CVRD gives nod to nickel project

CVRD gives nod to nickel project

BRAZIL’S Companhia Vale do Rio Doce has signalled its confidence in the nickel market by granting final board approval for the $US3.2 billion Goro laterite project in New Caledonia, despite years of delays, cost blowouts and disputes with locals.

Goro has been one of the most-watched nickel developments in the world amid speculation CVRD could cancel it – and place further pressure on the already tight nickel market – after it reassessed the project that it gained through its purchase of Canada’s Inco last year.

The nickel price has reached record highs of more than $US50,000 a tonne this year amid increased demand for the stainless steel ingredient. But the cost of building large projects needed to make a dent in the global nickel supply has also increased.

“We need stronger commodity prices to provide companies with the confidence to go out and build these huge-scale projects,” Fat Prophets analyst Gavin Wendt said.

“We think the nickel market is really very strong,” CVRD chief executive Roger Agnelli told Brazilian media on Friday. “Customers have been asking for more product … so we’ve brought these demands home.”

BHP Billiton has already approved its $US2.2 billion Ravensthorpe project in Western Australia and rivals Rio Tinto and Xstrata are studying laterite developments despite steep capital cost increases, because higher-grade sulphide ores are scarce.

Inco had originally planned to start production at Goro in 2005 with a total budget of $US1.45 billion, less than half the final price tag. BHP’s Ravensthorpe project twice revised its budget due to higher prices for labour, materials and equipment.

“I think the jury’s well and truly out on whether these projects are going to make money,” Mr Wendt said. “That’s a concern.”

Earlier this month Citigroup noted Goro would clearly turn a profit at today’s record nickel prices but it might not provide the necessary internal rate of return based on long-term price forecasts.

CVRD expects Goro will produce its first nickel by the end of next year or early 2009, with production eventually ramping up to 60,000 tonnes a year.

Rio Tinto, which does not yet produce nickel, wants to develop a $US2 billion-plus laterite project in Indonesia. The Jakarta Post said Rio’s new chief executive Tom Albanese would visit Indonesia this week to review progress on negotiations over a contract of work. The Sulawesi project would produce about 46,000 tonnes of nickel a year at full capacity.

Xstrata gained control of the $US3 billion-plus Koniambo laterite project in New Caledonia through its purchase of Canada’s Falconbridge last year but is reviewing it due to a steep increase in capital costs. Xstrata said the project could start production by the end of 2010, ramping up to 60,000 tonnes a year by 2012.

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