By Kishori Krishnan Exclusive To Nickel Investing News

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The smiles are back. Despite persistent worries over Greece’s debt woes, European shares bounced back on Monday and miners tracked firmer metals.

Though we could be a long way off from a solution to the underlying cause of the current tension, and there remains a significant risk that, further down the road, the tension will rise again, miners are basking in the spotlight. For the moment.

Miners got support from stronger metals prices, with copper MCU3 rising 1.2 per cent, nickel MNI3 gaining nearly 2 per cent and zinc MZN3 rising 1.8 per cent.

Major miners BHP Billiton (BLT.L), Anglo American (AAL.L), Antofagasta (ANTO.L), Rio Tinto (RIO.L), Xstrata (XTA.L) and Eurasian Natural Resources (ENRC.L) rose 0.1 to 3.1 per cent.

At the London Metal Exchange, aluminum CMAL3 rose $5 to $2,060. Nickel CMNI3
rose $50 to $18,600, while lead CMPB3, the biggest loser, dropped $18 or 0.8 per cent to $2,115.

Prices of nickel rose to $8.13 per pound late last week, from $6.00 per pound in the first quarter of last year, data from the London Metal Exchange showed.

Weak demand

There is a different story playing out in India though, where nickel price followed other metals downwards.

With much of Asia shut for the Lunar New Year, and a market holiday in the United States, weak spot demand from consuming industries and adequate stock position led to a fall in nickel prices at the futures market in India.

Nickel futures prices marginally declined by Rs 0.30, or 0.03 per cent, to Rs 866 per kg on weakening trend in the spot market.

At the Multi Commodity Exchange counters, nickel for delivery in March traded marginally lower by Rs 0.30, or 0.03 per cent, to Rs 866 per kg with an open interest of 2,096 lots. The metal for delivery in February also shed Rs 0.10, or 0.01 per cent, to Rs 861.40 per kg in 10,163 lots.

As Ajay Kumar Kedia said in his report, “Some pressure has been seen in LME stock which came down by 330 mt”. The total stock at the LME now stands at 1,66,356 mt.

Sour taste

Despite a significant correction in metals prices in recent weeks, Canada’s Haywood Securities has maintained its forecast for nickel.

The analysts has forecast that nickel prices will decline to US$ 7.75/lb in 2011, and reach Haywood’s long-term forecast of US$ 7.50/lb in 2012.

“Our biggest concern with the nickel market is the number of new mines under construction…that will collectively add another 250,000 tonnes of nickel in a 1.3 million-tonne-per-year market, which has historically has grown 5 per cent to 7 per cent annually,” the analysts have said.

The analysts also note the Vale strike in Sudbury and Voisey’s Bay will also get settled, “which will further exacerbate current inventory levels globally.”

Lots of nickel will be available once production re-starts from Vale Inco (which caters to 10 per cent of world supply) and new mines coming on stream like Santa Rita, Mirabela Nickel’s 100 per cent owned nickel sulphide project, and Talvivaara.

The former firm is listed on the Australian and Toronto stock exchanges (ASX: MBN), while the latter is a London-listed mining company which has a nickel mine in the Kainuu region in northeast Finland.

The analysts have said there is another 200,000 tonnes of new production (which would bring on a 15 per cent increase) under construction, including Koniambo, Ambatovy, Onca Puma and Barro Alto.

Haywood suggests that Chinese pig iron will continue to keep the market saturated. Meanwhile technology continues to lower the amount of nickel used in stainless steel.

Resume work

The management at Vale SA, the world’s biggest iron-ore producer, has said that there is a need for change at the Sudbury operations. The company has spent more than $2 billion in Sudbury to upgrade “an aging infrastructure that had not been sufficiently upgraded for the past 15 years.”

The company said it hasn’t opened a new mine in close to 40 years, and that “grades at existing mines have deteriorated to the point where mining with existing cost structures is no longer profitable in a number of locations and will not support the Sudbury operations on a continuing basis.”

Vale had a US$ 236-million expense related to the nickel unit strike in Sudbury, Ontario. The company has said iron-ore and nickel volumes declined during the quarter as falling Chinese demand for iron and strikes at nickel mines cut exports.

More than 3,000 employees of Vale Inco have been on strike since mid-July, and after seven months living off of $800 a month in strike pay, workers are finding it difficult to make ends meet.

The strike has also boosted costs because of the expenses of restarting production. Nevertheless, plans are afoot to go full steam ahead.

Incidentally, at Xstrata Nickel workers voted in January to approve a strike mandate if an agreement was not reached before the current three-year contract expired at midnight on January 31.

The Swiss miner’s transformation of its nickel operations and restructuring and expansion of Xstrata Zinc’s Australian operations has helped reduce average C1 nickel and zinc costs by 33 per cent and 25 per cent respectively.

Gearing was reduced to 26 per cent from 40 per cent as a result of strong cash flows of US$ 5.3 billion with second half cash generation of US$ 3.7 billion and a rights issue, which helped slash the debt by US$ 3.7 billion.

So, even as Vale eyes a full restart of its Sudbury operations and Xstrata is keen to move ahead with its 2010 plans, Atlas Consolidated Mining and Development Corp is said to be looking at reopening its nickel mine in Southern Luzon this year, to take advantage of the recovery in nickel prices.

In February last year, the publicly listed miner closed the Berong nickel mine in Palawan, laying off more than 600 workers and retaining only 50 employees.

The management has said that if Berong Nickel Corp resumed operations, it would be able ship nickel ores to traditional markets like Japan, South Korea and China.

The Berong Nickel mine, which is the world’s fourth-largest nickel laterite resource, still has about 275 million MT of nickel ores ready to be extracted, the company has said in a statement.

The miner is also studying the feasibility of putting up a processing plant to add value to the nickel ores they sell. But a nickel processing plant will mean a significant investment for the miner.

To given an indication, the proposed processing plant of listed Century Peak Metals Holdings Corp in Dinagat Island will cost P2 billion to P3 billion.

Sumitomo Metal Mining Co Ltd Asia, is reportedly going to invest a total of $2.257 billion for a nickel processing plant in Surigao del Norte.

The company will also spend 140 billion yen ($1.6 billion) over three years, a Bloomberg report has said, to expand its nickel refining operations.

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