Tuesday, August 12, 2014

Higher prices spur nickel mine restarts

So economics actually work?


Indonesia’s ban on nickel ore exports is resonating globally as prices climb to the highest since 2012, prompting companies from Avebury Nickel Mines Ltd. to Poseidon Nickel Ltd. to restart operations at idled mines.

Avebury, based in Perth, plans to reopen a deposit in Tasmania six years after it was mothballed. Poseidon is preparing to resume production at a mine in Western Australia, while Panoramic Resources Ltd. may restart mining at its Copernicus deposit in the same state. More producers globally may reactivate facilities as prices extend gains, according to OAO GMK Norilsk Nickel, the world’s largest supplier.

Nickel, used to make stainless steel, rallied as much as 56 percent this year to $21,625 a metric ton after Indonesia halted ore exports in January to compel investment in local processing plants. While the restarted mines such as Avebury’s will add to supplies, the additional production won’t be enough to prevent the global market from dropping into a deficit, with Goldman Sachs Group Inc. to BNP Paribas SA forecasting higher prices.

This is exactly how price signals are supposed to work. Thye price of a commodity goes well above the marginal cost and new and mothballed supply comes back online. This is one reason speculating in mining is not for the faint of heart. Anyways, the only ones truly losing out on this are the people in Indonesia. Their stupid government and its dumb policies mean less capital investment and less jobs. I am speculating on the nickel price via Sherritt Intl. which is in the process of bringing on a huge nickel project in Madagascar. They had an earnings report last week and the market did not like the news as the company broke even. The plan is to ramp up production at the nickel mine while optimizing the process to lower costs. If it works out earnings and cashflow will soar. As this is a speculation lets give it a couple of quarters to play out. Just because the nickel price is up 56% does not mean that Sherritt will make money. They have to actually perform and lots of things can go wrong in mining.

1 comment:

Mark Johnson said...

You can't blame the young guys for wanting to get into the nickel game while it's still hot.

Related Posts Plugin for WordPress, Blogger...