Metals Page Nickel price down but still well supported

Although the price of nickel has fallen below US$4 per lb on the London Metal Exchange, the sound of alarm bells has been faint. Few analysts, if any, foresee the base metal rallying to sustained higher price levels. On the other hand, the price is not expected to drop to the levels of a few years ago.

Much has been made lately of the depletion of Canada’s base metal reserves and the need to renew prospecting efforts in all areas of the country. Interestingly, both Inco and Falconbridge are preparing new nickel mines for production in the Sudbury, Ont., area.

Inco, the world’s largest nickel producer, is spending $179 million to bring its McCreedy East project on stream by 1993. Hosting three deposits, the project has reserves totalling more than 50 million tons averaging 1.7% nickel and 0.8% copper.

A 20-year mine life is envisaged for the project which, at a production rate of 7,000 tons of ore per day, would yield annually 41 million lb nickel and 21 million lb copper.

Canada’s other nickel giant, Falconbridge, is hoping to have its Craig project in production in 1991. The company, owned jointly by Noranda and Trelleborg, is spending $235 million on underground development and mill modernization. The project is expected to account for 60% of the company’s nickel output by 1993.

Craig reserves stand at 10-15 million tons averaging 2% nickel and 0.9% copper.

Nickel, which averaged US$6.05 last year in London, had its best year in 1988 when the cash price topped US$10.80 and averaged US$6.27. In 1987, the base metal averaged US$2.21.

Current production costs for Inco and Falconbridge are reported, unofficially, to be in the range of US$2-2.40 per lb.

The global nickel supply has risen steadily in recent years. International brokerage firm Shearson Lehman Hutton foresees that trend continuing this year, with the supply rising by 3.7%.

A sharp surplus should be in effect toward the end of 1990, Shearson says, but stocks should remain well below the levels experienced during the 1980-86 period. A return to price levels similar to that period is therefore not foreseen, but Shearson says “it appears inevitable prices will fall well below $4 in 1990.”

On the subject of base metal exploration, Metals Economics Group, a consulting and research firm based in Halifax, N.S., recently identified 109 copper, lead- zinc or nickel projects in North America with announced reserves that are receiving some sort of exploratory or predevelopment attention.

Most of the projects (58 are in Canada, 51 in the U.S.) are undergoing delineation of reserves. Others are the subjects of feasibility studies, while a smaller number are at the preproduction stage.

Of all the projects, those in the U.S. tend to be further advanced, the company says. “Quite a few copper projects, especially in the U.S., have reached the feasibility stage. Zinc is the leading metal in half of the preproduction projects, while a noticeable group of 22 Canadian zinc projects are in the pipeline at the reserves delineation stage,” writes the research fi rm.

British Columbia has the largest number of projects, that western province being rich in copper and zinc-lead deposits. Second is Arizona, with its copper reserves. Yukon and Quebec favor zinc deposits, while Ontario, Quebec and California have most of the nickel plays.

Listed among the projects are several large-tonnage, low-grade deposits, including Phelps Dodge’s Copper Basin (copper and molybdenum) in Arizona, Placer Dome’s Lights Creek (copper) in California, Noranda-Montana Reserves’ Montanore (copper and silver) in Montana and Continental Gold-BP Resources’ Mt. Milligan (copper and gold) in British Columbia.

Staggering in size and cost is Cominco’s open pit Red Dog project in Alaska, which was only recently placed into production. Project reserves stand at 85 million tons grading 17.1% zinc, 5% lead and 2.4 oz silver per ton.

The deposit depends on ocean- going vessels to bring concentrate to market; the concentrate is being stockpiled for transportation during the brief summer period. The first pickup of Red Dog material is scheduled for the middle part of this year.

Total capital cost of the project is estimated to be US$460 million. Included in that amount is $160 million for the 54-mile road and port facilities for which the state put up the money; toll charges will be applied against Cominco.

In British Columbia, Curragh Resources is hoping to have its Cirque zinc-lead deposit in production by early 1992. Capital expenditures there will total an estimated US$109 million. The private company, which operates the lead-zinc Faro mine in the Yukon, plans to complete an $8.4-million underground work program by mid-1990.