Nickel poised to be metal of 2020 as demand-supply fundamentals take hold, say commodity followers

Nickel won the gold medal at a major metals conference in London this week
1st November 2019
Tim Treadgold

Nickel won the gold medal at a major metals conference in London this week but not on the market where the price barely moved, an anomaly which should be corrected next year on the purest of fundamental measures - demand is rising and supply is falling.

The muted reaction of nickel to the latest crack-down on exports of unprocessed metal by Indonesia was the biggest surprise on commodity markets, which continue to behave erratically thanks to the ongoing political and economic uncertainties in Europe, the UK and the US.

A ban by Indonesia has been well flagged but was not scheduled to start until the New Year. But that changed on Monday when the export door was slammed shut, lifting the nickel price by a modest US10 cents (1.3%) to $US7.63 a pound, which is where it stayed.

Investment bank analysts were mystified by the tiny rise, as were delegates to the London Metal Exchange’s big week of seminars, talks and long lunches, an event called Metals Week, which is a magnet for commodity junkies.

A poll of delegates to Metals Week by Macquarie Bank saw nickel get the highest rating and a description as the metal “likely to be the standout performer in 2020”. Copper was the second most highly rated of the base metals, which is the primary focus of Metals Week.

The Macquarie rankings showed that 43% of delegates rate nickel as their preferred investment over the next 12-months, up from 32% in the same poll at last year’s conference. Copper’s score fell from 45% to 38% - but those two metals were a country mile ahead of the rest.

Vanessa Davidson, director of base metals strategy at the highly-regarded commodity research group, CRU, said the timing of the nickel cycle was a little different but cut backs to production meant there was a need for increased investment to meet nickel demand from battery makers.

UBS, an investment bank, was more cautious but acknowledged that there was some anxiety in the market about future supplies caused, in part, by a big Chinese stainless-steel maker (Tsingshan) buying large amounts of the metal ahead of a tight market in 2020.

Gold, unsurprisingly, took second spot (silver for gold!) in the poll of delegates but it too struggled to make headway on the market this week as uncertainties swirled and some investors started to look towards the end of the year and a fresh start in 60-days when the New Year rolls around.

Away from the London conference there were a number of headline-making events, some of significance and some designed purely for television and social media, including:

  • Rent-a-crowd demonstrations at the Imarc mining conference in Melbourne where demonstrators demanded an end to mining, a particularly pointless position if they want a future built around electric cars which are going to be using an awful lot of copper, nickel, cobalt, and other metals.
  • South America continued to fester with Argentina and Chile joining Peru and Ecuador among the prominent mining countries which are teetering towards a fresh embrace of Marxist revolutionary theory – which is good news for miners in more stable jurisdictions such as Canada, the US and Australia.
  • Rio Tinto made what appears to be a significant change of direction which could benefit small miners because rather than spend all of its exploration dollars on looking for monster discoveries, it might switch to more modest targets which can be quickly moved into production, and
  • Cash pressure continued to mount among the smaller stocks with September quarter reports revealing that an increasing number of explorers are running on the sniff of an oily rag.

On the Australian stock market, the most interesting price moves were delivered by two mid-tier miners which generally have a low news profile – Iluka and Minerals Resources.

Best-known for its zircon and ilmenite operations, Iluka scored a 66c (7%) price rise to $9.40 after confirming that it would consider spinning off its valuable iron ore royalty over a large portion of BHP’s operations in the Pilbara region of WA.

The royalty is worth around $41 million a year in its current form, but will grow as BHP brings on line its major new mine, South Flank.

A new company based on the Iluka royalty could start life with a market value of up to $2 billion, according to market speculation.

Mineral Resources also scored a win with Australian foreign investment regulators approving its deal to sell a 60% stake in the Wodgina lithium project to Albemarle of the US for a handy $1.2 billion, news which lifted Mineral Resources by $1.05 (8%) to $14.30 – but with Bell Potter, a stockbroking firm, tipping a future price of $19.92.

Other news events which affected the market included:

  • Silver Lake’s 12c rise to $1.16 made it the best performer in an otherwise lacklustre gold sector despite the price of the metal moving back towards $US1500 an ounce in a repeat performance of this time last week. Interest in Silver Lake has risen as it is seen as a key player in sector consolidation in WA’s gold patch with Ora Banda Mining, which lost 1c to 18c this week, seen as a prime merger target.
  • Adriatic Metals added 4c to $1.13 as it gets ready for a listing in London, perhaps a more natural market for the stock which has its best asset, the Vares polymetallic project, in Bosnia.
  • Resolute Mining incurred an 9c fall to $1.21 as the impact of troubles at its flagship Syama mine in Mali weigh on investor confidence. Despite falling production and rising costs all-in sustaining costs September quarter output remained profitable.
  • Dacian was another gold stock sold down during the week despite strong September quarter production of 42,002 ounces at an all-in cost of $A1423/oz. On the market, Dacian shed 7c to $1.46.
  • Pilbara Mines added 3c to 31c despite a warning from management that the market for the key battery metals remains weak.
  • Cardinal Resources said a feasibility study into its Namdini gold project in Ghana demonstrated that it was a tier-one asset with a 5.1-million-ounce reserve and proposed 15-year mine life producing around 400,000oz at an all-in cost of $US585/oz. On the market, Cardinal rose by 2c to 38c.
  • Chesser Resources traded up to a 12-month share-price high of 9c on Wednesday after releasing a positive September quarter report and fresh assays from its Diamba Sud gold project in Senegal with a best hit of 21 metres at 6.62g/t, and
  • Sultan Resources slipped 0.3c lower to 6.4c despite interest growing in its Lake Grace gold project in WA’s wheatbelt region thanks to it showing similar characteristics to the Tampia project which was the reason Regis Resources acquired Explaurum earlier this year.

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