Canadian Mining Review

Can Nickel Mining be Sustainable in Canada?

For Canada to create a sustainable nickel industry a massive, long-term grassroots exploration program is needed

By Patrick Whiteway

When Inco Ltd. went looking for nickel deposits beyond the Sudbury Basin in the 1940's, the company financed an intensive, regional-scale exploration program in northern Manitoba. Over a 10-year period and an expenditure of some $31 million (in 1956 dollars), two small deposits were outlined at Moak Lake and at the near-by Mystery deposit. But then, in 1956 the much larger, higher-grade Thompson deposit was discovered and within five years it was producing nickel from an orebody that would feed a concentrator, smelter and refinery for the next 50 years. 

Today, Vale SA the owners of the Thompson nickel operation plans to shut the nickel smelter down, claiming it cannot afford to make the necessary investment to reduce sulphur dioxide emissions. That would be a sad end to an impressive nickel mine development story, or it could be the beginning of an exiting new story.

   

The type of large-scale, long-term, well-financed exploration effort designed to find high-grade, low-cost nickel sulphide deposits in the Precambrian Shield that Inco launched in the 1940s just doesn't happen today. That's partly because investors are too short-sighted. Who can wait 10 years for an investment in exploration today to pay off?

Canada has huge areas of prospective geology; it has the geological expertise and the advanced exploration technology to undertake such a program but there is a lack of leadership to launch such a venture.

Diamond drilling in Thompson, Man. 1956

Major nickel producers are simply not willing to invest in a 10-year effort to locate new greenfields deposits. Such an effort could, however, be led by a consorita of young, innovative junior exploration companies working together toward a common goal. They have a great story to tell potential investors who have a long-term perspective. Here's how the story line could go:

• Nickel sulphides have a much lower ecological footprint than the energy-hungry, water-gulping, land-hungry laterite producers in Indonesia, New Caledonia, Madagasgar and Australia.
• Canada has a surplus of low-carbon-emitting hydro electric power and can therefore produce the lowest carbon-emittting nickel in the world provided significant nickel sulphide deposits can be located for long-term reserves to feed a smelter.

These two advantages alone would make sulphide nickel mining in Canada lower cost than any laterite nickel operation in the world, especially when some form of carbon tax or global carbon emissions trading system becomes reality worldwide over the next decade or so.

Furthermore, Canada could encourage producers of iron, chromite and molybdenum, and downstream stainless steel and nickel alloy producers (that use these metals)to set up their facilities in Canada to add value to the nickel produced here before it is exported. In fact, in the long term, industries that use nickel-containing materials could also set up shop here.

This is a compelling commentary for young investors with long-term vision.

Who, then, are the most likely candidates to undertake such a venture? Junior companies with Canadian nickel sulphide properties include:

In Ontario

IN MARCH, 2011, NORONT INITIATED the environmental permitting process for an underground nickel mine on its Eagle's Nest property in the so-called 'Ring of Fire' area of northwestern Ontario. Smack in the middle of the boreal forest that environmental groups, including Ontario Nature, want to preserve as wilderness, the Eagle's Nest deposit hosts 21.5 million tonnes grading 1.39% nickel, 0.98% copper, 0.23 g gold per tonne, 0.996 g platinum per tonne, and 3.22 g paladium per tonne.

Noront's plans for development seeks to minimize disturbance of the boreal forest by constructing an underground concentrator, using paste backfilling (to utilize mill tailings to fill underground openings) and a 100-km slurry pipeline to transport concentrates to a dewatering plant in Webequie Junction.

In May, 2011, a major producer of stainless steel, China's Baosteel Resources, acquired a 9.9% stake in Noront, injecting $17.9 million into the company. The move will stimulate advance work on Noront's Blackbird chromite project as well as the Eagle's Nest project.

Cleveland, Ohio-based Cliffs Natural Resources, through a wholly-owned subsidiary Spider Resources, owns the pre-feasibility stage Black Thor chromite deposit in the same area of northwestern Ontario. The largest known chromite deposit in North America, it could become an important source of ferrochrome, a key component in the manufacture of stainless steel (which, with the addition of nickel, makes an even more corrosion-resistant grade of stainless steel known as austenitic stainless steel). 

Inferred resources in the Black Thor desposit stand at 70 million tonnes grading 31.9% chromium oxide.

In February 2011, Cliffs presented a very different development plan from that proposed by Noront. The Cliffs plan includes a very visible open pit mine (and associated waste rock dumps) with underground mining following10-15 years after the open pit; a large townsite; a concentrator on surface (and an associated mill tailings storage area) and a load-out facility at the mine site; a permanent, all-season road connecting the mine site to existing Ontario railways (probably an extention of highway 643 from Nakina); and a ferrochrome production facility that would use closed electric arc furnaces (requiring 300 MW) to manufacture the final product: ferrochrome.

The ferrochrome plant could be built in Sudbury, Thunder Bay, Greenstone or Timmins. Cliffs says the ferrochrome would be sold to steel makers in the U.S. and elsewhere, but I argue here that the Ontario and Canadian governments should create the business enviroment necessary for those manufacturers to set up shop in Ontario to take advantage of the low-carbon emissions sources of electricity available here.

In April 2011, junior exploration company Bold Ventures Inc raised $4.5 million to fund exploration work on it's holdings in Ontario's Ring of Fire. The majority of the funds will be spent on the diamond drilling of targets on the ROF project and on an additional airborne survey to identify more targets.

Mustang Minerals

First Nickel Inc (Lockerby)

URSA Major Minerals Inc. (Shakespeare)

In Manitoba

Crowflight Minerals (Bucko Lake)

Corazon Mining Ltd. (Lynn Lake)

Pacific Coast Nickel (Lynn Lake)

HTX Minerals Corp.

In Quebec

In the first quarter of 2011, Jilin Jien Nickel and Canadian Royalties were updating the feasibility study for the Nunavik nickel property in Ungava, Quebec . The new study will include drill results from the latest 2010 exploration program. The property is being developed for a Q2 2012 start-up. Personell accommodations and a fuel storage facility have been completed. The pouring of concrete foundations and the erection of structural steel work for the 4,500-tonnes-per-day concentrator was scheduled to commence in Q1 2011.

