Delays at Voisey’s Bay a boon for Aussie projects

Back in December 1995, mining financier Robert Friedland went to Kalgoorlie, the gold capital of Australia, to let Australians know just what impact the Voisey’s Bay nickel project would have on the global nickel market.

Friedland was a great storyteller and he proceeded to chill the Aussies to the bone. Those who were not numbed by his statistics were stung into action — they had to get their new nickel projects going before Voisey’s Bay took up a large slice of the nickel production market and, in the process, cheapened the price.

A lot of water has flowed under the bridge since Friedland attended the 1995 Australian Nickel Conference, including the fact that Voisey’s Bay is no longer in the hands of his Diamond Field Resources. As we all know, it was sold to the biggest bidder, Inco, which had outbid rival Falconbridge for the project that graces Labrador’s east coast.

It would be trite to say Inco (N-T) today might rue the fact it beat Falconbridge to Voisey’s Bay. Still, the project remains the behemoth of the future. Currently, however, it is plagued by native title problems (something Australian miners understand only too well), a downcycle for the nickel price, and a political impasse between Inco and the Newfoundland government.

Inco says Voisey’s Bay now won’t make its 2000 commissioning deadline, and some Australian analysts now believe Voisey’s Bay may not be up and running until 2003 or later.

This is the window of opportunity that the new wave of Australian nickel producers had been hoping for. Two large lateritic nickel projects in Western Australia — Anaconda Nickel’s Murrin Murrin and Centaur Mining & Exploration’s Cawse — are expected to join producer ranks in the lowest-production-cost quartiles. A third, Bulong, just east of Kalgoorlie, has been purchased by bold junior Preston Resources from established gold miner Resolute, and is expected to be in the middle ranks of production costs — ahead of the aging Kambalda operations of Western Mining Corp. (WMC)

These three projects are expected to bring in 63,000 tonnes per year of nickel metal production, with Murrin Murrin alone accounting for 43,000 tonnes.

Kambalda, situated southwest of Kalgoorlie, was the original heart of the Australian sulphide nickel mining operations, but it is now struggling with some of the same problems that are affecting the Sudbury Basin mines, not to mention industrial dislocation.

Kambalda put Australia into the sulphide nickel stakes, and, for most of the past three decades, was the reason WMC ranked third among producers in the Western World.

While WMC still dominates sulphide nickel production in Australia (along with other majors such as LionOre-QNI, which operates the Lake Johnston projects), the new production coming on-stream in the next year is represented by lateritic nickel-cobalt projects. In fact, about 70% of the aspiring new projects are based on laterites in Western Australia and Queensland.

Following the 1997 Australian Nickel Conference in Kalgoorlie last December, it was clear the Australian nickel mining scene was going to become more dynamic. No longer will it be dominated by WMC in the sulphides and QNI (controlled by Gencor of South Africa) through its international operations, with the Australian focus being on treating laterites from New Caledonia and Indonesia at its refinery near Townsville, Queensland.

The concern among Australian mining analysts is that the three new West Australian operators will have their sums right, particularly as one (Anaconda) has, and another (Preston) may have, delved into junk bond financing.

Should they succeed, as most believe they will, then their lower costs will put added pressure on the old and deepening sulphide mines in Canada and at Kambalda, while providing the green light for a host of other Australian laterite projects now at the blueprint stage.

Also coming forward are laterite projects in Indonesia and New Caledonia. These are unlikely to be sons of Busang, for they include BHP’s Gag Island and other projects that have to meet the scrutiny of Australia’s solid reporting standards.

A study by an Australian stockbroking firm last year showed that, by 2003, the top three producers in the Western World (Inco, Falconbridge and WMC), which now account for 42% of global production, will be down to 38%.

It will be interesting to see at what stage Inco’s Voisey’s Bay will be in 2003. Certainly, WMC will be heading into the cellar, unless it regains the lust for nickel it had in the 1970s and 1980s.

— The author is a principle of Louthean Publishing in Western Australia, which publishes Gold Mining Journal, Paydirt and mining annuals on Australia, New Zealand and South Africa.