MINERAL REVIEW AND FORECAST: BASE METALS; NICKEL

Demand for nickel in the Western World was flat which, in combination with increased production and higher exports from Russia, resulted in weak prices. Spot nickel prices on the London Metal Exchange (LME) were near US$3.20/lb at year end, compared with about $4.00 at the beginning of 1991. The average price on the LME was $3.70 for the year compared with $4.03 in 1990.

Nickel inventories on the London Metal Exchange (LME) increased significantly in 1991. By year-end, stocks surpassed 10,000 tonnes for the first time since 1984. Producer stocks were also up sharply over last year.

Canadian developments

Canadian mine production decreased slightly in 1991. Preliminary data indicate that Canada produced 196,900 tonnes compared with 199,400 tonnes in 1990. For the remainder of the 1990s, Canadian nickel production is forecast to increase slowly.

Inco’s capital expenditures in 1991 were $450 million, down from $570 million in 1990. The company estimates capital expenditures at $280 million for 1992.

The $600-million sulphur abatement program is to reduce sulphur dioxide emissions at the Copper Cliff Complex to 265,000 t/y by 1994. The consolidation of Inco’s milling operations was completed in 1991. Rationalization of the Clarabelle mill should cut sulphur dioxide by 100,000 t/y. Other major components of the program include a new flash furnace and oxygen plant, additional sulphuric acid facilities, concentrate dryers and accessory equipment. In November, His Royal Highness, the Prince of Wales, officially inaugurated the new oxygen furnace at the Copper Cliff smelter.

In September, Inco announced that it would reduce its Sudbury nickel output by 4,500 tonnes for the balance of 1991 because of weak nickel prices. The company suspended production at the Creighton No. 3 Mine and the Whistle open pit and stopped mining at several small deposits next to the Garson mine. It has also delayed development of the new McCreedy East mine. Inco froze hiring and production overtime at its Manitoba Division.

Falconbridge cut nickel production by 500 tonnes at its Sudbury smelter. The company suspended mining of the Falconbridge crown pillar and slowed exploration and development work on the Lindsley deposit.

In April, Sherritt Gordon started receiving nickel-cobalt feed for its Fort Saskatchewan refinery from Cuba, which will allow the refinery to operate at close to full capacity. The decision to process the Cuban material, however, has meant that Sherritt can no longer sell its products to the United States.

A failure at one of Inco’s reverberatory furnaces at its Port Colborne refinery disrupted production of utility nickel in November. The Port Colborne facility produces 2,700 tonnes of utility nickel per month, primarily for the stainless steel industry. The company announced that it would increase output of utility nickel at its Sudbury plant until repairs to the Port Colborne facility are complete.

Exploration

In September, Inco announced that its summer drilling campaign resulted in the discovery of two new deposits in the Sudbury Basin. The Victor deposit, located 25 km northeast of Sudbury, contains an estimated 18-36 million tonnes of copper-nickel ore at a depth of between 2,400 and 2,700 metres. The other deposit, 900 metres from the McCreedy East mine, contains an estimated 7.0 million tonnes of ore at a depth of about 1,500 metres. Together, the two deposits have the potential to represent about 10% of Inco’s total Sudbury production. Work on the two deposits will continue.

Also near Sudbury, Falconbridge and Flag Resources began exploration of the Wanapitei anomaly. Often called “Sudbury’s twin,” Wanapitei is a deep seated magnetic anomaly about 30 km northeast of the Sudbury Basin. It is similar in size and shape to the Sudbury anomaly. Falconbridge’s first drill hole reached a depth of 2,200 metres but did not penetrate the overlying sedimentary rocks. Exploration on the project will continue next summer. Flag Resources announced some anomalous results from chip and grab samples taken from its property.

In April, Falconbridge announced plans for the second phase of exploration on the New Quebec Raglan project west of Ungava Bay in northern Quebec. The $35-million underground program will include construction of a ramp and 2,000 metres of underground development, including 60,000 metres of definition diamond drilling. In addition, the company will upgrade the airfield, survey roads, and make other preparations for development. To date, drilling has outlined 17 million tonnes at an average grade of 3.13% Ni and 0.88% Cu. The company estimates development costs at $375 million. The mine could produce 20,000 t/y Ni in concentrate. Falconbridge expects its feasibility studies to be complete by the fall of 1992. A production decision will depend on world nickel prices and operations would not begin until 1995, at the earliest.

Black Hawk Mining’s Minago property in Manitoba is reportedly on hold until the company can raise the $10-15 million needed to conduct an underground study. Surface drilling has outlined 10.5 million tonnes at an average grade of 1.19% Ni to a depth of 550 metres.

In May, Timmins Nickel signed an agreement with Dumont Nickel for a first-phase exploration program of the Dumont Nickel property west of Amos, Que. The $1.5-million program will allow Timmins Nickel to earn a 55% equity interest in the property. Previous drilling has outlined proven and probable reserves of just over 500 million tonnes at an average grade of 0.39% Ni.

Drilling results announced by Fort Knox Gold Resources sparked interest in the Shining Tree area of northeastern Ontario. The company intersected nickel-copper mineralization in three drill holes that were targeting electromagnetic anomalies. Inco, which holds a 40.9% interest in the property, will take over supervision of the project.

Outlook

Stainless steel demand, which accounts for over 60% of nickel usage, is showing signs of slowing in both Europe and Japan, after remaining strong for most of 1991. However, demand in this sector is forecast to increase in 1992 as the major economies emerge from the recession.

In 1992, prices are forecast to average within the range of US$3.25-$3.75/lb. Western World economies, with the exception of Japan, are forecast to recover from the recession in the latter half of 1992. Increased consumption, for stainless steel and other applications, is expected to result in higher nickel prices by 1993. The political and economic situation in Russia could start affecting its ability to maintain nickel exports at 1991 levels. In the longer term, as the Western World economies strengthen, prices are forecast to average between $3.75 and $4.75/lb in constant 1990 dollars.