Xstrata Nickel to double production by 2012

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

As the world’s fourth-largest nickel producer, the company is one of few that can finance large-scale operations, said Xstrata Nickel CEO Ian Pearce, speaking at a recent Canadian Institute of Mining, Metallurgy and Petroleum (CIM) luncheon in Toronto.

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

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

But there are barriers to growth, including shortages of skilled workers and supplies that increase capital costs.

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

Pearce said a shortage of sulphide nickel deposits has tightened supply, necessitating higher levels of technological and engineering expertise — both of which cost time and money.

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 at the Falcondo operation in the Dominican Republic and a refinery in Kristiansand, Norway. Xstrata Nickel also has growth projects including Nickel Rim South near Sudbury, Ont., Kabanga in Tanzania and Koniambo in New Caledonia.

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

The Fraser Morgan orebody contains 4.9 million tonnes of measured and indicated resources grading 1.8% nickel and 0.65% copper, and 2.4 million tonnes of inferred resources grading 1.8% nickel and 0.5% copper.

Up to 30 existing Xstrata Nickel employees will do the majority of the fieldwork during the first phase of development.

About 2 km east of Xstrata Nickel’s Fraser mine, the Fraser Morgan orebody was discovered in 1995 by Falconbridge, which Xstrata acquired in August.

Xstrata has discussed sharing infrastructure with Companhia Vale do Rio Doce (RIO-N), which has neighbouring nickel projects in Sudbury through its recent takeover of Inco.

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

The company is also looking to acquire new properties.

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

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

Even so, he said there is an upward trend in the nickel market.