Seems like alot of trueth to the article. This year has seen a sharp correction in ni prices. Was it brought on by the credit crisis?

Costs of development have increased. Who could have seen the increase in credit cost and oil cost that we saw this year.

We have had our share of delays and cost overruns too.

So one can see that some of the problems facing us are not unique to Lbe.

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BASE METALS

DEMAND DESTRUCTION POTENTIAL

$20/lb nickel prices unsustainable, sharp price correction coming – S&P

Standard & Poor’s has found that, while the mining industry is currently benefiting from record nickel prices, mine supply doesn’t have good prospects of keeping up with demand, and that new mine production may come too late to avert destruction of demand.

Author: Dorothy Kosich
Posted: Wednesday , 09 May 2007

RENO, NV -

Although nickel prices will remain very strong throughout this year, Standard & Poor's suggests that current "astronomical prices of more than US$20 per pound are likely unsustainable and negative economic news could lead to a sharp correction in prices."

In a report published Monday, S&P Primary Credit Analyst Donald Marleau noted, however, that "based on current demand projects and proposed development timelines, the nickel market will not face the risk of significant oversupply until 2010, and Standard & Poor's Ratings Services has extended this expectation several times in recent years because of recurring project delays and we could again as the supply picture evolves."

Marleau forecast that a modest 5% average annual growth rate in nickel consumption will necessitate an additional 60,000 tonnes of nickel production annually. However, he noted that the mining industry has historically added a 60,000-tonne annual producer nickel mine only once every five to 10 years. "To compound this scarcity, the output from mature operations has been declining for years, and the capital and operating costs for new developments have increased sharply as producers exploit increasingly challenging ore bodies."

For the past three years, nickel supplies haven't always met demand, resulting in accelerated mine development internationally, according to S&P. "Nevertheless, many new mine projects have endured serious delays and cost overruns, leaving customers seeking substitutions."

‘To date, substitution and demand destruction have been fleeting because of the technical constraints of stainless steel mills and because of end-users limited tolerance for lower grade stainless steels (about two-thirds of nickel is consumed in the production of stainless steel), Marleau suggested. "Nevertheless, current nickel prices are proving a strong incentive for customers to explore alternatives."

Offsetting the excellent demand outlook for nickel "is the potential for demand destruction and excessively high prices and nickel surcharges on stainless steel," Marleau wrote.

"Consumers of nickel foresee continued supply constraints and a less transparent, more concentrated market with the acquisition in recent years of three of the world's largest nickel miners-WMC Resources Ltd., Falconbridge Ltd., and Inco Ltd.-by large diversified mining companies," he wrote. "As a consequence, stainless steel producers have sought to lower their exposure to nickel by shifting to lower nickel-containing grades-and even ‘no -nickel' grades-but with only limited success to date."

Marleau's research determined that nickel supplies will continue to be limited. For instance, new nickel supply from Canada's Voisey's Bay has had little or no impact on nickel inventories and prices. "Furthermore, the market remains extremely sensitive to labor strikes and any other disruptions that commonly affect mining operations."

Although leading nickel producers "have a series of new mines at various stages of development," S&P found that deposits are becoming increasingly difficult and expensive to develop.

Meanwhile, "as nickel producers seek to increase production, companies are increasing their exposure to more technologically risky deposits," according to Marleau. While mining of laterite ores is economically attractive despite lower nickel grades, extracting nickel from these ores requires more energy and a costlier method of processing than that for traditional nickel sulfide deposits.

"And because of the nascent technologies employed, the economic production of nickel from new laterite ore bodies has been erratic over the past decade," he explained. "Equipment failures have resulted in significantly higher than estimated capital expenditures and disappointing output."

"Miners are racing to accelerate nickel production to take advantage of exceptional pricing and to prevent permanent destruction of demand. Numerous Greenfield or brownfield projects are on the drawing board around the world, but a project that isn't underway today is probably five years from any significant output, and the capital and operating cost estimates could face upward revision as the project proceeds," Marleau asserted.

"So although the nickel industry is benefiting from extremely high prices, keeping up with demand is proving difficult, and added production could come too late," Marleau concluded.

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