By Keith Norbury
The story of nickel began about 1.8 billion years ago when a space rock, or bolide, about 10 kilometres wide crashed into the shore of a supercontinent. Or so goes the prevailing theory among astrophysicists and geologists. The impact gouged a crater about 250 kilometres across, depositing nickel and other base metals. Geologic forces — such as plate tectonics, the formation of sediments, and glaciation — conspired over the ensuing eons to create a feature known today as the Sudbury Basin.
The metal treasures of the basin, about 400 kilometres north of Toronto, remained largely hidden until the building of the Canadian Pacific Railway in 1883, according to histories of the Sudbury region. By the early decades of the 20th century, Sudbury had become the undisputed nickel capital of the world, a title it held until the 1970s. “There was a time when you could say that 90 per cent of the nickel in circulation had come from Sudbury,” said Dr. David Robinson, an Associate Professor of Economics at Laurentian University in Sudbury. “Now I don’t think Sudbury produces more than 25 or 30 per cent of the world’s supply and it may be lower than that.”
Nickel price drops as production soars
Atomic No. 28 on the Periodic Table, nickel is the fifth most common element on the planet, although most of it is in the Earth’s core, according to the Nickel Institute. About 65 per cent of nickel produced is used in stainless steel and another 20 per cent in steel and non-ferrous alloys. Coinage, despite nickel being the nickname of the five-cent piece, accounts for a tiny fraction of nickel’s usage.
In recent years, global production of nickel has soared, so much so that it has outpaced demand, which has depressed the price. On Feb. 23, nickel was trading at $US3.93 a pound. That was up from US$3.50 just ten days earlier. Those prices are even lower than where nickel sank in 2009 following the financial crisis. Two years earlier in May 2007, nickel had soared to $24 a pound. In 1993 and 1999, the price dipped below U$2 a pound.
“The competitive structure and the long timelines in mining really encouraged companies to jump in when the prices were high,” said Dr. Robinson, who from his office has a view of headframes of Sudbury mines. “Not just because prices were high now, but because they have to be in the game five years out and ten years out. So the system always overshoots. That’s why you get these commodity swings.” While Dr. Robinson called forecasting metal prices “a mug’s game,” others interviewed for this article were willing to predict that nickel prices will likely rebound in 2016.
Pierre Cleroux, Vice-President and Chief Economist with the Business Development Bank of Canada, said as much in a speech to the Greater Sudbury Chamber of Commerce last fall. And he reiterated that prediction in an interview with Canadian Sailings in February. “We have started to see the supply decrease in 2015 so that’s why we believe there is going to be a rebalance in the market somewhere at the end of 2016,” Mr. Cleroux said.
Stefan Ioannou, a metals analyst with Haywood Securities Inc., said he also expects nickel prices to rebound as China draws down its reserves of iron-rich laterite nickel oxide ore from Indonesia that are used to make nickel pig iron. The Indonesian government enacted a ban on exports of those ores in 2014. “The reality is the big stockpiles of the higher grade Indonesian ore in China are basically down to zero now,” Mr. Ioannou said. “And within the next six to 12 months we’re really going to see the impact of that, and then likely see nickel prices go higher.” However, as a Reuters article noted in October, a Chinese steel producer is set to begin producing pig iron in Indonesia as early as this May. That might “pour cold water” on the prospects of a nickel price rebound, the report said.
Philippines now top nickel mining country
As of 2014, Indonesia edged out Canada for third place on the list of world’s top nickel mining countries, according to Natural Resources Canada’s Minerals and Metals Fact Book — 2015. Russia was second in that category with the Philippines taking the top spot.
When it comes to producing refined nickel, China leads the world with about 30 per cent of production. China produced 696,700 tonnes in 2014, followed by Russia at 234,000 tonnes, Japan at 177,300 tonnes, and Canada at 150,600 tonnes.
Australia has the highest reserves of nickel, estimated at 19 million tonnes, or 23.5 per cent of the world’s total, in 2014, according to the NRCan’s Fact Book. Canada ranks 10th, with just 2.9 million tonnes, or 3.6 per cent of the total. Still, Canada extracted 30 million tonnes of ore in 2014 from 16 mines in four provinces. That ore contained about 285,000 tonnes of nickel, according to the NRCan’s Fact Book. Canada produces refined nickel in Sudbury, Ontario; Fort Saskatchewan, Alta.; and Thompson, Man.
