Battered [Sudbury] nickel regaining lustre – by Lisa Wright (Toronto Star – May 28, 2011)

Lisa Wright is a business reporter with the Toronto Star, which has the largest circulation in Canada. The paper has an enormous impact on Canada’s federal and provincial politics as well as shaping public opinion. This article was originally published May 28, 2011.

Two little Sudbury-area miners reopen amid a resource rebound

If Bill Anderson had a nickel for every time someone asked him why he’s not in the gold mining business, he could open a nickel mine. After all, gold is synonymous with glamour and wealth while nickel, at least for Canadians, is synonymous with, well…Sudbury. Jokes aside, the lifelong geologist took all those cocktail party digs and opened a little nickel mine.

First Nickel Inc., which CEO Anderson co-founded, scooped up the old Lockerby mine in the Sudbury basin from former Canadian mining giant Falconbridge (now Xstrata Plc) in 2005.

And it seemed like the good times would never end as nickel prices soared to what Anderson calls “silly” levels of nearly $25 U.S. a pound, prompting foreign mining conglomerates Xstrata of Switzerland and Brazil’s Vale to take over historic Sudbury foes Falconbridge and Inco respectively for top dollar at what turned out to be the height of the market.

In the meantime, little guys like First Nickel and its peer Ursa Major Minerals, which operates the Shakespeare mine 70 km west of Sudbury, quietly went about their business amid the takeover whirlwind.

And ultimately they were the first to feel the pain when metals got massacred in the economic downturn of 2008. Nickel retreated back below $5 a pound and both companies were forced to shut down their small operations to keep their fledgling penny stocks afloat.

“By the end of 2008 my dog could have figured out the outcome” of what the nickel nosedive would do to First Nickel, recalls Anderson.

“There’s no mystery about us. We’re a public company and we only have the one operation,” he says.

“We had about 8 million bucks in the bank and we were going to run out of steam by Halloween.”

After cranking out 9.4 million pounds of nickel and 6 million pounds of copper since 2006, First Nickel abruptly halted production in October, 2008 and laid off 140 employees.

“The world collapsed around us. It was pretty grim. We were the first in Sudbury to cease production” that year, he notes.

Richard Sutcliffe, chief executive of Ursa Major, was on the same page. His firm laid off 50 employees and contractors the same month after suspending pre-production at its open pit Shakespeare project near the town of Webbwood.

“Most of global nickel production goes into stainless steel, which goes into construction and manufacturing demand. The slowdown in particular made people nervous in nickel markets,” says Sutcliffe.

What a difference two and a half years makes. Precious metals like gold and silver are flying high while base metals — especially copper — have been flirting with record prices again after global markets bounced back decisively.

But stubborn nickel remains in a bit of a pickle. To date it trades nowhere near the $20-plus range it enjoyed in its pre-downturn heyday. It closed at $10.50 a pound Friday in London, and up until early 2010 it struggled in the $5 to $8 range for two tough years.

Part of the reason nickel is nowhere near as strong as it was is supply and demand fundamentals. As Anderson puts it: “The world isn’t short of nickel” with plenty of both traditional sulphide ore deposits like those in Sudbury and the newer yet problematic laterite projects in places like Australia and New Caledonia.

Also, two-thirds of nickel demand comes from stainless steel, and China is the driver. “You can’t turn the stainless steel industry back on with a switch,” says Anderson.

“Nickel has historically been more volatile as a metal in pricing. Prices were silly in 2007. You had substitutions at the steel end. China slipped off into other grades of steel and nickel pig iron,” which he explains is nickel ore from Indonesia and the Philippines that is cooked up in blast furnaces.

The high energy, low quality product has been used in China to substitute for nickel when prices get too high, he says.

So nickel prices at a more reasonable $10 to $12 a pound are just fine for Anderson and Sutcliffe, who can finally turn the lights back on and make a profit again since their cash costs to produce the ore are about half of that.

Ursa Major began commercial production last May on a basket of metals at the Shakespeare pit, where half the revenues come from nickel, 30 per cent from copper and the remainder from precious metals, mainly platinum.

For the rest of this article, please go to the Toronto Star website: http://www.thestar.com/business/article/998644–gold-gets-the-glory-while-nickel-stays-fickle

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