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Nickel price not affecting Sudbury (comment on this story)

Xstrata has no plans to change capital spending projects in Canada

Posted By DENIS ST. PIERRE, THE SUDBURY STAR

Updated 9 hours ago

A dramatic drop in nickel prices over the last year does not appear to be jeopardizing operations or mine development projects in the Sudbury area, even though such cutbacks have been seen in other jurisdictions.

Xstrata Nickel, for example, "has no plans to change capital spending plans in Canada," company spokesman Peter Fuchs told The Star on Wednesday.

Circumstances in Sudbury are different than at the Falcondo nickel mine in the Dominican Republic, where parent company Xstrata Plc. has suspended output, said Fuchs, Xstrata Nickel's director of corporate affairs.

"Falcondo is unique in Xstrata Nickel's portfolio because of its dependency on oil. The decision to temporarily shut down Falcondo's operation was due to a combination of extremely high oil prices, which represent the majority of the site's costs, and lower nickel prices."

The reliance on oil to power the Falcondo operation makes the Dominican operation's production costs significantly higher than those at other Xstrata sites, including Sudbury, analysts say. Reports indicate it costs nearly $8 to produce a pound of nickel at Falcondo -- almost as much as Wednesday's market closing price of $8.55.

Last year, nickel prices reached a high of nearly $24 a pound due to strong worldwide demand for the metal. The falling nickel price has prompted other producers in recent months to suspend or delay capital projects.

Vale Inco officials could not be reached for comment Wednesday about the impact of lower nickel prices on its operations in Sudbury.

However, the Sudbury-area operations and capital plans of Vale Inco and Xstrata Nickel should not be adversely affected by nickel prices in the $8-$9 range, said nickel industry analyst Terry Ortslan.

"If you go back only a few years, today's price for nickel is at a level you wouldn't believe," said Ortslan, of TSO and Associates in Montreal.

"And if you remember (capital) projects, from New Caledonia to Sudbury, they were triggered at $3, $4, $5 for the long-term price of nickel. So today, we're still seeing higher prices than that. Yes, costs have gone up a lot, but from the perspective of just a few years ago today's price is still high. So let's put it in that perspective."

Ortslan said he expects an increase in nickel prices in "the very short term." Passed that point, however, one can't assume prices will continue to rise, even with a decrease in supply from the suspension of Falcondo's operations and cuts to capital projects by some producers.

"In the medium term, we're not all that bullish yet, because despite the cutback in capacity ... markets are still dealing with the stainless steel business being in difficult circumstances," he said.