Brazilian mining company Vale announced in November that it would close its Thompson smelter in 2018, the Sudbury Star reported. “Vale plans to ship nickel from its mine at Voisey’s Bay, Newfoundland and Labrador, to a new processing facility at Long Harbour in the same province, instead of to Thompson and to Sudbury,” the article noted. Dick DeStefano, Executive Director of the Sudbury & Area Mining Supply Services Association, said Vale has been threatening to shut down the Thompson smelter for a few years. So he’s a bit skeptical that Vale will go ahead with the plan or even that overall nickel production will ease off. One reason is that nickel mines produce other byproducts, such as copper and platinum, which are still quite profitable. So it pays to mine nickel just to obtain those other minerals, he said.
“The focus on nickel is sometimes over-extended. That’s my view only,” Mr. DeStefano said. He follows nickel closely, monitoring 23 news feeds daily and summarizing them in a blog that he writes for the association’s 700 members. Despite that research, he doesn’t have a firm opinion on the outlook for nickel. “If I knew I’d be buying the stock,” Mr. DeStefano said. Still, he added that “$3.75 ain’t going to do it,” a reference to the inability of a low nickel price to shake the nickel market out of its doldrums.
“The problem is not finding the materials because it seems like the meteor that hit us did a good job of penetrating pretty deep,” Mr. DeStefano said. “It’s the volume and the management of those materials on an international market.”
On the subject of that meteor, there’s now some discussion that it might actually have been a comet collision that created the Sudbury basin. Joel Petrus, a researcher at Laurentian University, and his colleagues examined the chemistry of the rocks from the crater and posited that they better match the makeup of a rock-encrusted comet than of a solid asteroid, Scientific American reported in November 2014. Regardless of what kind of space object created the Sudbury crater, it pounded enormous quantities of nickel and other metals deep into the ground. The trouble is that with low nickel prices, reaching the deeper reserves two miles beneath the surface isn’t profitable. But when prices rise, as is expected to happen in the face of dwindling supply and increased future demand, those deep deposits become attractive. “There are operations right now that are ramping up that are at 10 or 20 per cent (capacity) and could be at 60 per cent in a year and 100 per cent in two years,” Dr. Robinson said. “They don’t have much choice but to increase their production even though that helps keep the price down.”
Geological phenomenon behind Russian nickel trove
Russia’s place as a nickel powerhouse is also bolstered by a rare geological phenomenon. The nickel-rich Norilsk region, north of the Arctic Circle in central Siberia, was formed during a series of super-sized volcanic eruptions 250 million years ago. Aside from causing the greatest mass extinction event ever on the planet, the eruptions created the Siberian Traps, step-like hills encrusted with minerals bearing nickel, copper, lead and other metals.
Mr. DeStefano points out that he no longer sees Canadian flags flying from the headframes of the mines encircling Sudbury. The main players from Sudbury’s mining origins — Inco (International Nickel Company) and Falconbridge — were absorbed in recent decades through various mergers and acquisitions by mining multinationals Vale and Glencore.
Inco was formed in 1902 from the merger of the Canadian Copper Company and a New Jersey refinery, according to a 1983 history of Sudbury mining posted on the University of Waterloo website. In 1928, Inco then merged with the Mond Nickel Company, which had been founded by a German chemist who had developed a then-revolutionary method for producing pure nickel. That same year Falconbridge, named for a town in Greater Sudbury, came into being. An interesting historical footnote is that from 1901 to 1903 Thomas Edison tried mining at Falconbridge but gave up after being foiled by quicksand. So much for his reputation for dogged determination as in his quote, “Many of life’s failures are people who did not realize how close they were to success when they gave up.”
To say that nickel mining in Sudbury became a huge success is an understatement. However, Sudbury mines experienced booms and busts in their early years — including a bust during the Great Depression and a boom during the Second World War with the demand for armaments, followed by the post-war boom in automobile demand.
