Nickel gets hammered but some keep faith

Tag : Zinc Phosphate

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One comes with sharp suits, annual bonuses, fancy-schmancy offices,homes with European appliances in the kitchen. The other comes with... no, no, you don't want to know. But we have one thing incommon: you're just as likely as not to get a bum steer whicheveroption you choose.
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It was reported midweek that Goldman Sachs had made drastic cuts toits nickel price outlook. The metal would average $US24,522 atonne, down 15 per cent on their previous estimate for 2008. Theycut their 2009 forecast by 34 per cent on the previous outlook outof Goldman Sachs.
Just about everyone lately has been giving nickel a hammering. OnTuesday, the ABC was reporting analysts concerned that many smallerWest Australian nickel mines would struggle to stay in business ifthe nickel price continued to slide.
Well, as all now know, BHP Billiton (BHP) has announced it willshut down its Kalgoorlie smelter for an overhaul. This came afterNorilsk Nickel said it would close a smelter in Finland andrelocate the plant. Overnight, the nickel price in London shot upby 5.6 per cent.
Julian Hanna, who runs nickel star Western Areas (WSA), says mostpeople are misreading the nickel market. Supply is much tighterthan many realise, and there is very little surplus production. Oneevent, such as an unforeseen smelter closure, can have a hugeimpact on the nickel price. But he does agree some companies willhave a problem if the metal falls substantially below$US22,000/tonne over a prolonged period. He doesn't think that'slikely.
Incidentally, traders obviously didn't bother to read WSA'sannouncement on Wednesday that it was not affected by thedisruption to gas supplies in Western Australia, as the stock wasmarked down heavily that day and Thursday. By Friday, it seemed,the news had sunk in and the price recovered from $9.15 to $9.54.
Just for the record, WSA is not affected by the BHP closure,either.
Shortage looms
BHP's subsequent announcement that it hoped to increase productionfrom other plants caused nickel to slip back to $US24,000/tonne onFriday night, but the four-month closure could mean that nickelends up with a 17,000 tonne deficit for 2008. The people atAustralian Mines (AUZ) are not deterred by the nickel naysayers.They have begun drilling at the Goodyear sulphide project nearKalgoorlie, where there is already an inferred resource of 16,000tonnes of contained nickel.
This is the project that was drilled in the mid-1990s by TitanResources (which was later swallowed by Consolidated Minerals, nowalso swallowed), with one hole returning 3m at 7.9 per cent nickel.
None of the other holes could replicate that and then the metalprice sank. Goodyear was drilled again in 2000 by MPI Mines (laterpart of LionOre). AUZ has been putting together all the data andwill be testing other areas it believes can increase the resource.The mineralisation runs into the neighbouring Dunlop project ownedby Mincor Resources (MCR), and the two companies are sharing data.
AUZ's Blair mine produces about 2000 tonnes of nickel a year, butthe company is looking for longer term operations to sustaingrowth. Goodyear is one, the Marriott's project near Leinster isthe other.
In another nickel development, Proto Resources (PRW) and MetalsFinance Corp (MFC) are planning to complete a feasibility study onthe Barnes Hill deposit in Tasmania by early next year. Proto haswell and truly hitched its wagon to the nickel star, with its othermain project being a laterite joint venture with Poseidon Nickel(POS) at Menzies in Western Australia. At Barnes Hill it is doingits sums based on a long-term nickel price between $US19,800 and$US22,000 a tonne.
Vanishing act
WE'VE started to sound like a cracked record on the subject ofoverblown and ill-advised hopes regarding, firstly the uraniumfrenzy and now the phosphate mania.
This business is constantly hyped by companies, public relationspeople and -- it has to be said -- by journalists. On this page onMonday in 1996, The Australian reported that the then DiversifiedMineral Resources was on its way to production by reviving alead-zinc-silver mine in Burma. DMR disappeared, leaving the Burmadream behind it.
Then there was some hype for what we called "pint-sized oilexplorer Maple Oil", which was going to be a producer of notein the Cooper Basin. Maple disappeared four years later to becomeMatrix Oil and now Emerald Oil & Gas (EMR), which is trying tobring home the bacon in the US.
Panorama Resources had, 12 years ago, seemingly unlocked aforgotten gold project in Kenya. That company is now Salinas Energy(SAE). Africa is long forgotten and it is earning $US2.2 million inMay alone in oil revenue from California wells.
