Xstrata Nickel plans to double production by 2012

Staying alive in today’s nickel business requires big bucks from mining companies, but now that Xstrata Nickel, the former Falconbridge, has Switzerland-based Xstrata‘s (XTA-L, XSRAF-O) dollars and vision behind it, the company is poising itself for growth.

Ian Pearce, CEO of Xstrata Nickel, the world’s fourth largest nickel producer, says that there are probably only a few players in the world today that can finance large-scale operations.

“(In the past) if you went over $100 million you would check your estimate, but today if you are over a $1 billion you don’t even flinch,” says Pearce. “Not many companies that can take on that.”

Pearce says the company is positioned well for its aggressive growth strategy to nearly double production from 115,000 tonnes per year now to 221,000 by 2012.

But money is just one of the barriers Pearce discussed at a Canadian Institute of Mining, Metallurgy and Petroleum luncheon on Dec. 14.

Another barrier to the nickel business is a shortage of people, skills and supplies, which increases capital costs.

“Tons of projects today are realizing inflammatory pricing and scheduled delays based on these issues,” says Pearce.

Pearce says a shortage of sulfide nickel deposits is has tightened the nickel supply causing the need for higher levels of technological and engineering expertise. These take time and money, says Pearce.

Pearce also mentioned the increasing complexities of the permitting process, noting, “softer issues are more and more the challenge.”

Xstrata Nickel has five mines and processing facilities in Ontario and Quebec, a ferronickel mine and processing facility in the Dominican Republic and a refinery in Kristiansand, Norway. Xstrata Nickel also has growth projects including Nickel Rim South near Sudbury, Kabanga in Tanzania and Koniambo in New Caledonia.

To double production Xstrata Nickel plans to increase production at its Raglan mine in northern Quebec and increase efficiencies at the Falcondo plant in the Dominican Republic. The company also plans to bring its Nickel Rim project into production by 2009, and it also recently invested $18 million in the Fraser Morgan property in Sudbury, Ontario where production of 7,200 tonnes per year could begin by early 2009.

Xstrata has discussed sharing infrastructure with Companhia Vale do Rio Doce (RIO-N) (CVRD), formerly Inco, which has neighbouring nickel projects in Sudbury.

“We’ve agreed that when the time is right we will get together and discuss how and when we can create those synergies,” says Pearce.

The company is also looking to acquire new properties.

Demand for stainless steel, made from nickel, increased 8% from 2005 to 2006.

Nickel prices, which have risen from about US$6 per lb. in early 2006 to more than $15 per lb., are likely to soften due to their cyclical nature, says Pearce.

But generally, he says there is an upward trend in the nickel market and that Xstrata is well positioned financially for growth.