up to capacity levels of output.

In addition, new nickel mines (including Honeymoon Well and Ravensthorpe) will either come on stream, or move to full capacity over the outlook period.

Other substantial mines, such as the Gladstone Nickel Project and Nornico are also expected to commence production.

Overall, by 2011-12, Australia’s production of nickel is expected to be about 362,000 tonnes per year.

The large Ravensthorpe mine will commence production during the outlook period, following BHP Billion’s decision in March 2004 to proceed with both the mine and the expansion of the Yabulu refinery.

The Ravensthorpe deposit is located about 160 kilometres west of Esperance in Western Australia.

Plans involve the construction of an acid pressure leach plant at Ravensthorpe, with the resulting concentrate being processed at BHP Billiton’s its Yabulu nickel refinery in Queensland.

Refinery capacity will be increased to about 76,000 tonnes per year to accommodate production from Ravensthorpe.

Mine output is expected to be up to 50,000 tonnes of nickel per year and mine life will be about 20 years.

The total cost for the mine and refinery upgrade is expected to amount to about US$2.2 billion and production is expected to commence in 2008.

BHP Billiton may proceed with the expansion of its Mt Keith mine planned by its former owner, WMC Resources.

Despite higher levels of output and a weaker Australian dollar, the fall in US dollar nickel prices is expected to pull down industry performance.

Real industry revenue and value added are expected to continue expanding strongly in 2007-08, buoyed by continued high prices and rising output.

Much weaker growth is anticipated for the following year as prices ease and beyond that time, falling US dollar nickel prices will drag down industry revenue.

Overall, real industry revenue and value added are each expected to fall at an average annual rate of about 2% during the outlook period. However, it must be remembered that this weak outcome follows a period of extraordinarily strong growth over the five years ending in 2006-07.

N IBISWorld

03 9655 3881

www.ibisworld.com.au

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