Nickel exports and imports slump of late
Complete figures weren’t available for 2015 but in 2014 world exports and imports of nickel ores and concentrate were lower than they had been since 2010, according to figures from the International Trade Centre, a joint agency of the United Nations and the World Trade Organization. For example, global exports of nickel ores and concentrates totalled US$4 billion compared with US$4.5 billion in 2013. The 2014 figure, though, was still roughly triple the US$1.5 billion figure for 2009. Before the 2008 financial crisis, nickel ores and concentrates exports had surged from US$381 million in 2001 to nearly 10 times that — US$3.3 billion — in 2007. Exports followed a similar track, although their values tended to be about 50 per cent higher than the exports.
Not surprisingly, China has accounted for the lion’s share of imports of nickel ores and concentrates since 2007. In 2014, China imported $US4.6 billion of the stuff, about 76 per cent of the global total.
The biggest exporter in 2014 was the Philippines with US$1.7 billion worth, nearly half the total. Australia, which was the biggest exporter from 2001 to 2012, was second in 2014 with US$715 million in exports.
The value of global exports and imports of refined nickel and articles of it were also higher in 2014 than in 2013 but lower than they had been in 2012 and much lower than in 2007. (The international HS product classification is called “nickel and articles thereof.”) The global value of those imports, for example, was US$32.1 billion in 2014, $US28.9 billion in 2013, US$37.7 billion in 2011, a staggering US$50.9 billion in 2007, but only US$8.9 billion in 2001.
While China was the biggest importer of nickel articles in 2014, its US$4.1 billion of those exports was only about 12 per cent of the total. Nine other countries, including the U.S. at US$3.4 billion, Japan at US$2.9 billion, Malaysia at $2.5 billion, and Norway at US$1.9 billon, imported over $US1 billion.
Figures for 2015 were incomplete, but imports for the U.S., Japan, Malaysia, and Norway were all around 20 to 25 per cent less than in 2014. Canada, meanwhile, was the biggest exporter of refined nickel and nickel articles in 2014, a position it has held since 2011 and for eight of the years since 2001. Canada’s exports of nickel things dropped to US$4.1 billion in 2015 from US$4.8 billion in 2014 but it looked to retain its lead because second-place Russia experienced an even bigger decline.
New nickel projects come online
Despite the shaky market for nickel in recent years, new projects have still come online. In the Raglan area near Deception Bay in northern Quebec, Canadian Royalties Inc. shipped its first load of copper concentrate in November 2013 and the following September shipped 23,000 tonnes of nickel concentrate on MV Nunavik, an ice-breaking bulk carrier owned by Montreal-based carrier Fednav Ltd. The 20-day voyage through the Northwest Passage was to take the ship 5,000 nautical miles to the Chinese port of Bayuquan. Canadian Royalties is owned by China-based Jilin Jien Nickel Industry Co Ltd., through its Canadian subsidiary Jien Canada Mining Ltd.
Canadian Royalties Inc.’s designated spokesperson didn’t respond to an interview request. In addition, Fednav declined to talk about the carrier’s involvement with the project. In a news release announcing the arrival of Nunavik in March 2014, the company said the ship is of similar design to Fednav’s Umiak I, which services Vale’s Voisey’s Bay operation in northern Labrador. Last March, Umiak I celebrated its 100th voyage carrying nickel concentrate from Voisey’s Bay to Quebec City since entering service in 2006.
Montreal-based Logistec Stevedoring was called upon to manage the Canadian Royalties terminal at Deception Bay, said a recent item on Logistec’s Website. The company has 40 employees working on the site engaged in “receiving and stockpiling truckloads of concentrate, a detailed sampling process, inventory control, and loading Nunavik, the item said. The lack of infrastructure in the region meant that Canadian Royalties needed more than just stevedores, the item quoted Daniel Jodoin, Logistec’s Vice-President of Bulk Cargo. “They needed a solution-oriented partner to ship the mine’s entire production output, and manage the influx of supplies and machinery that the mine requires to operate,” Mr. Jodoin said.
Remote projects face challenges
Glencore operates the Raglan mine in the Nunavik region. Operations at the mine were expected to wind down in 2010, according to a July 27, 2015 report on Nunatsiaq News. However, Glencore is looking at developing five new underground mines in the region that could extend production out to 2041, the report said.
And Royal Nickel Corporation owns an interest in the “advanced stage” West Raglan project in northern Quebec, as well as in the similarly advanced Aer-Kidd project near Sudbury, noted a Feb. 16 news release from Royal Nickel. The company’s principal asset is the Dumont Nickel Project 25 kilometres northwest of Amos, Que. “They’re challenging operations because of the seasonality of them, even with icebreakers,” Mr. Ioannou said of the nickel operations in northern Quebec. “It can be done, the technology exists (but) it’s just getting market support around them. And I think to make one work at $3.90 nickel is going to be next to impossible.”
