Editorial: Nickel Zooms to All-Time High

The trading week ended March 16, the eleventh of the year, was highlighted by record nickel prices, which have jumped six-fold in the past five years in response to nagging supply constraints and surging stainless steel production and consumption, particularly in China.

* After hitting new highs every single day of the past week, spot nickel closed at a bid of US$22.34 per lb. on March 16, up around US$2 on the week and almost US$4 in the past 30 days.

Nickel is now trading in severe backwardation, and supplies remain extremely tight. London Metal Exchange nickel stocks ended the week at a paltry 3,564 tonnes, or less than a day’s worth of global consumption.

Nickel stockpiles have slumped 46% in 2007 on the surging demand for stainless steel, which consumes about 70% of all nickel produced.

Last year, China overtook Japan as the world’s largest producer of stainless steel and, in 2002, surpassed Japan and the U.S. as the globe’s biggest consumer of stainless steel.

On March 13, Roger Agnelli, CEO of Companhia Vale do Rio Doce, told a Reuters journalist in Beijing that the company will try to complete development of the Goro nickel-laterite mine in New Caledonia by the end of next year.

Cost estimates for the long-delayed and locally very contentious project have now swelled to an astonishing US$3 billion.

Meanwhile, China’s largest nickel miner, Jinchuan Nickel, is warning that continued high nickel prices threaten to significantly depress downstream use.

The rest of the base metals also had strong weeks, particularly tin and copper, which closed at US$13,850 and US$6,651 per tonne, respectively. Uranium spot notched up US$6 to US$91 per lb. on continued supply constraints.

* The week saw the rumour mill grinding away over the possibility of a Barrick Gold bid for rival Newmont Mining.

The rumour was started by America’s Business Week magazine, which published in its March 26, 2007, edition an article citing “some pros” as the source of the tip-off. What we smell is the whiff of some pros taking advantage of a gullible journalist in order to unload some unwanted Newmont shares, which rose about 3% on the rumour.

* The scorching pace of M&A activity in the mining sector during the week was unrelenting, with the biggie being Wednesday’s acceptance by Freeport-McMoRan Copper & Gold and Phelps Dodge shareholders of their merger.

With very little success, the single-mine Freeport had for years been trying to position itself in the market as a gold company in order to get a gold premium into its stock. Now, with this Phelps acquisition, Freeport has once and for all aligned itself with the base metal miners.

Other notable merger and acquisition announcements of late: Selkirk Metals merging with Doublestar Resources; Buffalo Gold acquiring China explorer Dynasty Gold; EURO Resources offering to buy Patricia Mining; and AIM-listed Mwana Africa bidding with scrip for SouthernEra Diamonds.

* Xstrata’s post-acquisition restructuring of the Falconbridge assets continued apace this week, with the US$60-million sale of three “end-of-life” electronics recycling businesses in Roseville, Calif., Brampton, Ont., and LaVergne, Tenn., to Australia’s Sims Group.

Xstrata is retaining the rest of its substantial recycling businesses in the U.S. and Canada.

* Vancouver-based junior Cline Mining got some unwanted attention by showing up on the front page of the Vancouver Sun on March 12. The company’s Lodgepole coal mining project near the Flathead River in southeastern B.C. prompted the river’s rise to the top of the 120,000-member Outdoor Recreation Council’s annual list of the top-10 most endangered rivers in the province.

The council wants the provincial government to either ban mining at Lodgepole or force the company to carry out an environmental assessment incorporating 3-5 years of study.

In the U.S., the Flathead is protected as a “wild and scenic river,” but has no such designation in Canada, yet.