Copper One Inc. (Riviere Dore)

Royal Nickel Corp (Dumont)

On the government side, the provincial governments of Ontario and of Newfoundland and Labrador are the leaders at the present time, though Manitoba could pick up the slack.

Is a Profitable Nickel Laterite (HPAL) Mine a 'Black Swan'?

Thoughts on mining nickel laterites inspired by two recent books: 'Linkages of Sustainability' and 'The Black Swan.' 

By Patrick Whiteway

It's October 2008 and I'm relaxing in a second-row seat of an air conditioned tour bus. It's crossing the Swan River in beautiful downtown Perth, Australia, when the driver suggests to passangers that the river should be called the Black Swan River. That's because 300 years ago, he explains, European explorers first visited this part of Western Australia and saw black swans for the very first time. Up until then, the only swans they had seen were white ones. Seeing black swans on this wide, lazy river revolutionized their thinking.

Black Swan best seller

 

Reading Nassim Nicholas Taleb's best-selling book "The Black Swan," could revolutionize your thinking. This book is all about highly improbable events. Taleb skillfully questions how we think about these events that turn out to have serious consequences. He calls them 'black swans' and as I'll show here, they have a significant role to play in the mining industry.

As a Canadian mine engineer who has visited and written reports on many mines in Canada, I can tell you that improbable events, sometimes called simply luck, surprises, randomness or human error, have enormous consequences for the success or failure of many mines. The only successful, high pressure acid leach (or HPAL) nickel laterite operation in Australia is one of my favorite examples.

Before my visit to Western Australia, in October 2008, the only profitable nickel mines I had either worked in or visited were high-grade nickel sulphide mines. I had never seen a laterite nickel mine, let alone a successful one. So, to me, seeing a HPAL nickel laterite mine that operates at a profit was analagous to 18th century European explorers seeing black swans for the first time in this same part of the world.

I was very fortunate to be in this beautiful city - boarding a small chartered plane that flew its passengers some 700 km east to the Murrin Murrin mine.

Murrin Murrin is an open pit operation located in the hot, arid region of Western Australia, north of the historically famous mining town of Kalgoorie. Water is such a scarce resource here (the temperature was hovering around 40 degrees Celsius when I visited) it has to be pumped to the mine from many tens of kilometres away.

The mine is run by the publicly-listed company Minara Resources and 40%-owned by Glencore International, the largest metals trading company on the planet which, incidently, has designs to acquire even more nickel production capacity.

At the time of my visit, Murrin Murrin was operating at a head grade of 1.45% nickel and had a targeted production cost of US$4.50. That's the total cost to the company for every pound of nickel that goes out the back gate.

More recently, Minara reported a profit in the first six months of 2010 of US$39.3 million on the sale of 8,707 tonnes of nickel (and 605 tonnes of cobalt), which represents 60% of total production from Murrin Murrin. Profits to Dec. 31, 2010 have not been reported, but total production from the mine in 2010 (to Dec. 31) was 30,514 tonnes of nickel and 2,018 tonnes of cobalt. Production during the period was affected by a 3-week shutdown.

The Murrin Murrin mine has proven and probable reserves of 196 million tonnes grading 1.05% nickel and 0.078% cobalt. In addition, there are 268 million tonnes of measured, indicated and inferred resources, grading 1.01% nickel and 0.074% cobalt. That's enough material to keep the mine running for the next 50 years (at a rate of 40,000 tonnes per year).

Loading nickel ore from a stockpile at Murrin Murrin. This re-handling of ore allows operators to blend ore of different grades to precisely maintain consistent head grades in the HPAL processing plant. (Photo by P. Whiteway)

There are many reasons why Murrin Murrin can profitably recover nickel from low-grade, lateritic soil. Collecting $40 million in an arbitrated legal settlement from the engineering firm that built the processing plant helped to repay the capital cost of the operation, but I wouldn't go into that here.

Today, fantastic operating personell are the main reason this mine is profitable. A high nickel price, above US$12 a pound, is another. The 'black swan' that could change all that is a much lower nickel price. But before examining how that might be possible, lets look briefly at the operation itself.

The unique, technical reason for this operation's success is how nickel is extracted from the oxide minerals in the soil. The technique is called high pressure acid leaching (HPAL for short) and involves mixing crushed ore in sulphuric acid at high temperature and pressure inside of titanium-lined pressure vessels. The nickel is brought into solution and is then won by electrolysis.

There are other methods that have been used successfully to recover nickel from laterites. Pyrometalurgical techniques, for example, are used in Indonesia and the Dominican Republic. These operations produce ferro-nickel as a final product.

But it's here at Murrin Murrin over the past five years that operators have worked out the technical kinks in the hydrometallurgical HPAL process. This has make it possible for other mining companies to convince investors that HPAL can be profitably used to process low-grade laterites elsewhere in the world.

Over the next few years, some metals analysts are predicting that new laterite mines (so-called greenfields projects such as Vale SA's Goro project in New Caledonia, Sherritt Internaitonal's Ambatovy project in Madagascar and MCC Ramu Nico Ltd.'s Ramu project in Papua New Guinea, for example) will contribute 100,000 tonnes of 'new' nickel to world markets this year (2011). The US$4-billion Ambatovy project will produce it's first nickel metal in July/August at the earliest, provided all the moving parts of the project work according to plan.

Success didn't come easy for Murrin Murrin. That story began with Andrew Forrest a visionary Australian who thrives on profiting from highly improbable events, or 'black swans'. He convinced Anaconda bond holders in the United States to put up $420 million to build the HPAL plant at Murrin Murrin -- an amount that turned out to be insufficient.

Flying from Perth to Murrin Murrin, it's easier to envision, than looking at textbook diagrams, how laterites are formed. In the world's tropical climates near the equator and here in the arid region of Western Australia, the Precambrian bedrock has been weathered over the eons to create a 20-metre-thick layer of soil. (In Canada, that layer of soil would have, of course, been pushed south by glaciation 12,000 years ago.)

