By Brian Robins
The surprise easing of nickel export bans in Indonesia as the Philippines has been ramping up its efforts to force some producers to shut down has muddied the water for the near-term outlook for the metal.
Even so, local explorer Axiom Mining is advancing plans to launch production in the Solomon Islands, and the strategic nature of its resource may give it a leg up.
Axiom Mining is planning a nickel mine in the Solomon Islands, which has the support of local villagers.Credit: Penny Stephens
Optimism for the outlook for nickel took a knock last week when the Indonesian government decided to allow the restart of exports of some low-grade nickel, reversing a ban in place since 2014, although those fears have eased as it emerged the move was largely aimed at helping the part-state owned PT Aneka to export small volumes of low-grade ore.
Perhaps of greater importance, the Philippine government last week cancelled environmental permits for a $US1.5 billion export nickel project as it finalises an environmental audit on as many as 41 mines, including a number of nickel exporters, with these results to be released at the end of this month. That audit has caught up locally listed OceanaGold which produces gold and copper at the Dipidio mine.
The prolonged downturn in the price of nickel snared Clive Palmer's refinery at Townsville, which was importing ore mostly from New Caledonia for processing.
Even with the large level of nickel stockpiles globally – much of which is believed to be tied up in complex financing transactions – Axiom is undaunted. It has a contract in hand to sell 0.5 million tonnes of ore via Guvnor, an independent trader, which is providing $5 million of working capital plus $10 million of debt financing. It has agreed to prepay for ore received, while Axiom receives the market price for its output.
"Nickel is the most cyclical metal on the London Metals Exchange," Axiom's Ryan Mount said. "When prices move, buyers will pay a premium for product. With billion-dollar processing plants to feed in Europe and Asia, to shut them down costs an awful lot of money, so companies will pay a premium to secure supply.
"We see ourselves as the last undeveloped world-class deposit in this region. One might think that since we've gone through one of the biggest lows in nickel in recent history that a spike is coming soon. All the macroeconomic elements suggest that this will be the case."
The company expects to have its mining licence in hand within the next two months, with the first ore to be shipped by year end.
"Nickel laterite mines are closely comparable to the direct shipping of bauxite," Beaufort Securities said in a recent note to clients. "Other comparable operations would be open-cast thermal coal, sold at the mine gate, and some aggregates businesses.
"The key similarities are near-surface mineralisation, minimal or no processing and potential for high margins. We expect Axiom to achieve a circa 40 per cent operating margin at spot prices."
The broker said Axiom will be a 2.2- million-tonne nickel laterite producer by the second half of 2019, and at ruling nickel laterite prices this should generate annual revenues of $150 million and EBITDA of $50 million adjusted for 20 per cent local ownership.
Production in the first full year of operation is expected to run at around one million tonnes.
Axiom has been involved in a lengthy court case with Sumitomo Metal Mining that ran for several years over the rights to the deposits in the Solomons, which, after an appeal, was settled in Axiom's favour.