Sulphide producers overtaking laterites at nickel game

The battle has barely begun, but a recent study by AME Mineral Economics shows that sulphide nickel producers are dominating the lower half of the production cost curve, besting the performance of their rival laterite competitors.

The average net costs to produce a pound of nickel last year were in the range of US$1.49-$1.52 for sulphide operations, and US$2.07-$2.10 per lb. for nickel production from laterite ores.

The study notes that production costs have been on a steady downtrend since 1992, and are set to fall further until 2005, despite forecast depressed prices for byproduct cobalt (which are expected to tumble to around US$12 per lb. over the next three years from the current annual average level of above US$17 per lb. for high-grade cathode).

In 1998, the weighted average direct production costs of Western World nickel (after byproduct credits) fell to US$1.78 per lb. — a 15% drop from 1997 prices. This striking decline was attributed to lower energy costs, favourable exchange rates, cost-cutting and the closure of high-cost operations.

This year’s more modest decline reflects the concentration of major sulphide producers in the lower half of the cost curve. “Although some low-cost nickel is currently sourced from laterites [in Indonesia and Colombia], this is more than outweighed in the averages by the high costs of processing lateritic nickel by smelters in Japan, Brazil and Greece,” the study states. “But this picture is set to change with a potential surge, over the next two years, of low-cost production from laterites, as three greenfield nickel producers ramp up to their initial output capacity of around 64,000 tonnes per year.”

Nickel analysts are currently monitoring three Australian laterite projects that produced their first nickel in 1999: Murrin Murrin, Cawse and Bulong. All three have encountered startup problems, some more serious than others.

“Nevertheless,” the report continues, “as low-cost, high-tonnage nickel production from laterites comes on-stream from Western Australia and, subsequently, from a second generation of similar pressure-acid-leach operations in Papua New Guinea, Indonesia, New Caledonia and elsewhere, the structure of the Western World nickel industry is set to change.”

By 2002, AME expects that laterite operations will dominate the lowest quartiles of the curve. “In addition, the weighted average cost differences between nickel production from sulphide and that from laterite ores will narrow, from an estimated US58 in 1999 to a projected US35 in 2002, as low-cost production from laterites increases.”

The study predicts that nickel production costs are set to fall another 11% over the next four years as new projects become established. By 2002, cash costs are expected to average US$1.60 per lb., net of credits — a drop of 31% from 1993.

AME also notes that laterite projects and their potential new output are likely to replace, in future markets, the low-cost sulphide nickel that Inco had expected to produce from Voisey’s Bay in Labrador. Inco will not be left out of the laterite revolution, the study points out, because it already has a hydrometallurgical pilot plant operating at its Goro project in New Caledonia.

The study predicts that the new laterite projects under development around the world will produce byproduct cobalt at higher recovery rates than in the past. Most existing nickel production from laterites fails to recover the cobalt, which may be present in mined ore at grades as high as 0.1%. In contrast, gross recoveries of cobalt at Murrin Murrin, Bulong and Cawse are expected to be as high as 85%. “By 2002, around three times as much cobalt will be produced as a byproduct from the Western World nickel industry as in 1995,” the study notes.

Nickel prices rebounded last year after plumbing all-time lows in late 1998. The increase was attributed in part to accelerated stainless steel production and a supply deficit resulting from production cuts and closures.