Our flight path took us over the lush green farmlands near Perth and then, as we progressed further inland to the east, the vegetation began to thin out until there was very little in the way of greenery left, just dry scrubland fit only for kangaroos.

By the time one arrives at the minesite, you can imagine how the landscape below has been cyclically flooded by heavy rains in the winter and then baked in the relentless summer sun in a never-ending cycle over geological time. The subsequent raising and lowering of the water table in annual cycles over hundreds of thousands of years has transformed the Precambrian sulphide mineralization below into the friable soils that are modern nickel-containing laterite deposits.

Today, water is a scarce resource, as is energy to run a nickel recovery plant.

Why are so many low-grade nickel laterite deposits being developed today? Population growth and demand for nickel-containing stainless steel in the world's developing countries is the main answer.

As GDP per capita increases in China (from US$1000 in 2000 to US$7000 in 2009), so too has stainless steel use per capita (1 kg in 2000 to 5 kg per year in 2009).

At this pace, by 2020, it is projected that GDP per capita in China could be close to US$10,000 and stainless steel use could be close to 15 kg per capita, on par with that in Japan, South Korea and Taiwan.

Of the 24-million-tonne global demand for stainless steel in 2009, China accounted for nearly 40%. The growth in demand for stainless steel in China has increased at a rate of 21% per annum in the nine-year period from 2000 to 2009.

The amount of 'new' nickel used in China to make stainless steel has increased at a compound annual growth rate of 30% from 2003 to 2010. Meanwhile, in the rest of the world, primary nickel use has decreased at a rate of 3.4% to 4.3% in the same time period.

The ability of new nickel laterite operations to pay back the billions of dollars that were invested in them is questionable, however. That's because they are exposed to 'black swans' -- highly improbable events that have massive consequenses. The most important of these for laterite mines is a significantly lower nickel price.

Another  'black swan' relates to production costs. When, as is now happening in the U.S., developed nations legislate some form of cabon tax or cap-and-trade system to reduce greenhouse gas emissions, then the mining of nickel laterites could unprofitable very quickly.

For stainless steel producers, one way to reduce carbon dioxide emissions is to use more scrap stainless steel and less virgin or primary, refined nickel. Using primary sources to make one tonne of grade 304 austenitic stainless steel (which contains 10% nickel), 2.30 kg of carbon dioxide equivalent is emitted into the atmosphere. However, if scrap is used, the amount of carbon dioxide equivalent emitted drops 74% to just 0.6 kg.

In the U.S., the percentage of scrap metal in a tonne of stainless steel is about 73% whereas in China, the corresponding percentage is just 27%. That's because there is less scrap available in China (a developing country) than in the U.S.

Unfortunately for the world's climate, the area of the world where the most stainless steel is produced today (China) has the lowest amount of scrap available and is very dependent on coal-fired electricity. That means China needs more primary nickel to produce a tonne of stainless steel and emits more carbon dioxide per tonne of stainless steel it produces as a result compared with producers in the U.S. or Europe.

A third 'black swan' that could impact HPAL operations is the rising cost of fossil fuels.

Unlike the book "The Black Swan", the book "Linkages of Sustainability" is not likely to make it to The New York Times best sellers list. That's because it's far too dry and boring. The book was edited by Thomas Graedel and Ester van der Voet.  I mention it here because it presents, for those who are willing to take the time to wade through it,  the state-of-the-art thinking of academics about how the Earth's resources (land, water, energy, etc.) are linked and how they constrain sustainable economic development. To me, this book does an excellent job of suggesting that the linkages between resources could create 'black swans' for the nickel industry in the very near future.

"Linkages of Sustainability" edited by Thomas E. Graedel and Ester van der Voet

One contributor to the book is an Australian researcher at CSIRO, Thomas Norgate. He does a masterful job in the book explaining how orebodies being mined today are lower in grade than in the past. This means that more energy is required to liberate the valuable minerals from the waste rock and in so doing, more tailings are generated that need to be empounded. These issues of water and energy availability raise important questions about the sustainability of nickel laterite mining.

Another Australian academic, Dr. Gavin Mudd has attempted to analyse the environmental 'footprint' of nickel operations. As the proportion of nickel derived from laterites vs sulphides continues to increase, so too, says Mudd, will the environmental costs of acquiring 'new' nickel. This throws into question the environmental sustainability of a critical modern metal.

Using data from the public sustainability reports of laterite operators, Dr. Mudd has looked at the direct and indirect energy inputs, water inputs and emissions outputs (especially greenhouse gases such as carbon dioxide) and compared them to sulphide operations.

Dr. Mudd discovered that nickel-producing companies fail to report key data and not all companies follow the same reporting protocols even though a global standard exists (called the Global Reporting Initiative). This made it impossible for him to compare water resource inputs between operations.

That quibble aside, Dr. Mudd found that "With respect to energy, it is clear that laterite projects require a higher intensity to produce nickel than their sulfide counterparts."

There is an even more clear distinction between laterite and sulphide operations when it comes to carbon emissions. All sulphide operations release less than 10 tonnes of carbon dioxide equivalent per tonne of nickel produced, Dr. Mudd found, whereas laterite operations range from 24 to 46 tonnes per tonne.

Electrical energy used at Murrin Murrin is derived mostly from gas-fired generators. This means its unit greenhouse gas emissions are about 20 tonnes of carbon dioxide per tonne of nickel produced. Clearly, sulphide producers are more competitive when it comes to carbon emissions. Sulphide producers in Canada, for example, have a much smaller carbon footprint because the energy used to process sulphide ores in Canada is generated largely by low carbon-emitting hydro electric power plants.

The Big Eddy hydro power plant on the Spanish River near Sudbury, Ontario generates no-carbon-emitting electric power for the sulphide nickel operations of Vale SA.

Given the demands on energy and water resources, is it smart to be mining low-grade dirt (laterites) for its nickel content? Personally, I don't think so.

That being said, are nickel laterite miners pushing the technological boundaries of hydrometallurgy and in so doing, are nickel companies pushing the boundaries of sustainability while risking the health of the natural environment unnecessarily?

