METALS COMMENTARY — Changes are expected in cost structure of the nickel industry, study says

A recent study by mining and metal consultants Brook Hunt suggests the cost structure of the nickel industry will be “dramatically altered” by the end of the decade when the significance of the Voisey’s Bay discovery in Labrador is better appreciated.

Brook Hunt predicts the nickel-copper-cobalt project will likely slash the sulphide nickel industry’s average cash costs by more than 20% by the turn of the century.

In 1995, the average cash cost in the West of producing nickel from sulphide ores was estimated at just under US$1.60 per lb., compared with an industry average (including Cuban operations) of just over US$2 per lb.

While average costs for sulphide producers have fallen steadily over the past six years, Brook Hunt notes that costs for laterite producers (at more than US$2.40 per lb.) rose last year for the first time since 1991. This reflects greater output from higher-cost operations in Japan and the U.S., as well as an increase in fuel prices.

Brook Hunt’s latest study analyzes 23 greenfield projects which, if developed, would have a production capacity exceeding 90% of current Western production. But the firm notes that of the proposed projects being considered, none is as spectacular as Voisey’s Bay, and only four have been committed to production.

More than a third of all potential new capacity is accounted for by projects based on laterite ores where pressure acid leaching would be followed by on-site metal recovery.

This technology consumes less energy than conventional recovery methods, and results in improved byproduct cobalt recoveries. However, the firm says several problems have been identified by companies proposing to use solvent extraction techniques for the final metal recovery stage.

“Because of this, companies keen to fast-track their projects have looked to utilize higher-cost, but more conventional, technology in certain areas to make their projects more acceptable to investors,” the firm states.

Voisey’s Bay will also produce substantial amounts of cobalt, which, when combined with other projects analyzed in the study, have the potential to more than double the Western world’s existing annual cobalt output. Brook Hunt expects this will put “severe downward pressure on prices” over the long term and says lower cobalt prices should be factored into any current evaluation of new nickel projects, which rely increasingly on significant byproduct credits to enhance returns.