Serving Northern St. Louis County, Minnesota

Low nickel prices a hurdle for new mines

Analysts see little prospect for rebound any time soon

Marshall Helmberger
Posted 7/26/17

REGIONAL— Nickel prices could continue to plumb historically low levels for the foreseeable future, according to a new analysis by BMI Research, as reported by Mining.com, and that trend could …

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Low nickel prices a hurdle for new mines

Analysts see little prospect for rebound any time soon

Posted

REGIONAL— Nickel prices could continue to plumb historically low levels for the foreseeable future, according to a new analysis by BMI Research, as reported by Mining.com, and that trend could complicate the economic prospects for new copper-nickel mining ventures in the region.

Nickel production is now expected to increase globally this year for the first time since 2013, due to a loosening of a nickel import ban in Indonesia and the ousting of a government minister in the Philippines who has advocated for more intensive environmental protections for mining operations there.

The increased production and availability of nickel is not presently being met by rising demand for nickel, however, which BMI projects could keep nickel prices suppressed for several years.

Goldman Sachs has also downgraded its price forecasts for nickel through at least 2018. As of Wednesday, nickel was trading at $4.52 per pound, reflecting slight improvement over the last month.

The latest news on nickel is likely to complicate the financial picture for PolyMet’s proposed NorthMet mine, although company officials note that their project remains economically viable even with lower overall metal prices than at present. The public should get a better look at PolyMet’s financial picture in the months ahead as part of the permitting process for the mine.

DNR Assistant Commissioner Barb Naramore said recently that the agency will be seeking more financial details from PolyMet before making a final decision on whether to issue the company a permit to mine. “I don’t have additional details at this point regarding the timing or scope of what we will require,” Naramore added.

The company did produce a definitive feasibility study in 2006 and provided updates to the report in 2008 and 2013. But much of the financial data dates back to 2008, making it now nearly a decade old. While the impact of metal prices on the company’s finances is relatively easy to estimate, it’s less clear how the intervening years have affected projected operating costs at the mine.

The depressed state of nickel prices is likely to be offset to some extent by higher-than-projected prices for palladium and the sudden dramatic improvement in cobalt prices, but neither of those metals constitutes a significant portion of projected revenue for the project. In early projections, PolyMet had anticipated that nickel— then trading for $10-$12 per pound—would constitute nearly 40 percent of revenues from the project. In 2008, the company’s financials pegged nickel prices at $12.20, or roughly three times its current price.

While the project would appear to remain financially viable, relatively low metal prices do increase the level of risk, both for PolyMet investors as well as state taxpayers, who could be left on the hook for cleanup at the mine if the company were to go bankrupt, as frequently happens in the mining industry.

That’s a concern raised by EOR, the financial consultant hired by the DNR to advise the state on financial assurance for the project. “The NorthMet mine economics are very sensitive to the metal commodity price assumptions,” states a report issued by the consultants in December. “When metal prices are high, the revenue can generate a healthy cash flow, but when prices are low, the revenue can drop as much as $150 million per year, thus reducing the rate of return and increasing the economic risk,” the consultants conclude.

While the company continues to make progress in the permitting process, investor interest has waned in recent months, with PolyMet stock currently trading at around 60 cents per share, the lowest price range in nearly a decade.

The generally sluggish metals market is creating other financial concerns for mining ventures, such as a lack of investment interest in the sector. According to Mining.com, a new report from a London-based financial research firm provides more evidence of the current diminished interest in mining ventures from investors. The July 7 article, titled “Private capital says no to mining,” highlights the research of London financial research firm, known as Preqin, which made note in a recent quarterly report that private investment in the natural resources sector was the lowest the sector has seen since 2011. “What is of more concern to the growth of the asset class is the continued lack of funds closing to pursue opportunities in industries other than energy,” according to Preqin’s report. “While there are many funds currently in market that are looking to focus on agriculture, timber or mining, these vehicles do not seem to be able to secure capital and hold a final close.”

Tom Carr, head of real assets products at Preqin, described the current lack of fundraising for investment in metals and mining as “worrying.”

Preqin tracks private investment, which includes traditional private equity, venture capital funds, turnaround funds, and direct lending. The lack of interest in the mining sector is in stark contrast to most other sectors, where private investment is at near-record levels.

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Snowshoe2

Many mining experts have been saying copper has to be a minimum of $3.00 a pound and more likely $3.50 a pound to break even in mining operations. Copper hasn't even been even $3.00 for years.

All this is not even including expenses for disposal of wastes material and protection of the environment.

Tuesday, August 1, 2017