Mr. Ioannou also noted that such mega-projects often bring in a strategic partner such as an Asian smelting group. “They get into the project because they want guaranteed feed for their own facilities in Asia,” Mr. Ioannou said.
Shipping ore by the Northwest Passage is 40 per cent shorter than via the traditional Panama Canal route, Fednav said in a news release in September 2014. It also cuts greenhouse gas emissions by over 1,300 tonnes. While Chinese partners in Canadian mines often want the ore for their own refineries in China, some of the ore from northern Quebec does end up in Sudbury, Dr. Robinson said. “Concentrate is relatively cheap to move around,” Dr. Robinson said, noting that most of the rock is removed, so what remains is a pretty valuable commodity.
Half world production currently uneconomic
Present nickel prices are not high enough to cover the increasing costs of mining depleted and more remote reserves. “You could argue that about half the world’s existing production is not economic at $3.90 a pound nickel,” Mr. Ioannou said. “It’s pretty crazy.”
For new lower-grade projects being proposed, nickel is going to have to fetch $8 or $9 a pound to make any economic sense, he added. And if the price doesn’t start moving in that direction soon, mining companies are “going to have to face the music,” he said. Some companies have already seen “the writing on the wall” and cut back production while others are trying to weather the storm, Mr. Ioannou said. Dr. Robinson, however, said it’s not easy for a company to scale back because of the high costs of shutting down operations.
Basic micro-economics also encourage companies to keep operating, he pointed out. A new mine has to consider its all-in costs, “but if you’re talking about keeping a mine going, as long as you’re producing enough to cover everything you’ve borrowed, you’ve got to keep going,” Dr. Robinson said.
“The Sudbury mines are not the lowest cost mines in the world but they’re relatively low cost,” he added. “And they’ve got this big capital load that they amortize, which means that it makes sense to keep them going even if you’re below your average cost of production.” For that reason, most Sudbury mines aren’t at risk of shutdown, although Dr. Robinson did note that KGHM International, a Polish company, shut down its McCreedy West Mine last fall. And First Nickel Inc. announced layoffs at its Lockerby Mine last summer.
When First Nickel conceived of the mine, nickel was selling for around US$9 a pound, Northern Ontario Business magazine reported last June. The dropping price “is really squeezing our cash-generating capability and our ability to continue to invest in development,” the article quoted First Nickel President and CEO Thomas Boehlert.
Growing demand expected to improve market
Mr. Cleroux of Business Development Bank of Canada said increasing world demand, including from China, should help rebalance the market. That’s despite concerns that China’s growth has slowed even more than the Chinese government’s projections suggest. “We qualify the growth in the U.S., which is about 2.5 per cent, as a very strong growth,” Mr. Cleroux said. “So even if the growth is 4 per cent in China it’s still very strong growth because China now is the second largest economy in the world.” However, Mr. Cleroux also noted that China’s growth has shifted from construction and infrastructure spending to consumer and services spending. “That’s where maybe there’s some worry about the demand for commodities,” Mr. Cleroux said, “but it’s more affecting iron ore and lumber, for example, than nickel.”
A primary use of nickel is making the high-grade steel used to manufacture consumable goods such as cars and appliances, which are expected to become increasingly in demand as China’s middle class grows wealthier. “The truth of the matter is that nickel consumption is continuing to rise around the world,” Dr. Robinson said. “The big surge that happened with China especially has let off, although less than most people seem to think.” With nickel, like every other metal, the high-grade ores have already been found, Dr. Robinson said. So the very long-range outlook is that as the premium ores become scarce, it eventually reaches a point where the metal is just distributed in small concentrations in the rock. “And as you get to that point, the price of extraction goes way, way up,” Dr. Robinson said, while cautioning that “we’re not very close to it yet, to tell the truth.” But it is coming. In 1980, Canada’s nickel reserves totalled 8.35 million tonnes, according to the 2014 Facts and Figures report from the Mining Association of Canada. Those reserves have diminished more or less steadily since then, to 5.78 million in 1990, 4.78 million in 2000, and 2.94 million in 2011.