BHP flagged the potential closure of its massive Nickel West business yesterday along with a massive $5.4 billion impairment
\nNickel explorer Lunnon Metals says high grade deposits can still make money at current prices
\nCentaurus Metals boss Darren Gordon says nickel prices of US$18-20,000\/t should be enough to incentivise low cost producers<\/p>\n
As BHP (ASX:BHP)<\/a> wiped as much as $5.4 billion off the value of its 58-year-old Nickel West business and flagged its potential closure, an explorer on the ground floor maintains there will still be opportunities for producers to make money after a price rout caused by a flood in supply from Indonesia.<\/p>\n The rise in supply from the South East Asian, which has lifted from 2-3% of the global market to almost 50% in eight years after banning the export of unprocessed ore in favour of Chinese investment in downstream processing, has seen prices fall from over US$30,000\/t in early 2023 to ~US$16,000\/t this year.<\/p>\n That has wiped out Australian nickel producers, with Andrew Forrest\u2019s Wyloo Metals, Panoramic Resources (ASX:PAN),<\/a> First Quantum and IGO (ASX:IGO) all flagging curtailments or mine closures before BHP\u2019s revelation yesterday.<\/p>\n It says the nickel business, elevated to a core asset as the commodity\u2019s role in electric vehicle batteries emerged a few years ago, will lose around US$200 million this financial year.<\/p>\n That could lay waste to plans to invest up to $1.7 billion in the West Musgrave nickel and copper project on the WA-SA border, acquired as part of BHP\u2019s $9.6b deal for OZ Minerals, and what analysts at RBC estimate is a US$750m-1b investment in the rebuild of its Kalgoorlie Nickel Smelter.<\/p>\n BHP\u2019s Kambalda concentrator is already heading into care and maintenance, with its only supplier of nickel ore, Wyloo, heading for mothballs.<\/p>\n But the owner of the region\u2019s next largest high grade nickel resource, Lunnon Metals (ASX:LM8) <\/a>says Australian nickel producers can still make money at current prices with the right settings.<\/p>\n Having seen his company\u2019s shares fall 10% yesterday on the BHP news, boss Ed Ainscough said the reaction to WA\u2019s nickel explorers had overshot.<\/p>\n \u201cI think typically when things are sentiment driven, they tend to overshoot. This feels like it\u2019s overshot. We\u2019ve seen some green shoots in terms of investor interest, people have said we\u2019re watching for companies with good assets, good management that have been belted too much, and you\u2019re on our list,\u201d Ainscough said on the sidelines of the RIU Explorers Conference yesterday.<\/p>\n \u201cSo I see that as a green shoot for a change in the sentiment. It\u2019s probably controversial as a nickel company to say but the Aussie nickel price isn\u2019t that bad if you\u2019ve got the grade. <\/p>\n \u201cI think you and I have spoken in the past about the rule of threes: 1% covers your costs, 1% for payability and recovery and everything above that is your free cash margin. And that still applies.\u201d<\/p>\n \u00a0<\/p>\n Lunnon is the second largest resource holder in the historic Kambalda district \u2014 where Western Mining Corporation\u2019s discovery of high grade nickel in 1966 sparked Australia\u2019s first nickel boom \u2014 after Wyloo.<\/p>\n It boasts resources of around 109,000t, including around 90,600t at 3% nickel at the Baker and Foster projects, never developed in the 2000s nickel revival because they were sold to gold miner Gold Fields.<\/p>\n Ainscough says the company\u2019s high grade Baker discovery could still make $60m at current prices, based on sensitivities used in a pre-feasibility study in May last year.<\/p>\n \u201cIf you\u2019re in nickel you need to have assets that can weather that cycle,\u201d he said.<\/p>\n Ainscough noted there were a number of different processing routes it could access with its higher grade ore. \u2018Cheekily\u2019 he noted, if BHP really had written down its Kambalda concentrator\u2019s value to zero (with the impairment and rehab provisions BHP\u2019s value on Nickel West is now NEGATIVE US$300m), then Lunnon and Wyloo loomed as logical buyers for the asset.