Metal’s high could add extra fat to platinum revenues
THE IMPROVEMENT in the nickel price so far this year has provided an interesting boost to the fortunes of South Africa’s platinum companies, which produce the metal as part of the platinum group metals (PGM) family.
Other PGM metals have also been contributing. For example, rhodium comprises about 19% of Anglo Platinum’s 2006 revenue profile and gained 84% over the past year. After trading at a record US$6 300/oz on 23 May 2006, the metal is currently at $5 775/oz.
Overall, 2006 was extremely kind to SA’s platinum production – and now SA’s highest earning mineral export. And there’s more to come (see box).
The nickel price rocketed to a record high of nearly $36 000/t on 18 January after inventories on the London Metal Exchange fell 82% over the past 12 months, Bloomberg News reported. Stockpiles were at 62 300t, equal to less than two days’ global consumption.
Peter Breese, COO at LionOre International, which last year produced 34 000t of nickel, reckons the price improvements are related to the massive barriers to entry. About 70% of the world’s nickel reserves are held in a difficult-to-extract laterite form. “We’ve seen the capital cost of some projects double and timelines stretch out,” Breese says.
LionOre owns half of the Nkomati Nickel project, with the balance owned by African Rainbow Minerals. The partners currently produce just 5 000t/year from the mine but hope to build that to 22 000t/year from 2010, following two expansion programmes.
Therefore LionOre intends to produce as much nickel as quickly as it can. Providing market guidance to shareholders, it said recently that production could increase to around 45 000t/year. “We’ve got an opportunity at all our operations to produce more metal by bringing it on quicker than expected and (by increasing) lifting capacity,” Breese says.
However, one question is whether nickel’s run will last. Its price improvement is related to demand for stainless steel. British broker Numis Corporation says there’s scope for a sharp correction, though much depends on how much stainless steel China uses. “Our forecast price for this year is around $22 000/t, followed by $19 000/t in 2008,” John Meyer said in a recent research note. Nickel averaged $23 214/t last year.
Cathie Markus, a director at Impala Platinum, says prices at such levels make nickel the second most important revenue generator after platinum.
And assuming the nickel price were to be maintained at its (high) current level, a further 6% would be added to Anglo Platinum’s earnings.
Nickel’s the second most important revenue generator after platinum. Cathie Markus