Nickel Deficits To Be A Growing Concern

Nickel is your quintessential commodity – out of favor last year, in favor this year, meaning market deficits aplenty, with companies scrambling to fill the void left by dormant production during the down years.

TSX-listed Royal Nickel recently told miningweekly.com that more than $100 million may be raised to fund a feasibility study for its Quebec-based Dumont nickel project, which has the potential to become the world’s fourth-largest nickel sulphide mine.

“We’ll be out in the market looking for that minimum of C$60-million for the feasibility study, and potentially going up to the $120-million range,” Mitchelson told Mining Weekly Online.

Why? Well, it goes back to the whole supply and demand, market ebb-and-flood issue, doesn’t it. Market prices have continued to edge higher, moving up some 40% in 2010, thanks to the deficits created by what was the equivalent of a work stoppage order during the credit crunch of 2008.

And that’s why Royal Nickel CEO Tyler Mitchelson – a former Vale executive – brought the company and its assets to market late last year. As he says: “The supply side is going to be an issue. Maybe not in the next two to three years, but certainly in three to five years it is going to be a big issue.”

The consensus out there? A lull in pricing during the first quarter of 2011 following last year's strong gains, but then there should be a pick up, if demand, as expected, spikes somewhat higher in the stainless steel sector.

If everything falls into place, Royal Nickel's Dumont could be churning out nickel by 2015. And the end game here? Well, Canada’s base metals industry is sitting on a void left by the big-time takeovers of Inco, Falconbridge and Alcan. The void needs to be filled by the next generation of what will be mid-tier producers – you know, companies that will become takeover targets during the next big round of base metal M&A in Canada.

And with good reason – a Dumont mine, if it proves to be economic, will need something like $2.5 billion to build out a 100,000 metric ton-a-day mine. Only global seniors – always on the hunt for quality inventory – can raise that kind of financing in today’s still-credit-conscious capital markets.