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PERTH, Australia–Take an unloved commodity, land shunned by global mining companies, a large dollop of debt, and an optimistic view of Chinese demand.
This recipe helped turn Andrew Forrest into one of Australia’s richest men and transformed his company–Fortescue Metals Group Ltd. (FMG.AU)–from a tiny iron-ore explorer into the world’s fourth-largest producer of the steelmaking material in less than a decade.
Now, Mr. Forrest is betting the same strategy will work for another out-of-favor commodity: nickel.
The industrial metal used to make stainless steel has borne the brunt of a steep decline in metal prices this year, as demand fails to keep pace with the amount of material being produced by mines in countries like Australia, Russia and Canada. China’s retooling of defunct steel kilns to churn out a low-grade version of the metal–known as nickel pig iron–has also weighed on prices.
Nickel fell as low as US$13,205 a metric ton in July, half of what it fetched two years earlier and the lowest price since May 2009. At US$14,615 a ton now, it is down 14% this year, compared to a 9% fall in both industrial bellwether copper and iron ore.
Mr. Forrest, a 51-year-old whose personal wealth is estimated by Forbes at US$5.7 billion, has built a 32% stake in a small Australian development company, Poseidon Nickel Ltd. that aims to restart production from a nickel deposit closely linked to one of the world’s most-famous commodity booms and busts.
In late 1969, a small-time prospector Ken Shirley discovered a deposit of nickel at Mt Windarra, northeast of the west Australian mining town of Kalgoorlie. The reaction was immediate: shares in Mr. Shirley’s company, known as Poseidon NL, rocketed as high as 280 Australian dollars (US$266 at current exchange rates), from just A$1, giving it a market value one-third of the size of BHP, Australia’s largest company at the time.
But the stock plunged as quickly as it rose, sparking a slide in the broader mining index in early 1970 that had tracked its gains. The price of nickel weakened so much by the time Poseidon NL started mining that it was eventually delisted from the stock exchange and the mine was taken over by Western Mining Corp. Production was halted in 1991 and the mine mothballed.
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