On the demand side of the equation: Is China heading towards the same 'culture of excess' as Western society? Is it necessary to use nickel-containing grades of stainless steel in applications where non-nickel-containing grades would suffice?

These are ethical questions that cannot be answered easily, but need to be asked none-the-less.

If you would like to comment on the above, please click on "Comments" below.

REFERENCES

The Black Swan, by Nassim Nicholas Taleb, 2010.

Linkages of Stainability, Edited by Thomas E. Graedel and Ester van der Voet, MIT Press, 2010.

Mudd, G M, 2009, Nickel Sulfide Versus Laterite : The Hard Sustainability Challenge Remains. Proc. "48th Annual Conference of Metallurgists - Pyrometallurgy of Nickel and Cobalt 2009", Canadian Metallurgical Society, Sudbury, Ontario, Canada, August 2009, pp 23-32.

http://civil.eng.monash.edu.au/about/staff/muddpersonal/2009-CMS-01-Nickel-Sulf-v-Lat.pdf

Next reference

Nickel: 2010 Year in Review

What were the most significant events to impact the nickel industry in 2010?

By Patrick Whiteway

No doubt nickel producers are breathing a sigh of relief today because the price of nickel ended the year above US$11 a pound. That's good news for the new, high-cost producers coming on stream and for existing producers in strike-bound Ontario, Canada that recently came back online.

What events in 2010 contributed to this happy state of affairs?

Following, are my nominations for the ten most important events that kept demand for nickel rolling along and what managed to limit the supply of nickel, thus keeping prices relatively high, so that most producers could have a good chance of making a profit.

1. A year-long strike at Vale SA's nickel operations in Sudbury finally came to an end in July thanks to intervention by the Ontario provincial government.

2. The tug-of-war between two Russian oligarchs for control of Norilsk Nickel continued throughout the year, stifling the world's largest nickel producer from concentrating on productivity and environmental improvements to enhance shareholder value. http://bit.ly/dIBz0d

Vale SA's Goro Nickel Laterite Project in New Caledonia

3. Two major high pressure acid leach (HPAL) nickel laterite operations inched toward full production under the watchful eye of nickel analysts around the world, some of whom doubt these projects can make a buck.

4. Stainless steel production rebounded from the global financial crisis and nickel continued to find new markets in de-carbonizing the global economy through solar energy plants, wind farms, hydro power plants, biomass plants, fuel cell power plants, waste heat power generating plants and carbon sequestering applications.

5. The European Union Court of Justice announced it will decide (probably in 2011) if the recent classification of nickel compounds as carcinogens, mutagens and reproductive toxicants is valid. http://bit.ly/aI8pFW

6. Chinese companies made significant investments in junior nickel exploration and producing companies in Canada. Junior nickel exploration companies increased their spending on grassroots projects, advancing projects across the country.

7. Cliffs Natural Resources gained control of the chromite production potential in Ontario's Ring of Fire, leaving Noront Resources holding the potential for nickel production in this greenfields project that is not without controversy. http://bit.ly/bKH1as

8. Glencore International Group continued to seek control of more nickel production capacity worldwide. http://bit.ly/9socXZ

9. Nickel health classifications in Europe continued to give nickel platers the chills over cancer risks. This chill had a cooling effect on other, more important markets as well. http://bit.ly/9vBZtu

10. Rio Tinto joined the long list of new nickel production capacity by announcing plans to develop the Eagle mine in Michigan State by 2013. http://www.eagle-project.com/

If you would like to comment on the above, or if you would like to add something to this list, please click on "Comments" below.

 

 

Back To Work

As nickel miners go back to work in Sudbury, Ont., there's a remote chance that the cultural abyss between the old Inco Ltd. and the new Vale S.A. will one day be bridged.

By Patrick Whiteway

About 3,000 unionized workers at Vale S.A.'s nickel operations are back to work this week in Sudbury, Ontario after a long and bitter strike that lasted more than a year.

Besides helping to keep nickel prices high during the recession (by reducing supply), the strike exposed the huge abyss that exists between the old 'motherly' corporate culture of the Inco Ltd. and the modern Brazilian corporate culture of the new owners, Vale S.A.

That abyss was best illustrated during the strike in an article by Linda Diabel that was published in Toronto Star on June 6, 2010.

In it, Diabel artfully describes the strike-breaking tactics Vale used to try to change the culture from one of sacrifice and entitlement to one of productivity improvement.

If you worked for Inco in Sudbury prior to the Vale takeover in 2006, the following short story might remind you of what it was like to work there. I wrote it in the early 1980s while employed as a young mine planning engineer at Copper Cliff South Mine, just west of the Copper Cliff smelter. The story was published in the "Odds 'n' Sods" column of the weekly newspaper The Northern Miner. I invite you to comment on it below and to submit your own stories about what it was like to work for the 'old' Inco.

Copper Cliff South Mine on the South Rim of the Sudbury Basin, Ontario

"As young graduate mine engineers fresh out of university and employed at one of Canada's largest nickel mines, my friends and I naturally looked to the senior staff members for guidance and example, because we eagerly aspired to attain their positions in the company.

"Very often, as can be expected in a large company I suppose, the senior engineers were surrounded by an atmosphere of confidence and spoke in esoteric, technical jargon bordering on arrogance. We interpreted this as a consequence of working for a corporation which prides itself on building the biggest, the tallest, the deepest and the most modern nickel mining facilities in the world.

"So it came as some surprise to us to find that our mine engineer, the man above our immediate supervisor in the organizational chart, appeared to be somewhat of an absent-minded technical bore with a flair for missing the obvious. The man we compared him to was the Colonel Henry Blake character in the old M*A*S*H series on TV.

Colonel Henry Blake, M*A*S*H

"On numerous occasions he portrayed himself (intentionally or not) as a bumbling idiot, which of course we knew he was not, but the constant recurrence of this thought, brought on by his fumbling while under the watchful eye of a couple of young engineers, never failed to amuse us.

"Some of the things we noticed were purely physical things like stumbling on steps, attempting to write with the wrong end of a pencil, or always being the one in winter to get his car stuck in the parking lot. The others we labelled mental errors like forgetting to take a mining lamp underground. And like Col. Blake in the TV show, he was always the last person to find out what was going on around him.

