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As a general rule, the most successful man in life is the man who has the
best information.
London Metal
Exchange (LME) nickel inventory levels are down 20% from their peak in
February and the latest International Stainless Steel Forum (ISSF) production
data suggests that the nickel market will remain in deficit for 2010 and
2011.
Barclays
Capital is forecasting nickel spot price increases of 30% over the next 24
months - this is supported both by China's furious pace of industrialisation
and weakness on the supply side due to labour disputes.
That forecast
rebound in Nickel prices by Barclays is already happening. Spot prices have
surged 10% in the last week to the current price of $9.15\lb.
Rio Tinto is alert
to the impending supply/demand imbalance. On June 16th they announced a $469
million investment in their Kennecott Eagle mine.
Russian
export data predicts a 55,000 tonne nickel deficit in the Russian market for
2010. Demand is growing in step with domestic stainless steel output.
Mincor
Resources (MCR-AX) announced last week that it is reactivating its mothballed
Australian mine. Mincor is targeting an annual production rate of 5,000
tonnes of nickel concentrate from this restart to meet the increased demand
from global stainless steel makers.
Nickel is a
critical ingredient in the production of stainless steel and industrial
alloys - the demand for nickel rises directly in step with the growth of
emerging economies.
Unlike gold
there is no "emotional" component to the value of nickel. It isn't
hoarded in safes, given as wedding presents, or dangled around women's necks.
Instead you find it in buildings, cars, trains and bridges.
China is the
leading consumer of nickel and is competing for supplies with recovering US
industrial demand, as well as India, Russia and Brazil.
When you
compare the performance of the Dow Jones-UBS Nickel Total Return Sub-Index
(JJN) to that of the Dow Jones-UBS Aluminum Total Return Sub-Index ETN (JJU)
- over the last 12-months - you can see how well nickel has done.
Both of these
indexes are composed of futures contracts traded on the London Metal
Exchange. Although both metals are tied to infrastructure growth aluminum has
a softer market with more competing products, like glass and plastic. In the
last 12 months nickel investors have dramatically out-performed aluminum
buyers.
The largest
nickel producing companies, Norilsk, Vale and Xstrata don't actually provide
a lot of leverage to nickel as they are diversified miners - meaning they
also produce iron, manganese, bauxite, aluminum, copper, coal, cobalt,
potash, platinum-group metals, gold and silver.
Pure nickel
exploration plays aren't common but there are a few nickel juniors in Canada.
One of the most active is Knight Resources (KNP-TSXv).
Knight holds
a 45% interest in a joint venture with Anglo American at the West Raglan
nickel project in northern Québec, Canada where one of the most
profitable nickel mines in the world is located - and a second one is about
to be built.
Xstrata's
Raglan nickel mine is located 90 kilometers east of Knight's West Raglan
Project. Resources, reserves and mined ore to date at Xstrata's mine total 35
million tonnes averaging 2.9% nickel and 0.8% copper with significant
platinum group elements.
Goldbrook
Ventures and Jien Canada Mining, a Chinese company, bought out Canadian
Royalties, in late 2009, for their nickel deposit just south-east of West
Raglan. Goldbrook also has a very active exploration program in this new
nickel hotbed of northern Quebec.
KNP has
identified several high grade nickel zones that look very similar to
Xstrata's. The short drilling season (June to September) has pushed the stock
down to eight cents. The last drill hole returned values of 28.28
meters of 3.21% nickel and 1.3% copper (in case you were wondering the total
gross metal value per tonne in that rock would equal US$715.53 at today's
spot prices for nickel and copper). Knight has just completed a financing and
are about to begin drilling.
Timing, as
always in this business, is everything. All the macro fundamentals (surging
demand, limited supply, declining inventories, rising spot prices, little new
investment) point to nickel as a solid investment for 2010.
The leverage
to rising nickel prices should be in the juniors. A nickel junior or two
should be on every investors radar screen.
Is one on
yours?
Richard Mills
Aheadoftheherd.com
Richard is host of www.aheadoftheherd.com
and invests in the junior resource sector. His articles have been published
on over 60 websites including - Wall Street Journal, 24hGold, Kitco,
USAToday, Safehaven, SeekingAlpha, The Gold/Energy Reports, Gold-Eagle and
Financial Sense.
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