EDITORIAL — The nickel gauntlet — Oz dust

To hear the Aussies talk, the Northern Hemisphere is yesterday’s news in the nickel business. It’s all happening Down Under, where laterite producers are pushing hard to leave their northern competitors in the cold. The newest kid on the block has thrown down the gauntlet, boasting it has the capacity to surpass Canada’s Inco and Falconbridge and Russia’s Noril’sk Nickel to become the world’s largest nickel producer.

Having the capacity to surpass the northern giants is one thing; doing so is another. And so far, the big three haven’t been eating any Oz dust, though enough has been kicked up to make them run a little faster — well, at least two of them (Noril’sk has enough problems without worrying about what the Nickel Wizards of Oz are doing).

The entire mining industry is watching the race with interest. Will Australia’s Cawse, Bulong and Murrin Murrin mines put Ontario’s Sudbury camp out of business? Will the biggest of these, Murrin Murrin, keep Inco’s Voisey’s Bay deposit in the deep freeze? Will the new Aussie producers laugh all the way to the bank while their critics and competitors eat humble pie? And will Newfoundland Premier Brian Tobin become Australia’s Mining Man of the Year when the Oz producers capture the market share that might have gone to Voisey’s Bay?

Nickel hasn’t been this exciting since Voisey’s Bay Fever in 1996, when Robert Friedland did for the metal what John Travolta did for disco dancing and for about as long: after the music came to a sudden stop, the $4.3-billion Voisey’s Bay project seemed to be as impulsive an investment as a closet full of white polyester suits.

The dry laterites of western Australia — Murrin Murrin in particular — are now believed by many to be the first wave of a major assault on the traditional nickel producers. That view was reinforced by Anglo American’s recent agreement to invest in Anaconda Nickel, which operates and owns 60% of Murrin Murrin.

Once completed, Anglo will be Anaconda’s largest shareholder, with a 23% interest. Murrin Murrin has attracted other important industry players.

Sherritt International holds about 9%, and Switzerland’s Glencore International has a minority stake (plus 40% of the project).

Murrin Murrin has attracted skeptics too, even though it looks great on paper, at least at first glance. It is supposed to the world’s lowest-cost nickel producer, with overall costs of US35 cents per lb. And resources have grown to 306 million tonnes grading 1% nickel and 0.064% cobalt, not including other nearby deposits.

Among the skeptics were bankers, who balked at financing a project that relied on unproven pressure acid leach (PAL) technology. The company had to raise its share of first-stage funding from a US$420-million “junk-bond”, the first ever financing of this type for a major project.

Murrin Murrin is being built in stages, each of which costs about US$650 million. The first stage calls for annual production of 45,000 tonnes of nickel and 3,000 tonnes of cobalt. Once both stages reach capacity, yearly production will reach 115,000 tonnes nickel and 8,500 tons cobalt.

The Australians are fast-tracking their projects in a bid to beat the northerners by more than a nose. But the fast lane is fraught with risk, as Murrin Murrin has found. First-stage production has been beset with problems, most of which stem from corrosion and erosion in the hydrometallurgy plants. Problems in the flash vessels of the autoclave units have created a bottleneck at the front end of the refining process, one that the company and its contractors are still working to resolve. And there are cost overruns in the tens of millions of dollars, mostly borne by the contractor.

Capital and cash costs for PAL plants could be higher than expected, as is often the case whenever new technology is introduced into an industry.

The Aussies are kicking up the most dust in the race to become the world’s leading laterite producer. But the dust has also served to mask the considerable progress of northern producers as they make the transition from sulphide deposits to laterites.

Inco has taken a quiet, methodical approach to developing its own PAL processes for the Goro nickel-cobalt project in New Caledonia, which has nickel grades 40% higher than the Australian dry laterites. It hopes to get any bugs out of the process in a pilot plant before making a production decision so that it can deliver on its promise that Goro will be the leading laterite producer in the world. Falco is also at the forefront of PAL metallurgical research and has advanced the large Konaimbo nickel-cobalt deposit in New Caledonia (132 million tonnes of 2.46% nickel) to feasibility.

The only certainties in the nickel race are that it will be interesting to watch and that it is far from over. The Australians will have a run for their money. Maybe even from Voisey’s Bay.