"When technical and business people visited our mine, our Col. Blake would escort the visitor(s) around the engineering office, desk by desk, to chat with the engineers and surveyors and to explain the workings of the mine and the plans we had for the immediate and long-term future.

"Without fail he would give the visitor outdated information and would ask the engineers for plans which, as it turned out, had been scrapped because of some recent development or change in thinking brought on by new information from the field, such as recent diamond drill hole results or the movement of a mining crew and equipment to a higher priority work area of the mine.

"It was not clear to us whether or not he did this intentinally in order to get us to explain our work, but in a way, mine tours appeared to be as educational to our mine engineer as they were to the visitors. In fact, we were certain this was the only way that he got information about the operation of the mine. As one can imagine, this gave us a feeling of being on top of things; surprising even our immediate supervisor and giving us a sense of pride, confidence and control; which may have been the intent of our mine engineer all along.

One of the most productive mines in the Ontario Division in the 1980s

"This sense of control became so complete, in fact, that we soon began to exercise the authoritative power that was usually reserved for the mine engineer alone. Besides just motivating, guiding and supervising our design work, the mine engineer's duties also included giving final endorsement to our design plans; everything from day-to-day operational plans to long-range mine development plans.

"This would involve sitting down with the mine engineer to explain the proposed design, answering his questions and then getting his authorization, in the form of his signature on the engineering drawings, to proceed with the design. When it came to the day-to-day operations however, we were very often pressed for time in order to catch the men at cage time before they went underground on the afternoon shift.

"So things such as purchase orders, work orders and In-the-Hole drill layouts were quickly whisked off to the respective crews with the mine engineer's initials miraculously in place even though he had not seen the documents. One can imagine the conversations that followed in the cage when the mine engineer was going underground for one reason or another and would invariably ask the men what they were working on that shift.

"It was in this way therefore, that our mine seemed to operate smoothly; the miners getting fast, efficient service from the engineering office and we in turn, getting fast, efficient advances underground. Much to the delight of our Col. Blake, this made us one of the safest, lowest cost producers in our division.

"In hindsight, I suppose that it was not just by chance that management had chosen our mine to train its newly hired graduate engineers. In the course of our stay there before being transferred to other mines in the division we not only learned the essentials of engineering design, we also learned some valuable management skills including taking responsibility and working effectively with people. This would not have been possible without the supervision of our Col. Henry Blake whom we are certain would never have allowed our miners to be exposed to any unsafe condition underground. And so it was with us too."

To submit a comment on the above, click on "Comments" below.

Questions for Royal Nickel

Three former executives of Inco Ltd., now on the board of Royal Nickel Corporation, have a duty to provide potential investors with a thorough analysis of the risks of investing in a high-cost nickel producer

By Patrick Whiteway

Royal Nickel Corp. is seeking $100 million in public financing at a time when clouds of uncertainty hover over the nickel market - clouds that will break only for the low-cost producers of the Devil's metal.

A preliminary analysis  of the prospects for profitability at Royal Nickel's Dumont nickel property in northern Quebec, concludes that the proposed $1.2-billion project will work out only if the price of nickel stays at US$8.00 a pound or above for the foreseeable future (for a 21-year operating life).

Like all speculation in commodities, the future price of nickel is something that is impossible to foretell. But that doesn't stop so-called "experts" from making predictions.

A recent survey compiled by Reuters of 2010 nickel price predictions bodes well for the Dumont project. It reveals that 24 of 48 market analysts surveyed worldwide foresee the price of nickel averaging US$8.25 per pound or above this year.

Overall, their predictions range from a low of US$6.69 per pound to a high of US$9.98. All, no doubt, cite double digit economic growth rates in China as a driver. Not one of the analysts predicted that nickel will dip below the average 2009 price of US$6.67.

I wonder what the prediction record is for these forecasting "experts". How many of them predicted that the average price in 2009 would be $6.67 for example?

Survey results of 2010 and 2011 nickel price predictions as compiled by Reuters

I have not read any of those reports, but I doubt that they include an in-depth discussion of what could cause the price of nickel to fall.

A lower nickel price should not be an unexpected event. A lower price is within the tunnel of possibilities. The following chart shows historical LME nickel prices from 1982 to 2009. Rarely, has the price been above $6 a pound.

Historical nickel prices and mine production costs (1982-2009) as compiled by Brook Hunt

So, a nickel price lower than $8 is very possible, especially considering the recent reclassification of nickel and nickel compounds by the European Union (and globally via the United Nations' Globally Harmonized System of Classification and Labelling of Chemicals) which followed a 14-year risk assessment process in Europe.

This regulatory development ,which came to light in 2009, could have a significant impact on long-term nickel demand. Demand could fall, for example, if a stigma were to be attached to nickel as a result of the classifications and if three lawsuits currently before the Court of Justice of the European Union drag on (and if they fail to overturn the classifications).

That's a lot of ifs, but as much as two-thirds of nickel demand could be negatively affected. Therefore the profitability of new, high-cost mines such as the Dumont project (not to mention the much larger and costly nickel laterite mines that are coming into production in the next few years) could be impacted.

As former executives of Inco Ltd. during a time when the European nickel risk assessment was being conducted by the Danish Environmental Protection Agency, Scott Hand, Peter Jones and Peter Goudie, are (or should be) well aware of the EU reclassification issue. As such, they have a special duty to fully brief investors on three costly lawsuits presently winding their way through the Court of Justice of the European Union and to explain how the outcome of these lawsuits could affect the health classifications of nickel.

The outcomes of these lawsuits are not expected until 2011 or 2012, which gives architects and the designers of white goods and other consumer products plenty of time to reconsider the use of nickel-containing materials in the consumer products and buildings they design. They may very well decide NOT to use materials that  contain compounds that are considered by the EU to be carcinogens, mutagens and reproductive toxicants (CMRs). They may decide to substitute nickel-containing austenitic stainless steel with nickel-free ferritic stainless steel.

