Chinese Nickel Imports Jump to 6-Year High as Shortage Looms

Chinese Nickel Imports Jump to 6-Year High as Shortage Looms

China imported the most refined nickel in six years in a further sign that the world’s biggest consumer is drawing on global supply. Futures rose 2.4 percent in London.

Inbound shipments of the metal used to produce stainless steel surged 67 percent to 38,545 tons in June from the previous month, the highest since July 2009, and were more than three times the level a year earlier, Chinese customs data show.

Goldman Sachs Group Inc. and Citigroup Inc. are bullish on prices amid prospects for rising Chinese demand. Macquarie Group Ltd. sees a global shortage which may cut inventories further from a record. Stockpiles in London Metal Exchange sheds have already fallen to the lowest in almost two months. Some imports may have been for delivery against the first nickel contract to expire on the Shanghai bourse, said Celia Wang from Tianjin Zhongwei Group’s investment department.


“Huge imports arrived in China from LME warehouses as traders seek profits by delivering against the first settlement of a Shanghai nickel futures contract,” said Wang, the general manager. “Refined nickel imports are expected to remain at a high level into July.”

The Shanghai Futures Exchange started nickel trading in March and the July contract was the first expiry. The bourse is accepting metal from Moscow-based OAO GMK Norilsk Nickel, the top supplier, for settlement to ease concern about shortages.
Goldman, Citigroup

Prices climbed 2.4 percent to $11,980 a ton in London on Tuesday, the highest level since July 6, before trading at $11,875. Goldman expects rates to increase to $14,000 as the market heads toward a deficit next year, analysts including Yubin Fu wrote in a report dated July 6. Citigroup predicts a 2015 average price of $13,960 and maintains a bullish outlook.

Imports of ferronickel rose more than threefold on year to 62,511 tons, another sign China is seeking foreign supply.

An Indonesian ban on exports of nickel ore at the start of 2014 spurred China to stockpile the material and boost supplies from the Philippines, the only other major source. Inventories of nickel ore in China are now at their lowest since September 2011, according to data from Beijing Custeel E-Commerce Co.

China imported more than 100,000 tons of refined nickel in the first half for the first time since 2009 when buyers took advantage of a slump in demand after the financial crisis.

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Ten Mining Stocks That Look Set To Rebound

Mining stocks have taken the brunt of the walloping on the sharemarket but the selling is largely indiscriminate, prompting many people to ask whether some resource stocks are oversold.

There are reasons to be wary though, as 334 miners have a weak cash balance, below $2 million – a level which usually rings alarm bells.

While E.I.M. Capital Managers director Tony Wiggins believes the sector is littered with value traps, he says “special situation” resource companies have potential.

These are miners that face corporate activity (such as those involved in takeovers) or close to achieving a significant milestone (such as making the transition from explorer to producer or reaching full-production capacity).

Experts speaking to The Australian Financial Review this week nominated the following 10 mining stocks as best placed to rebound in the coming months.

Sundance Resources (SDL)

The Africa-focused iron ore hopeful is one that fits the “special situations” bill well, Wiggins says. It’s been on a wild ride since Chinese shareholder Hanlong Mining Group made a takeover bid last year. But doubts about Hanlong’s ability to finance the takeover have cast a long shadow over Sundance Resources.
While Hanlong eventually secured financier commitment letters from two banks, the market is sceptical and the stock is trading well under the offer price of 45¢ a share.

“There’s a very low chance of the deal falling over now,” Tony Wiggins says. “People won’t believe it until the deal is consummated.” By then, however, the opportunity would have been lost.

Pluton Resources (PLV)

Scepticism is also dragging heavily on fellow iron ore miner Pluton Resources. Investors lost faith due to lengthy delays in securing finance for its acquisition of the Cockatoo Island project.

When Pluton completes its first iron ore shipment from Cockatoo, Wiggins says, it will convert the disbelievers. The project has no infrastructure issues and has a free-on-board cost of just $51 a tonne of iron ore before state royalties.

Kalnorth Gold Mines (KGM)

Set to transition from an explorer to a producer by February, this is another resource stock that will probably get a re-rating as its risk profile decreases.

Kalnorth has managed the transition well, having struck a deal with St Barbara to use its ore-processing mill rather than funding its own.

“What investors are getting is positive cash flow from early next year and no more dilution [from capital raisings],” says Wiggins.