<\/p>\n But he acknowledged BHP\u2019s assessment that the nickel market had changed \u2018structurally\u2019.<\/p>\n \u201cIt feels like a structural change. I don\u2019t think you go from nothing to 50% of the world\u2019s supply in short order and people are projecting 70% and think that\u2019s going to disappear overnight,\u201d Ainscough said.<\/p>\n \u201cI don\u2019t think that Chinese investors in Indonesia are too worried about the LME. They just want that metal to come back to China. Their end product is a different end product. <\/p>\n \u201cObviously when we develop something, we want to have a return on investment at the mining level. <\/p>\n \u201cBut they\u2019re producing an end product that\u2019s two or three steps further down the track. So really getting that nickel at cost makes no difference. They\u2019re producing those batteries or those cars cheaper than everyone else. So that price point their return is at a different point of the chain. <\/p>\n \u201cI don\u2019t think it\u2019s going away and I think people need to be able to trim their sails and look at their assets and they need to be focusing on the ones that will make money in this kind of environment or be prepared to shutter them.\u201d<\/p>\n \u00a0<\/p>\n Despite the sharp fall in nickel prices, Centaurus Metals (ASX:CTM)<\/a> managing director Darren Gordon said prices aren\u2019t as far from incentive levels as they seem.<\/p>\n The company has almost 1Mt of nickel in the ground at its Jaguar sulphide project at a grade of around 0.87% Ni in Brazil. A DFS is due soon.<\/p>\n \u201cI still think operating cost wise, if you\u2019re talking and concentrate, you probably want to be under US$3 a pound operating cost or somewhere thereabouts,\u201d he said. <\/p>\n \u201cYou\u2019re really trying to get into the lowest quartile of cost so that you know that you\u2019re always going to be around even when times are tough.\u201d<\/p>\n He said prices of between US$18-20,000\/t could still be enough to support producers.<\/p>\n \u201cCosts have gone up, there\u2019s no doubt. Capital costs have gone up, operating costs have gone up, we\u2019ve been in an inflationary environment,\u201d he said.<\/p>\n \u201cThat probably is not going to reverse in a great hurry. You\u2019re going to need a higher price. I think it\u2019s still somewhere in the order of US$18-20,000 a tonne. <\/p>\n \u201cAnd I think most people would be sort of happy there. Producers would be happy enough there. <\/p>\n \u201cAnd anyone who\u2019s looking to bring on a project probably needs something like that to make things work.\u201d<\/p>\n While at the moment there is no suggestion a \u2018green premium\u2019 for high ESG standard nickel was a real thing, Gordon said discussions with offtakers and OEMs showed they were interested in securing nickel with lower emissions intensity where they could.<\/p>\n \u201cEvery conversation that we\u2019ve had with a strategic is still saying longer term we\u2019re going to need the supply and our projects in Brazil, it\u2019s going to come with a low carbon footprint because 80% of Brazil\u2019s grid power\u2019s from renewable sources,\u201d he said.<\/p>\n \u201cSo our natural market is in to the US and to the European Union, and those guys haven\u2019t yet had their Gigafactories rolled out, they haven\u2019t quite got the demand side coming, but when that does come, these strategics are still going to be very hungry for low emission footprint product. <\/p>\n \u201cAnd I think in time, the Indonesian side of it will prove to be a little bit problematic for some of those groups to be participating in that area.\u201d<\/p>\n \u00a0<\/p>\n <\/span>\u00a0 The post BHP joined the rout\u2026 so where are are the green shoots for nickel now?<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"Baking in the oven<\/h2>\n
Incentive price not far off: Gordon<\/h2>\n
Lunnon Metals (ASX:LM8) and Centaurus Metals (ASX:CTM) share prices today<\/h2>\n\n
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