If the analysis of the 48 agust investment firms quoted in the Reuter survey mentioned above had factored in the reclassification of nickel, then their forecasts for nickel prices might have been significantly lower. That's because supply will significantly outstrip demand should demand decline due to a perception on the part of consumers that nickel-containing materials are to be avoided.

On the supply side of the nickel market, the Metals Economics Group of Halifax, N.S. recently published the following chart:

Potential nickel production from discoveries relative to global nickel production 1998-2009

It shows the relative positions of low-cost sulphide producers and generally higher-cost laterite producers.

If nickel demand were to fall significantly, the annual production of nickel from low-cost nickel sulphide operations worldwide is sufficient to meet demand. High-cost operations would go bust. And there are plenty of high-cost producers around and more being contemplated. (See a report  prepared recently for the International Nickel Study Group  (INSG) on nickel heap leaching test sites worldwide.)

In light of the above, here are some questions investors should ask Royal Nickel as it seeks $100 million to develop the Dumont nickel property:

• Why hasn't the Dumont deposit been developed in the past? It's not a new discovery.
• Should you succeed in bringing Dumont into production, what are your plans for the operation should nickel prices dip below US$8.00?
• What possible future developments do you anticipate could impact costs at Dumont in the near future? Hydro power costs in Quebec; potential future carbon emissions taxes; or transportation costs relative to the price of oil; for example?

The world doesn't need more, low-grade, high-cost nickel producers. What is needed are more large tonnage, high-grade, low-cost nickel mines of the kind found at Voisey's Bay, Thompson and Sudbury. There are companies looking for these types of deposits in Canada and I hope to make them the subject of a future post on this website.

REFERENCES:

1. European Nickel Risk Assessment http://www.mst.dk/English/Chemicals/Substances_and_materials/Nickel/

2. Case "Nickel Institute v Commission" before the Court of Justice of the European Union  http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:161:0053:0054:EN:PDF

3. Case "Nickel Institute" before the Court of Justice of the European Union  http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:063:0038:0039:EN:PDF

4. Case "Norilsk Nickel Harjavalta Oy and Umicore v Commission Environment and Consumers" before the Court of Justice of the European Union  http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:063:0038:0039:EN:PDF

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Nickel Pig Iron: This Pig Wouldn't Fly For Long

By Patrick Whiteway

Canada's National Newspaper, The Globe and Mail, today published a feature story in its Report on Business section about nickel pig iron production in China.

Written by Andy Hoffman, it carries the provocative headline "A breakthrough in China, another blow for Sudbury." Like many newspaper headlines, this headline is designed to attract attention but is patently untrue.

I also believe that the premise of the story: that nickel pig iron (NPI) production in China is a threat to nickel sulphide production in Canada, is untrue for at least two reasons:

1. NPI production in China is the highest cost nickel in the world; and

2. NPI production in China is among the "dirtiest" nickel in terms of emissions profile (for more detail, see www.carbonemitters.org ).

Such production can thrive in the short term, but is unsustainable in the long run.

This pig wouldn't fly for long

When striking nickel workers in Sudbury, Ontario settle their 11-month strike against Vale S.A. and get back to work, the world will be awash in low-cost, low-carbon-emitting nickel. Prices should drop as a result. In fact, they could fall so far that NPI production in China would become uneconomic.

In a nutshell, NPI producers in China are opportunists.

Global nickel demand is presently at record highs and due to the strike in Subbury and at Voisey's Bay in Labrador, nickel supply cannot keep pace with this pent up demand. This dynamic supports today's price of US $8.84 per pound, a price that gives producers, such as the one profiled by Andy Hoffman in the Globe and Mail article, an opportunity to produce nickel pig iron at a profit.

China imported about 3 million tonnes of nickel laterite concentrates in the first quarter of 2010, mainly from the Philippines and Indonesia (but some from New Caledonia).

But it cannot last for long.

In the long term, only low-cost, low-carbon-emitting nickel producers, such as those in Sudbury, will survive.

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Mining Films Paint an Ugly Picture

To turn the industry's negative image around, the mining industry needs to invest millions in new films

By Patrick Whiteway

Canada's latest contribution to popular culture, Justin Bieber, is bathing in positive publicity. His Twitter page tells 2.8 million followers, largely pre-teen girls, seemingly everything about him. And a music video of his song Baby has been viewed 171 million times on You Tube (as of June 1, 2010).

Not so with the mining industry. Mining publicity in today's popular culture is exclusively negative, documenting the shenanigans that go on in the industry.

Two films about gold mining, for example, were screened recently in Toronto at the Canadian International Documentary Festival, more commonly known as the HotDocs Festival.

One was the world premiere of The Devil Operation directed and produced by Stephanie Boyd.

And the other was entitled They Come for the Gold, They Come for it All, directed by Pablo D'Alo Abba and Cristian Harbaruk.

On May 3rd I took in The Devil Operation.

Set in Peru at the Yanacocha gold mine, operated by Newmont Mining Corp., this film documents the surveillance, harassment, kidnapping and torture of ecoactivists and indigenous farmers (and the murder of one protester) by security guards reportedly hired by Newmont (see trailer below).

Following the screening, the hero of the story, a Catholic priest, Father Marco Arana, answered questions from the audience. He mediated talks between Newmont and the local farmers.

One of his many messages was that if investors want to make responsible investments in mining companies, then investors should demand to know the details about how their money is being spent. In this case, Newmont reportedly paid security forces who committed crimes against local farmers.

The Devil Operation made me think about the biggest scandal in Canadian mining history: the Bre-X Minerals Inc. fraud in Indonesia and whether or not that story has been satisfactorily portrayed in film.

It turns out that Bre-X was the subject of a short documentary film in 2003 called Fool's Gold which was broadcast as part of a series called Masterminds (see the You Tube version in three parts below). But no feature films have been made of that monumental gold salting fraud which cheated investors out of millions of dollars.

In mentioning Bre-X to my wife, she reminded me of a book called "The Silver Bears" by Paul E. Erdman. This piece of fiction, published in 1974, is about the intentional manipulation by the mafia of the silver market. This book is hilariously funny and very entertaining. It would make a great movie.