There was also an item from this reporter that Roma Petroleum (RPM)was on the brink of becoming a coal seam gas producer. That was, tosay the least, a little previous. The company, while earning oilrevenue, is still only drilling for CSG. There was probably also atad too much gullibility in a report in 2000 from the same penrevealing that Roma had come up with the idea that drilling off thewest coast of Tasmania could come up with something like 620million barrels of oil. Wrong again.
At least RPM is still around, although not for long. It has agreedto succumb to Queensland Gas (QGC) for $48.3 million, the interestbeing Roma's petroleum lease 171, smack in the Surat Basin andsurrounded by CSG prospects. Roma chairman Bill Siller, who hasbeen in the oil business since 1954 and has run Roma since itlisted in 1995, is going off at age 78 to smell the roses ratherthan oil fumes.
Archer jumps
ON the subject of phosphate, throwing that into the mix did no harmto Archer Exploration (AXE) on Friday, as the stock jumped 25 percent to 15c. Archer's price has been languishing in recent months,so announcing the acquisition of the Fairview deposit near Burra inSouth Australia did the trick. It was mined in 1903 and produced100 tonnes of phosphate rock.
It is still in the back straight, though, while Minemakers (MAK) isgetting closer to the home turn at Wonarah in the NorthernTerritory, with a known resource, and drilling well advanced.
Broker BBY put a buy at $1.80 on MAK last week, attaching a12-month price target of $3.26. Minemakers' Friday update onprogress at Wonarah reignited its share price, which climbed 27.5cto $1.94. BBY's valuation is based on a 20-year mine life at itsmain zone, where there are 72 million tonnes at 23 per centphosphate.
But we've had no luck getting to grips with what Newland Resources(NRL) has in mind. It has acquired 16 tenements in the GeorginaBasin (that's the hot spot for phosphate right now) but has nothyped the story. There have been no announcements since May 20 butthe shares have been skittish - moving from 9c to 12c in the firstweek of June, then back to 8c.
We wanted to ask Newland what was happening, but only chairmanLindsay Colless can answer such questions and he is out of thecountry until the end of the month. So, for the lack of anyresponse from Newland, we all remain in the dark.
We are also no wiser about why the board at Contact Uranium (CTS)has set up an options deal that could deliver control of thecompany to a Dubai outfit for, as we put it last week, a song.Contact executive chairman Richard Napier lives in London. Will hebe at the July 4 meeting to vote on the options deal, we asked thecompany's Perth office. He would be "possibly attending",was the response. No firmer than that, apparently.
Contact put out some good drill results from Peru during the weekand its uranium project there is impressive. The fact that theshares have fallen from 14c to 10c since the options deal wasunveiled suggests that investors have stopped listening to theuranium story.
Promising stuff
NOW to two companies with stories that are worth looking at.
Liontown Resources (LTR) picked up a copper-molybdenum project inArizona during the week that has a non-JORC resource of 25.5million tonnes. Very promising, but don't forget the company'sprime focus is still its Mt Windsor project in northern Queensland.Its 100km of strike lie between some pretty big mines -- Thalanga,Mount Leyshon and Pajingo.
LTR already has a resource of 1.85 million tonnes at 7.5 per centzinc and 2.4 per cent lead, along with copper, silver and gold. TheMt Windsor region has historically yielded 15 million ounces ofgold, 350,000 tonnes of zinc, 90,000 tonnes of lead and 200,000ozof silver. Drilling started again on Saturday at the Liontownground.
Don't be surprised if Liontown picks up something in Africa --managing director Andrew Bantock was getting a yellow fever shot onFriday.
And Sultan Resources (SSC) has brought engineering consultants onboard and hopes to have its bankable feasibility study completedwithin a few months. Its Peelwood project, located in a historicsilver and base metal mining area south of Bathurst, NSW, alreadyhas 862,000 tonnes at 6.7 per cent zinc. Managing director DerekLenartowicz is another miner who doesn't swallow the analystswriting off zinc, believing that once again they have overestimatedsupply and underestimated demand.
Sultan put some icing on its cake last week with the discovery ofhigh-grade copper just 25m from the surface. One hole returned 1mat 9.03 per cent copper, 5.43 per cent zinc and 90.8 grams/tonnesilver.
The Australian implies no recommendations regarding any of thestocks mentioned. The author does not own shares in any of thesecurities mentioned.
brombyr@theaustralian.com.au