Time to make a dime
WA’s nickel miners have been held captive by a collapsed metal price for too long, says Investor Relations Associate Director Peter Klinger, and add that it was apt that Liam Twigger invoked the spirit of the Prisoner’s Dilemma this week when discussing the Kambalda nickel set.
It’s just that Twigger, the managing director of PCF Capital and one of the sharper minds in the corporate arena, was referring to the miners themselves as causing this dilemma.
In his opening remarks at Tuesday’s Paydirt Australian Nickel Conference, and before he introduced speakers Jim Lennon (Macquarie consultant), Eduard Haegel (Nickel West), Dan Lougher (Western Areas) and Peter Bradford (Independence Group), Twigger put an interesting spin on what is happening in the Kambalda nickel belt.
“Despite its rich history, the Kambalda region today is in the hands of half a dozen nickel companies and most of the mines are on care and maintenance or in closure mode,” Twigger said.
“It reminds me of the Prisoner’s Dilemma, which is a paradox in decision analysis in which two individuals acting in their own self-interest pursue a course of action that does not result in the ideal outcome. As a result, both parties find themselves in a worse state than if they had cooperated with each other in the decision-making process.
“Without any doubt, there is a huge opportunity for consolidation in the Kambalda region and one that could create one of the best high-grade nickel sulphide plays on the world market, not to mention one that would lower costs and deliver huge exploration synergies – certainly something with more tangible upside than what I can currently see in the Pilbara gold hype.”
It was a fair call by Twigger, and his depiction of Kambalda is reality.
Two years ago Mincor Resources (ASX: MCR), owner of the Otter-Juan, Mariner and Miitel mines, produced 8632 tonnes of nickel-in-ore. All its mines are now closed or on care and maintenance.
That year, Panoramic Resources (ASX: PAN) produced 10,611t used at Lanfranchi, now on care and maintenance, while Independence (ASX: IGO) produced 10,198t from Long.
Long is the only substantial Kambalda nickel mine still operating – it produced 8433t last year – but its life expectancy based on remaining reserves and a lack of exploration success is down to about one year.
And that leads to BHP’s Nickel West unit, which more than any other player in Australia has demonstrated the link between nickel and the booming global batteries market.
As Haegel, whose presentation at Diggers & Dealers in August was the stand-out, pointed out again on Tuesday, the world’s battery producers are moving to higher nickel-rich chemistries.
“Nickel-rich batteries (such as) higher intensity NMCs and NCAs are preferred due to their superior energy density, lighter weight for any given battery size, increased vehicle range and lower metal cost,” Haegel said.
But, he added, nickel pig iron and ferronickel are unsuitable for the battery market, and all of a sudden the old boring nickel sulphides miners are king again. Which is why Nickel West is investing $US43.2 million building a 100,000tpa nickel sulphate plant (to dissolve nickel power in sulphuric acid) at its Kwinana refinery, and is already talking about an expansion to 200,000tpa.
Nickel West is an integrated mine-to-refinery business but has used its 1.6 million tonne a year Kambalda concentrator (one of three in the group, the other two are at 11mtpa at Mt Keith and 3mtpa at Leinster) to process third-party ore, predominantly from the Kambalda nickel miners.
As Kambalda’s mines were shut because of the weak nickel price, supply to Nickel West’s 1.6mtpa Kambalda concentrator would have been decimated. BHP won’t say at what level the Kambalda concentrator is operating but suffice to say it has room to treat more ore.
Which gets us back to Twigger’s dilemma.
Ever since WMC sold out of the Kambalda nickel district, to give birth to the Mincors of this world, it was assumed that smaller companies and a nimbler approach could make the dollars stretch a bit further as Kambalda’s orebodies headed deeper underground.
But the nickel metal’s price collapse to about $US8000 a tonne early last year following a torturous multi-year decline proved a bridge too. Mines were shut.
Nickel has since recovered and is testing $US12,000t as investors jump on the battery bandwagon.
The response from the owners of the Kambalda mines, though, has been muted.
Mincor boss Peter Muccilli, whose focus has been on building a gold inventory across its 300sqkm Kambalda landholding, told the Nickel Conference his company was ready to “execute (a nickel work program) when it is prudent to do so”.
Independence’ Bradford is focusing on delivering Nova (which supplies nickel ore to Nickel West) and has already flagged Long will be shut this financial year.
Panoramic’s Peter Harold is looking at improving the mine plan of its mothballed Savannah operation in the Kimberley, a priority over Lanfranchi.
And Canada’s RNC Minerals (TSX: RNC) has effectively turned the small Beta Hunt mine into a gold operation, with a little nickel (1800t last year) as byproduct.
Out of those players with assets in the region, Mincor is the only fully committed Kambalda player – even if its primary focus is on gold exploration.
It begs the following questions:
How committed are Independence and Panoramic to their Kambalda assets?
Would Gold Fields, which holds a stack of nickel rights in the region, be willing to support a consolidation play?
And would BHP lend an offtake-supportive hand?
Time will tell.