In fact, on the cover of the book are the words: "now a major motion picture."

Sure enough, in 1978, the book was made into a feature length film called simply "Silver Bears". It was directed by Ivan Passer and stared Michael Caine.

If this is the type of presentation that the general public uses to form an opinion about the mining industry, is it any wonder that the Canadian parliament is presently debating Bill C-300? That's  a private members bill that will add another series of regulatory hoops for Canadian companies to jump through when operating in countries other than Canada. It's being hotly contested by the industry because of the costs it would add to international mine developments.

I think that if the mining industry seriously wants to improve its public image and if it wants to continue to have a licence to operate in the developing world, it should embrace Bill C-300 and be more open and transparent about how it spends shareholders money.

The industry should dig into its deep pockets and finance documentary and feature length films that portray the great work that responsible mining companies are doing to earn the respect of the local people where they operate.

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Will Canadians Benefit from China's Investments in Canadian Nickel?

In the past year, China has invested hundreds of millions of dollars in Canadian nickel properties both producing and exploratory. Will these investments benefit Canadians?

In September, 2009, Ningbo Sunhu Chemical Products Co., China's largest nickel trading company paid $21.8 million for a 15.6% interest in Royal Nickel Corp.

Royal is a privately-held junior Canadian company that holds a 100% interest in the undeveloped Dumont nickel property located near the town of Amos in the prolific Val d'Or mining area of northwestern Quebec.

Three former Inco Ltd. executives (Scott Hand, Peter Goudie and Peter Jones) are the principal players in Royal Nickel, which intends to make an initial public offering of shares sometime this year.

The Dumont property hosts an indicated resource of 365 million tonnes, grading 0.32% nickel (or 1.2 million tonnes of nickel).

Plan view of Dumont Property showing proposed open pit outline (Royal Nickel Corp.)

That's a lot of nickel; enough to satisfy global demand for an entire year. But of course it will take a huge investment (about $1.2 billion) to build a producing mine and about 20 years to methodically mine the ore, concentrate it, smelt it and refine it into a pure, saleable product.

Two months later, in November, 2009, a controlling (77%) interest in Canadian Royalties, owner of the Nunavik nickel property was purchased by Jilin Jien Nickel, a Chinese company for $148.5 million. The Globe and Mail reported on this hostile takeover in August 2009 when the story first broke. Located not far south of the producing Reglan nickel mine in Ungava in Quebec's far north, Nunavik is another undeveloped nickel property with a measured and indicated resource of 5.2 million tonnes grading 0.93% nickel (or about 0.05 million tonnes of nickel).

One happy Canadian: Crowflight Minerals VP Exploration Greg Collins (foreground) with Chief Geologist Rick Sproule (background) (Photo by Patrick Whiteway)

More recently, Jinchaun Group, a major Chinese nickel company offered to buy, for $150 million, a significant interest in Crowflight Minerals Inc., the company that operates the Bucko nickel sulphide mine in the Thompson Nickel Belt of northern Manitoba.

Proven and probable reserves at Bucko are 3.7 million tonnes grading 1.45% nickel and indicated resources add another 2.8 million tonnes grading 1.53% nickel.

At a milling rate of 600 tonnes per day, this underground operation is producing nickel concentrates at a rate of about 127 tonnes of contained nickel per quarter.

Surprisingly, even though the Bucko mine is just 115 km south of the Thompson nickel smelter and refinery, concentrates from the Bucko mill are shipped 2,200 km eastward by rail to Sudbury for processing. Not the most efficient way to process nonrenewable resources.

So, why is China suddenly investing heavily in nickel properties in Canada? In the early stages of the global financial crisis, because stock prices had plumeted, these investments appeared to be purely opportunistic. But today with nickel trading at double the year-ago price, stocks have rebounded and Chinese companies continue to invest.

Is China interested purely in making a decent return on an investment or, is their interest really to export nickel concentrates to feed hungry smelters in China?

Jinchuan nickel mine, China (chchtogansu.blogspot.com)

Of the 38 operating nickel mines in China, the Jinchuan mine in Gansu Province is by far the largest, accounting for about half of that country's total nickel reserves and resources. But reserves are not being replentished at a sustainable rate.

In 2005, China had proven reserves and resources of 7.9 million tonnes of contained nickel, down from the 8.3 millon tonnes reported in 2001.

Back in Canada, recent Chinese investments in Syncrude, one of Alberta's oil sands producers, created and uproar over concerns that raw bitumen could be exported to China as a result. Ottawa responded quickly with reasurances that unprocessed bitumen would not be exported on the Conservative government's watch. There is no indication that the same policy would apply to nickel concentrates.

Will his stainless steel plant import Canadian nickel?

Do Chinese investors, then, want to export refined nickel to China to feed hungry stainless steel plants?

At 8.8 millon tonnes, China is a leader in stainless steel production, according to the International Stainless Steel Forum, accounting for 36% of total global output in 2009 of 24.6 million tonnes.

With demand for stainless steel growing in China, the country continues to add new capacity, investing millions in new production facilities, so the need for nickel continues to grow.

For China's investments in Canada's nickel to be truely benefitial to Canadians, China would have to invest also in the downstream processing of nickel to make stainless steel and nickel alloys here in Canada. This would add significantly to the efficiency and productivity of Canada's nonrewable resources, a much discussed issue at the federal level.

Importantly, from a climate change perspective, China would be wise to invest in downstream processing here because Canada has a wealth of low-carbon emitting sources of energy (hydro, nuclear and natural gas). Therefore stainless steel produced here would have a much smaller carbon footprint than any that can be produced in China where energy is generated largely by coal.

So. When will Canada's nickel producing provinces (Newfoundland and Labrador, Quebec, Ontario, Manitoba and Alberta) realize that they have a clearer competitive advantage and roll out the red carpet to actively welcome and encourage Chinese investment in stainless steel production capacity in Canada?

When that happens, Canadians will benefit more fully from the recent and future Chinese investments in Canadian nickel resources.

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Does Foreign Ownership of Mining Companies Benefit Canadians?

