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Message: Focus on nickel & cobalt 4/6/2011 9:04:47 AM | Richard (Rick) Mills

Focus on nickel & cobalt

4/6/2011 9:04:47 AM | Richard (Rick) Mills

The trend of future nickel production is changing. Nickel laterites are most likely to be developed as the world’s future primary nickel sources.

Nickel is an important alloying addition in nearly two thirds of the stainless steel produced today. Its primary function is to stabilize the austenitic structure of the steel. Normal carbon steel will, on cooling, transform from an austenite structure to a mixture of ferrite and cementite.

When added to stainless steel nickel stops this transformation keeping the material fully austenite on cooling. Austenitic stainless steels have high ductility, low yield stress and high tensile strength when compared to carbon steel - aluminum and copper are examples of other metals with the austenitic structure.

The minimum amount of nickel that will stabilize the austenitic structure is eight percent. That is the percentage present in the most commonly used grade of stainless steel - Type 304 is 18% chromium and 8% nickel and is known as 18/8. This composition was one of the first to be developed, it was used for chemical plants and also to clad the Chrysler Building in New York City.

Almost 40% percent of annual nickel use is in nonferrous alloys (mixed with metals other than steel) and super alloys (metal mixtures designed to withstand extremely high temperatures and/or pressures or have high electrical conductivity). Nickel is present in over 3000 different alloys that are used in more than 250,000 end-use applications.

Nickel is used as a coating on other metals to slow down corrosion, for the production of coins, as a catalyst for certain chemical reactions and as a colorant - nickel is added to glass to give it a green color.

Rechargeable nickel-hydride batteries are used for cellular phones, video cameras, and other electronic devices. Nickel-cadmium batteries are used to power cordless tools and appliances.

nickelinstitute.org

Because nickel is usually recycled, a distinction is often made between the use of newly produced metal and recycled scrap. ‘First use’ refers to the destination of newly produced nickel. By far the most important use of new nickel is the production of stainless steels.

It is estimated that there is about 140 million tons of nickel available in identified deposits. Nickel-bearing deposits come in 2 types:

Nickel sulphide deposits are formed by magmatic segregation. These sulfide deposits are also called magmatic sulfide deposits and are found in Australia, Canada, Russia and South Africa and are typically associated with copper and platinum group metals.

Nickel Laterite deposits are formed from weathering of ultramafic rocks and are usually operated as open pit mines. They are located principally in Western Australia, New Calodonia, Indonesia, Colombia, Cuba, Venezuela, Brazil and the Dominican Republic.

Today, nickel sulfide deposits are the primary source of mined nickel - about 58% of world’s nickel production come from nickel sulfide and 42% of mined nickel comes from nickel laterite deposits.

The trend of future nickel production is changing because of the current lack of high quality nickel sulfide exploration targets - nickel laterites are most likely to be developed as the world’s future primary nickel sources.

Three countries dominate the top three spots in terms of nickel deposits:

Russia is the world’s leading country for nickel production and Russian mining giant Norilsk Nickel is the world’s largest producer. Most of the countries nickel production (an amazing one-fifth of global production) is from Norilsk - the largest nickel sulfide deposit in the world.

Canada is the world’s second largest nickel producing country. Most of the countries nickel currently comes from the Thompson Nickel Belt in Manitoba, the Sudbury Basin of Ontario, and the Ungava peninsula of Quebec.

Vale SA, a Brazilian company and the world’s second largest mining company by market value, said its total nickel output will be cut by about five percent this year as it repairs a damaged furnace in Canada. The company, whose goal is to become the world’s top nickel producer in 2011, said on February 7th 2011 the No. 2 furnace at its Copper Cliff nickel plant in Sudbury, Ontario would be shut down for at least 16 weeks.

On the announcement nickel futures jumped to their highest price in almost three years - nickel for three month delivery climbed $660, or 2.3 percent, to settle at $29,150 a metric tonne.

Australia is the world’s third most important producer of nickel. The country primarily exports its nickel products to Europe, Japan and the United States.

What is Happening with Cobalt?

A strategic material is a commodity whose lack of availability during a national emergency would seriously affect the economic, industrial, and defensive capability of a country – many countries classify cobalt as a critical or a strategic metal.

Cobalt made the short list of four metals that the European Union chose to name as representative of the 40 metals it is classifying as critical. The US is the world's largest consumer of cobalt and the US considers cobalt a strategic metal. The US has no domestic production - the United States is 100% dependent on imports for its supply of primary cobalt - currently about 15% of U.S. cobalt consumption is from recycled scrap, resulting in a net import reliance of 85%.

Although cobalt is one of the 30 most abundant elements within the earth's crust it’s low concentration (.002%) means it’s usually produced as a by-product - cobalt is mainly obtained as a by-product of copper and nickel mining activities.

Today 40% of the cobalt consumed in the world originated as a by-product from copper production in the West African country of the Democratic Republic of Congo (DRC) - cobalt production in most other countries is a by-product of nickel mining.

The copper deposits in the Katanga Province of the Democratic Republic of the Congo are the top producers of cobalt and the political situation in the Congo influences the price of cobalt significantly. The politically unstable Democratic Republic of Congo contains half the world’s cobalt supply and represents the lion’s share of anticipated future cobalt supply – the DRC’s 2007 output was equal to the combined production of cobalt by Canada, Australia and Zambia.

In a nine billion dollar joint venture with the DRC China got the rights to the vast copper and cobalt resources of the North Kivu in exchange for providing $6 billion worth of road construction, two hydroelectric dams, hospitals, schools and railway links to southern Africa, to Katanga and to the Congo Atlantic port at Matadi. The other $3 billion is to be invested by China in development of new mining areas. Approximately half of known global cobalt reserves are in the DRC, and close to 40%-50% of incremental cobalt production, over the next five years, is anticipated to emanate from the DRC.

China is extremely short of cobalt concentrates and needs to import cobalt concentrates in large amounts every year. The leading global producers of refined cobalt are China (39%), Finland (15%) and Canada (8%). China is a leading supplier of cobalt imports to the United States.

The cobalt market is small in comparison with other base metals. Consumers purchase cobalt through negotiated agreements, bids, and open markets from producers, traders and to a lesser degree, government stockpiles and private inventories.

LME Cobalt futures contracts commenced trading on the London Metal Exchange (LME) on 22 February 2010. LME Official Opening Stock 18th March 2011 was 248t. Spot price was US$37,500.00 tonne

China seemingly has most of the DRC’s production of cobalt locked up, that’s up to 40% of global mined cobalt.

Cobalt is classified as a strategic/critical metal.

With the recent strong support for electric vehicles the use of cobalt in this sector alone has led to a formidable demand for the element.

There is no doubt in this author’s mind that cobalt’s profile will continue growing in the coming months and years.

Are nickel and cobalt on your radar screen?

If not maybe they should be.

Richard (Rick) Mills

Disclosure: Richard Mills does not own shares of any companies mentioned in this report.

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