Casualities Sustained
November 2016
The last 12 months has seen the nickel industry face its toughest conditions in over a decade – prices at 13-year lows, exchange stocks at record levels, a persistent global finished nickel surplus, and two thirds of finished nickel producers operating at a loss. With a significant uplift in demand not on the horizon, something on the supply side had to give, with high-cost operations an unavoidable casualty of the market.


The Toll on Mined Ore Supply

The challenging market conditions have taken a toll on operations across the spectrum of the supply chain including miners, producers of intermediate product, and producers of finished metal, with interruptions in upstream supply increasing cost pressures further downstream.

Output of finished nickel producers in Western Australia and Canada have been placed under increased pressure by the suspension of operations supplying traded ore to their concentrators.

This has been particularly stark in Western Australia, where many small mines produce ore for toll concentrating at BHP Nickel West’s Kambalda concentrator, which in turn feeds into their Kalgoorlie smelter and Kwinana refinery. Over the past 12 months, Mincor has ceased output from their Mariners (4ktpa) and Miitel (4ktpa) mines, and Panoramic ceased operations at their 13ktpa Lanfranchi mine, all of which fed into the Kambalda concentrator. All were initially placed onto care and maintenance status, with Mariners later placed into permanent closure. As prices improve, AME expects Lanfranchi will return to operations in late 2017 and Miitel will return to production of just under 4ktpa from 2018 onwards. Combined with reduced ore supply from Independence Group’s Long mine, nickel output from the Kambalda concentrator has declined from 27kt in 2014 to around 8.6kt in 2016, forcing BHP to re-allocate some of its workforce away from Kambalda to other operations.

Recently Halted Nickel Operations

Source: AME

While finished nickel supply in the Sudbury Basin of Canada from Vale and Glencore’s smelter and refinery operations is less dependent on third party ore feed, the area has not escaped the closure of suppliers of mined nickel in ore, with the closure of First Nickel’s Lockerby mine in the September Quarter of 2015, which 6kt of nickel in ore in 2014 with ore supplied to Glencore’s Strathcona mill. The mine has now been permanently closed, as it was nearing the end of its reserve life.

Independent Concentrate Suppliers Also Hit

Suppliers of nickel in concentrate have also faced care and maintenance or closure over the last year.

In Australia, Panoramic Resources placed its 9ktpa Savannah underground mine and concentrator onto care and maintenance, despite the identification of the Savannah North orebody which will significantly prolong mine life. AME expects Savannah to return to production from 2018, with mine life to 2027 supported by Savannah North. The halt in output from Savannah will restrict concentrate supply to Jinchuan’s smelter in China.

In Brazil, Mirabela’s Santa Rita mine was placed on care and maintenance in early 2016. The debt burdened mine, which produced 16.1kt of nickel in 2015, struggled to find a buyer in a subsequent sale process. AME does not include production from Santa Rita in its future base case balances, but believes possible production would not recommence before 2018. Santa Rita previously supplied concentrate to the Harjavalta smelter in Finland.

High-Cost Intermediate Suppliers Forced Out

October saw high-cost Botswana producer BCL placed into provisional liquidation, with a halt in operations at its Tati mine and Selebi-Phikwe smelter, which processes concentrate from its own mine as well as concentrate from Tati. Tati has been faced with increasing operating costs in recent years due to decline in its already low grade from 0.5% in 2007 down to 0.15% in 2014, and declining concentrator recoveries from around 74% down to 45%. Declining feed supply from Tati, and also the Nkomati mine, to Selebi-Phikwe compounded the operation’s already high costs. The Selebi-Phikwe smelter produced 16.8kt of nickel in matte in 2015, with around 84% of production sold to Glencore’s Nikkelverk refinery in Norway and the most of the remainder shipped to Norilsk’s Harjavalta refinery in Finland. AME does not expect operations to restart at Selebi-Phikwe, with these two refineries left to source alternate matte supplies.

Caron Production Dominates Finished Nickel Closures Outside China

Outside of China, halts in finished nickel production have been dominated by the closures of two Caron-based production units, Queensland Nickel’s Yabulu plant in Australia, and Votorantim’s Tocantins mine and Caron plant, and their 23ktpa downstream refinery at Sao Paulo. Closure of these plant in a period of low prices was unsurprising, given the highly energy intensive and costly nature of the Caron process. AME does not factor production from these operations in its future base case supply scenario, as a restart of operations is unlikely without significant alterations and improvements to the plants to lower operating costs.

Another casualty of the market is Cunico’s 8ktpa Ferronikeli mine and smelter in Kosovo. The plant is currently on care and maintenance, and AME believes this operation may return to production sometime after next year as prices recover.

Chinese NPI, the major marginal producer on the finished nickel cost curve, as contracted significantly in response to depressed prices across 2015 and 2016. This reduction in output from blast furnace and electric furnace producers, as well as some smaller RKEF operations, has seen Chinese nickel in NPI output fall from around 500kt in 2014 down to around 380kt in 2016. Much of this capacity could be recommissioned to produce nickel with prices over US$5/lb, so long as sufficient ore feedstock is available.

Not all High-Cost Operations Are Created Equal

Most of the mines and smelter/refineries discussed above which have closed over the last year sit in the fourth quartile of the cash cost curve, the exception being Santa Rita which struggled under a debt burden. So why aren’t more high-cost producers exiting the market, given there is significant higher cost capacity still in operation? The answer is operational survival is not purely down to cash cost – debt burden, government support, integration within a high-value supply chain, well funded owners (particularly majors), and large scale projects still in ramp-up all factor into the equation.

Caron Plants Worldwide – Only One Plant Remains in Operation

Source: AME