When it comes to the efficiency and productivity of Canada's nonrewable mineral resources, only one thing matters: are Canadians getting as much benefit as they can from their mineral resources when the companies that extract those resources are foreign owned?

Public discourse on the efficacy of foreign ownership in the Canadian mining industry is running rampant these days.

One popular mining blog recently talked about the issue of Canadian nickel miners in Sudbury striking against their off-shore employer Vale S.A. of Brazil.

The blog quoting an unnamed geologist as saying "the strikers are holding out, not for money, but in an attempt to preserve the Canadian way of mining to retain the benefits of a long and hard process leading to decent treatment as miners, and as Canadians."

The geologist was also quoted as saying that "the foreigners who came and bought up the Sudbury mines are seeking to impose Latin ways of treating miners on Canadian miners, and that it is just not decent to treat people as they do in Brazil."

Vale's Copper Cliff South mine and sulphide nickel smelter in Sudbury (Patrick Whiteway)

The blog goes on to speculate that to reduce costs, foreign-owned mining companies with mining operations in Canada will, in future, simply bring workers into Canada from their home countries. The implication here is that those workers would have much lower expectations in terms of wages and benefits than Canadians and therefore would be more likely to work for less. This might be true, but for how long?

On March 9th, the Globe and Mail newspaper published an opinion piece by columnist Jeffrey Simpson. In it, Mr. Simpson bemoans the fact that Canada's federal government allowed the takeover in 2005-06 of the country's two premier nickel mining companies (Inco and Falconbridge). He rightly points out that domestic ownership results in head office decisions being made in Canada and research and development dollars being spent here. In the case of Inco and Falconbridge, those benefits have been lost.

In response to that piece, another popular blog that specializes in income trusts suggested one financial reason why Vale appears to show little interest in settling the record-long strike in Sudbury. That blog suggests that Vale structured its takeover of Inco as a private income trust and has already recouped the initial investment it made in the Inco takeover. A public income trust (as opposed to a private one), which was contemplated by Inco prior to the takeover, according to this blogger, would have resulted in actions that would have been in the interest of Canadians and not just a Brazilian company as is now the case.

Vale's Goro nickel laterite mine in New Caledonia (Mining-Technology.com)

Personally, I don't think Vale is seriously interested in settling the Sudbury and Voisey's Bay strikes for another reason. Intentionally restricting nickel supply while demand recovers in China following the global financial crisis has had the effect of putting upward pressure on nickel prices. This is important to Vale because it makes the future profitability of the company's new US$3.2 billion Goro nickel latreite mine in New Caledonia and its Onca Puma mine (US$2.3 billion) in Brazil much more certain.

Also, I don't for a minute think that Vale could possibly get away with offering the same employment pay levels and benefits to Sudbury nickel miners as they do to their iron ore miners in Brazil. What they have done is ask for concessions; asking the union to give up benefits they've fought long and hard to achieve over the years. The union membership decided to strike in order to keep these benefits. That decision has put them out of work for almost a year because Vale is holding tough even though the price of nickel has doubled in the past 12 months (from US$6 to US$12 a pound). Truth is, nickel is a minor part (about 15% of 2008 revenues) of this huge US$38-billion-a-year mining company.

A feature story in the April 2010 issue of Report on Business magazine covered much the same ground as the blog mentioned above. This article was a major disappointment to me because after advertising it for a week, The Globe and Mail let their readers down by publishing a poorly researched, second-rate piece. Only the outstanding photos by Louis Palu saved it.

Readers of the mainstream media have much higher expectations for thoroughness and accuracy than the readers of blogs. Interviews with a few of the former Inco Ltd. executives (who worked with then Inco CEO Scott Hand prior to the takeover by Vale), for example, would have uncovered a far more interesting story. And interviews with people in the Ontario government , which is loosing a significant amount of revenue as a result of the strike, would have given the story much more depth.

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Virtuous Products, Produced in Virtuous Circles

‘Radical transparency’ is changing how buyers choose the things that they buy. In the next five to ten years, this trend could have a negative impact on the demand for nickel. Market share could be lost in the white goods sector of the economy and nickel producers could begin to use to their advantage the poor ecological, health and social performance of their competitors. Canadian nickel producers are well positioned to take advantage of these trends.

By Patrick Whiteway

Imagine this. An elderly colleague of mine, who happens to be a metallurgist, checks into a Toronto hospital for an operation that could extend his life. Months prior to checking in, he had complained to his doctor about irregularities in his heartbeat, a shortness of breath and the occasional pain in his chest. His doctor referred him to a heart specialist who, after all the necessary tests for stress and cholesterol levels recommended that he have a stent installed in his main artery.

(Boston Scientific)

Stents are ingenious tube-shaped devices made of metal wire mesh that are designed to prop open and prevent your arteries from collapsing, thus ensuring the free flow of blood. Millions of these have been inserted into people’s arteries since they were invented some 20 years ago. These days, stents are made of either nickel-titanium shape memory alloy, nickel-containing stainless steel or a cobalt-based alloy.

Being a metallurgist, our patient knows a thing or two about nickel and the rate at which nickel alloys corrode, especially in the highly saline environment that is the human body. He is also aware of the potential risks to his long-term health of nickel ions, released from a corroding stent, circulating throughout his body. So, naturally, our metallurgist asks the surgeon if he could have the stent that is made of a cobalt-based alloy.

As it turns out, due to a quirk of the Canadian medical system and the year that this event actually took place, the hospital in question used only one variety. So, in reality, there was no choice to be made.

But there are two interesting things about this story. The first is that my colleague didn’t want nickel ions released into his body and the other is that our patient knew the technical details and the risks to his health of a particular product and fully expected to have a choice. This heightened level of expectation is a direct result of today’s socially connected world; patients should be entitled to make a choice based on what they feel is best for them and their health.

A choice was not possible in this particular example, but in the not-too-distant future choices like this will become an essential part of our everyday lives. In 2009, Daniel Goleman, wrote a best-selling book entitled Ecological Intelligence. In it, he explains how the process by which we make purchasing decisions will have a significant impact on markets in the future. How this 'radical transparency' might affect the market for nickel in the next five to ten years is the subject of this post.

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