Last Saturday’s (June 12, 2010) Globe and Mail’s Report on Business article on Nickel Pig Iron and its hyped headlines that inferred serious trouble for Sudbury, Canada’s largest nickel producing region was bit overblown. While the subject of Nickel Pig Iron has made a major impact in the global nickel markets, reporter Andy Hoffman had overlooked a few key issues that significantly downplay the impact of Nickel Pig Iron on the Sudbury Basin, which remains the richest mining region in North America and among the top ten most significant globally.
Nickel Pig Iron has been around for at least half a decade or longer. It will probably put a cap on the price of nickel though one very knowledgable source feels the $8.50 level mentioned in the Globe and Mail article is at the low end. When you factor in rising labour costs in China, the cost of power and the environmental impacts in the Philippines and Indonesia, the cost per pound is really in the $12.00 range.
I might add the Nickel Pig Iron is in reality “Dirty Nickel.” The processing of the material in blast furnaces in China is an environmental nightmare. In addition, the small companies that supply the material to China are probably not restoring the strip-mined jungle that is the source of this low grade nickel ore. Those are the companies that NGOs should be going after, not environmentally responsible corporations like Vale, Barrick, BHP-Billiton or Teck.
The high-quality pure nickel produced in the Sudbury Basin is done under strict first-world enviromental, health and safety standards. The rich Sudbury Basin ore also contains copper, gold, silver, platinum, cobalt and a few other metals. Nickel Pig Iron only gets cash credits for the iron content.
In addition, Nickel Pig Iron can only be used for low-end stainless steel products. Jet engines and many high-end industrial applications must use pure nickel to produce the specialized stainless steel and nickel-based super alloys for their applications.
And one more point, digging up vast tracks of virgin jungle and shipping this “low-grade nickel mud” to China adds very little sustainable value to the countries allowing this to happen, except to well-connected landowners or a few junior mining companies. As the world begins to understand the unsustainable mining practices that the production of Nickel Pig Iron entails, there may be more opposition to its use.
The real impact Nickel Pig Iron has is on the various nickel laterite projects around the world like Vale’s Goro project in New Caledonia and Sherritt’s Ambatovy development in Madagascar. These are capital intensive, long-term nickel mines that have experienced significant cost blowouts and technical difficulties. If Nickel Pig Iron keeps a cap on the cost of nickel, can these mega mining projects ever recoup their costs? And the investment community is still not sure that the technical problems with these nickel laterite projects will be overcome. In the next 12 to 18 months how or if these questions are answered will have an enormous impact or upheaval in the global nickel markets.
The decision by BHP-Billiton to walk away from its billion dollar Australian ravensthorpe nickel laterite project earlier this year had very little to do with technical issues. It was the consistancy of the laterite nickel deposit that finally killed the deal. Many industry observers feel First Quantum, a company with no previous experience with the mining and processing of nickel, decision to buy the deposit and refinery was madness. Time will tell, however, as one industry pundit said a long time ago, “It’s not called the devil’s metal for nothing.”
While it is a factor in the nickel market, Sudbury should not worry about Nickel Pig Iron. The Globe and Mail’s headlines were unnecessarily sensationalized. In the late 1990s, many people felt with the onset of the first nickel laterite projects in Australia, which claimed they could produce $1.00 a pound nickel, that Sudbury’s mining days were numbered. Then came the military invasions of Iraq and Afganistan – military applications use huge amounts of nickel – and the realization of China and the commodity super-cycle and the demand for nickel skyrocketed.
However, improving the productivity of the Sudbury miners will always be ongoing. On that issue, the company and the union should never let their guard down. How quickly and fairly this is to be achieved is why the workers of Vale Inco have been on strike for nearly one year.