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Who Would Bet on Nickel in Russia?

Who Would Bet on Nickel in Russia?

22.12.2009 — Analysis

The expression "nickel boom" sends us back to the recent "fat" years. Back then, nickel prices at the London Metal Exchange (LME) soared from 11.5 thousand U.S. dollars per ton in the end of 2005 to 54.2 thousand in the summer 2007. The growth of nearly 5 times in just a year and a half looks unreal today, whilst the makers of the metal so demanded by the market were achieving this astounding profitability. The impressive price dynamics encouraged certain companies to think of expanding their nickel production capacities. The RusBusinessNews correspondent has been looking into the fate of these plans.

The Mechel management team had begun seriously thinking about the concurrent construction of two ferronickel plants with a total capacity of 40 thousand tons a year by 2013. Alexei Ivanushkin, CEO of Oriel Resources Ltd. (which unites all ferroalloy assets of Mechel OAO), announced the company’s plans to establish the first production facility for the expensive metal in Kazakhstan, at the Shevchenko nickel deposit, where proven metal reserves were estimated at 21.4 million tons, and probable reserves at 83 million. Mechel has intentionally purchased this deposit from Oriel Resources. The Chelyabinsk company had been intending to start the establishment of a nickel hydrometallurgical production facility with a total capacity of 20 thousand tons a year. According to Mr Ivanushkin, it was planned to invest about 750 million U.S. dollars in this project.

The second plant should have appeared in Orsk (the Orenburg Oblast) on the basis of Southern Urals Nickel Plant. The raw material base for the new plant was ready – this is the Buruktal nickel deposit with resources of nearly 90 million tons. Mechel was intending to invest about 600 million U.S. dollars in the new production facility.

However, Mechel’s nickel hopes were not destined to come true – the global financial crisis caused the prices of non-ferrous metals to crash. In the end of 2008 the LME nickel price dropped to 8.8 thousand U.S. dollars per ton, and the majority of investment programs had to be shelved.

By the second half of 2009 the market interest to nickel started growing again: for several months now exchange prices have been showing positive rally. Today, LME nickel prices have grown to 16.5 thousand U.S. dollars per ton. The Communicative Technologies Department of Russia’s Ministry of Industry and Trade informed RusBusinessNews that the consumption of nickel in the domestic market in the current year is on the increase compared to 2008. While a year ago the domestic consumption amounted to 17.5 thousand tons, the current expectations are set at the level of 25.5 thousand tons. For 2009, the Ministry of Industry and Trade has forecast the export of nickel in quantities of 190-205 thousand tons (last year this figure amounted to 245 thousand tons). In 2010, the amount of Russian nickel shipped to external markets must reach 215-225 thousand tons.

Norilsk Nickel MMC is Russia’s absolute leader in terms of nickel production. The company’s forecast for the 2009 production volumes at its Russia-based plants is at the level of 232 thousand tons of metal traded on the exchange. According to Nikolai Sosnovski, FC Uralsib analyst, the Russian nickel favourite is not in a hurry to use the situation of success on non-ferrous metals markets to its advantage, although it may have wished to do so. The company has been developing its deposits for quite a long time now, and the ore is gradually running low, which causes the stagnation of production. Vladimir Strzhalkovsky, the Director General of Norilsk Nickel, says that despite the difficult market situation, the company is in better conditions than its competitors, since Norilsk Nickel’s nickel production costs today are amongst the world’s lowest. According to experts’ estimates, the production cost of the metal in Norilsk today is about 4.9 thousand U.S. dollars per ton.

Irina Talovina, PhD (Geology and Mineralogy), St. Petersburg State Mining Institute, informed RusBusinessNews that Russia ranks first in terms of nickel ores production – 22% of the world’s production is located in our country. The major portion of ore is extracted from copper-nickel sulphide deposits at the Norilsk area in Taimyr and Kola Peninsula. Oxide-silicate nickel ores account for over 70% of the world’s reserves of this metal. Virtually all Russian deposits of such ores are located in the Urals - in the Sverdlovsk, Chelyabinsk, and Orenburg oblasts where there are two metal works: Southern Urals Nickel Plant and Ufaley Nickel Plant. However, due to the low quality of proven ores and depletion of the deposits' reserves, the Urals’ nickel resource base has for a long time seemed non-competitive compared to foreign ones.

According to Alexei Ponomarev, an employee of Urals Nickel, historically only pyrometallurgical technologies involving the use of melting furnaces were used for nickel production in the Urals. This technology hasn’t changed substantially since the times of the Demidov plants. Ufaleynickel JSC informed RusBusinessNews that the production cost of metal at the plant is about 16 thousand U.S. dollars per ton.

The outdated technology and low competitiveness of such production method have manifested themselves in full during the 2008 crisis when all nickel production facilities which have been surviving only due to the favourable international economic situation - speculatively overheated nickel prices - were shut down. Therefore, the Urals will only be capable of competing with Norilsk when it starts employing technologies enabling a substantial reduction of nickel production costs.

According to Dmitry Baskov, the Director General of Urals Nickel LLC, the Urals metal makers and geologists are ready, right now, to implement a know-how that would drive the nickel production cost down to 4.7 thousand U.S. dollars per ton, which is cheaper than at Norilsk Nickel! Moreover, the Urals specialists’ developments make it possible to produce the expensive metal using ores that are off balance and off condition for the conventional metals making.

The future of the nickel consumption growth, the availability of sufficient raw material base in the Urals region, on the one hand, and the domination of cost-intensive hydrometallurgical nickel ores processing technologies, on the other hand, made it possible to find a niche for the establishment of an innovative sector – hydrometallurgical technology for oxidized nickel ores processing. These technologies are currently used all over the world. For instance, the Chinese invest in new nickel heap leaching projects in Turkey. The hydrometallurgical nickel production method is used in Australia and the Philippines.

Mr Baskov  believes that the Urals has the human resource potential which makes it possible to establish such production facilities. The engineers who developed the hydrometallurgy technology for nickel participated in the design and commissioning of a hydrometallurgical copper production plant – Uralhydpromed CJSC and the Verkhoturski mine where gold is leached by the in-situ method. The Urals region’s oxidized nickel deposits were studied at the same time. As of today, the required preparatory work has been completed, which makes it possible to design and build plants of this type, including exploration, laboratory process research, and pilot projects. In general terms, the oxidized nickel ores hydrometallurgical production and processing technology is based on 25 inventions and process solutions which have been patented in the course of 9 years.

The total volume of funds invested in the development of a process for nickel production from low-grade ores is estimated to amount to 5 million U.S. dollars. The Urals hydrometallurgy team established their own laboratory, a pilot production facility, purchased the license for the Kungur deposit with its reserves of about 30 thousand tons of nickel. The Urals nickel project participants are eyeing up the Ragozhino non-ferrous metals deposit, and studying other promising nickel deposits in the Urals region for acquisition and further development.

Leonid Kazanbayev, Doctor of Engineering, the winner of the award of the Government of Russia for the development and implementation of an advanced environmentally safe technology of non-ferrous metal production from the Urals off condition raw material, has explained that the short term outlook for the construction of new nickel production facilities in the Urals are so far difficult to assess. However, it is in hydrometallurgical technologies that he sees the future for the production of the majority of non-ferrous, rare, and scattered metals, to which nickel undoubtedly belongs. In contrast to the traditional methods these are more cost effective and rule out the possibility of emissions of sintering products into atmosphere.

Mikhail Bendyak 


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