Saracen Mineral Holdings (SAR)

The gold sector is a good place to be hunting for oversold bargains as economic conditions support the precious metal, Phillip Resources Fund’s chief investment officer, Chris Bain, says.

Gold producers with the biggest rebound potential, however, are likely to be those that can rein in ballooning costs in the December quarter.

“Saracen’s costs did blow out substantially but they’ve now got the credit facility in place for their expansion, their [ore] grades are improving and they seem to have costs under control,” Bain says.

If Saracen can control rising costs over the next two quarters, the stock is likely to find a 30 per cent or so upside, he predicts.

Saracen’s cash cost in the past quarter was about $900 an ounce of gold compared to $700-plus an ounce only a year ago.

Perseus Mining (PRU)

Having lost more than 20 per cent of its share price value over the past six weeks, Perseus Mining could rebound if the Sissingué gold project gets going in the Ivory Coast, Bain says. Political issues have dogged the project but the sell-off doesn’t seem to be justified given management’s delivery on promises and quality assets.

Silver Lake Resources (SLR)

Another goldminer whose stock has fallen about 20 per cent, Silver Lake Resources, is very much in the same category as Perseus.

A weaker than expected September quarter production result was one of the key drivers of its poor performance, says Troy Irvin, director of investment house Argonaut.

But, he says, its Mt Monger mine is “operationally sound with substantial productivity gains leading to higher volumes”.

Irvin favours Silver Lake’s acquisition of Integra Mining as it instantly makes the miner a producer of 250,000 ounces of gold a year, with the Murchison development project giving it potential to grow production to 400,000 ounces.

Argonaut has a “buy” recommendation on the stock and a price target of $4.40.

Troy Resources (TRY)

The South American-focused gold and copper producer is another of Irvin’s picks. Persistent sovereign risk concerns and cost inflation in Argentina had sparked a 14 per cent sell-off in the stock since early October.
News of a cost blowout at Barrick’s nearby Pascua Lama project in Chile is adding to anxiety. While Troy clearly has its challenges, the miner’s project is a high ore grade and high-margin proposition.

Further, Troy has a frugal capital structure with only 91 million shares on issue, and an enviable 13-year track record of paying dividends. Argonaut is urging investors to “buy” the stock with a $5.80 price target.

Tiger Resources (TGS)

It’s not only gold that is glittering. LimeStreet Capital believes the outlook for copper is also promising due to the lack of any significant new copper projects.

Tiger Resources could be an inviting takeover target by the big copper producers, according to LimeStreet.
Tiger has plunged 26 per cent this year, which seems excessive given strong cash flow and big earnings growth potential for 2012-13.

Rex Minerals (REX)

The junior copper-gold explorer is a riskier proposition, but Chris Bain thinks that it’s worth the punt following the 44 per cent collapse in its share price since January.

While Rex’s South Australian prospects look promising, it will need around $700 million to fund development work.

That’s a tough ask for a junior with a market capitalisation of about $150 million.

“They have a lot of hard work to do, but the asset is there, it’s valuable and it will become a mine,” Bain says.

“It’s a matter of whether the market is kind enough to let them raise the capital or someone says ‘I’ll have that thanks’.”

Rex did a capital raising not too long ago at $1.20 and the stock is trading around 80¢. Many investors are still hurting.

Mirabela Nickel (MBN)

While it seems counter intuitive for anyone to bat for Mirabela Nickel given the challenging outlook for nickel, Troy Irvin thinks that the risk has been more than factored into the miner’s share price after the stock shed two-thirds of its value in 12 months.

While nickel prices are hovering around a three-year low on concerns that the market is oversupplied, Mirabela’s operations are improving.

Its Santa Rita mine in Brazil, for example, has recorded consecutive improvement in its quarterly performance.

The miner has also completed a recent expansion and cost-cutting is starting to deliver results.

Mirabela is still profitable at current nickel prices and Irvin believes that it offers “unrivalled leverage” to any rebound in nickel prices.

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Bullion Miners Facing Tough Challenges

A new report from the world's largest gold producer Barrick Gold provides yet another illustration of the problems facing gold mining companies.

In South Africa, extraction of gold from depths of more than 6,000 meters has almost become the rule rather than the exception. Mining costs are being pushed up by the logistical challenges of drilling at great depths, as well as an increasingly militant work force which is demanding higher wages. Add exploration costs to this mix and it’s little wonder that companies’ profits are being squeezed, despite the high gold price. According to Barrick, total production costs for all mining companies exceeded the $8 billion mark last year.

While 1991 saw the discovery of 11 new gold mines, in 2011 only three mines with production potential were found. Aside from the drop in gold ore and rising production costs, a third factor is increasingly hindering gold production: producing countries' tedious licensing processes and sluggish bureaucracy. According to Barrick Gold, this is being exacerbated by increasing environmental regulations that could jeopardize many mining operations.

Many companies are also facing increasing hostility from residents in mining areas. This has been particularly evident in Peru, Bolivia or Ecuador – where there have been violent clashes between local people and police.

This is a  tricky set of factors for many companies. But given the gains in gold many expect in the coming years, great fortunes could still be made in the right gold mining investments.

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Australian Mining Boom Peak Years Away

THE government's efforts to talk up the longevity of the mining boom will be boosted today by an influential report that predicts mining industry investment is still several years away from peaking. 

And the report by economic forecaster BIS Shrapnel predicts other sectors of the economy will lift to fill the gap when the mining sector inevitably slows.

A series of cabinet ministers insisted yesterday the mining boom had further to run, in an attempt to counter fears of a slowdown after BHP Billiton's decision last week to shelve its $30 billion Olympic Dam expansion and Resource Minister Martin Ferguson's controversial declaration that the boom was over.

Against a dreary outlook for the prices of Australia's key exports, BIS Shrapnel believes the value of contracted resource projects means mining investment would not peak until 2014, with Queensland and Western Australia tied up with major projects for three to five years.

"After that, non-mining investment will stabilise and start to pick up, taking over as the engine of growth and smoothing the transition," says the BIS report, to be released today.

It suggests lower interest rates will boost retail spending, which had been held back by low confidence and weak demand rather than the Australian dollar.

"Over time, capacity constraints outside mining, such as those already evident in the construction sector, will prompt a broadening of investment beyond mining," it says.

Frank Gelber, chief economist at BIS Shrapnel, said the realisation that the investment mining boom was finite would cause people to "overreact on the pessimistic side".

"All of a sudden, the glass seems to have become one-quarter full, but nothing has changed," he told The Australian in a reference to Reserve Bank governor Glenn Stevens's optimistic glass-half-full depiction of Australia's economy.

"Our report aims to dispel some of the panicky discussion about the end of the boom," Mr Gelber said, predicting economic growth of 3 per cent this year and next.

BIS Shrapnel believes continued strong commodity prices will keep the Australian dollar high "for a few more years", putting pressure on other trade-exposed industries.

Trade Minister Craig Emerson said yesterday the mining boom was not even halfway through, while Workplace Relations Minister Bill Shorten noted that his department was projecting that another 100,000 jobs would be created in the mining industry over the next five years.

"Mr Ferguson is right: we might have reached the peak in prices, but volumes are still increasing and there are still plenty of projects," Mr Shorten said, attempting to paper over any divisions in cabinet.
"I don't think that the contribution that mining is going to make in jobs and economic output for Australia has at all peaked." Wayne Swan said the mining boom was better understood "as a series of booms - a boom in prices, a boom in investment and a boom in exports".

The Treasurer said that while the price boom had passed its peak, "the investment boom still has some way to run" and the Bureau of Resources and Energy Economics had forecast commodity export earnings to reach a record $209 billion this financial year as higher volumes offset lower prices.

JPMorgan chief China economist Haibin Zhu, visiting Sydney last week, told Sky Business's Australian Business on Friday night Chinese demand for Australia's resources would slow but remain at a very high level over the next five to 10 years.

"What follows the recent boom is going to be far from a bust," he said, pointing out the Chinese government was intent on stabilising the country's growth at a lower but more stable level.
He warned that China's one-child policy would sap its potential economic growth rate by about one-quarter within the next five to 10 years.

"The share of working-age people in the population is shrinking and the number of workers will start to decline in the next few years," he said.

Mr Gelber also dismissed the impact of the carbon tax on BHP's decision to shelve its Olympic Dam copper, gold and uranium mine expansion, arguing it would go ahead once construction costs eased. "Such a long-term project means it is hard to predict ultimate prices and demand," he said.

Mr Swan said he was "pleased" to see discussion about the longevity of the mining boom. "But behaving as if the investment pipeline has suddenly run dry is not only false, it's irresponsible," he said, pointing out the Reserve Bank governor had said mining investment would not peak for a few years yet.