Plunging nickel prices have forced Belvedere Resources (BEL-V, BLVDF-o) to suspend operations at its Hitura nickel mine, in Finland.
Belvedere announced on Oct. 15 that it plans to temporarily suspend all mine development work there in order to cut operating costs.
Mine development work stopped on Nov. 2, but production will continue at normal production rates for another three to six months without the need for further development.
At presstime, nickel prices had fallen by 30% in 10 days. Nickel is down 60% since the beginning of the year. At presstime, the metal traded at about US$4.66 per lb., down from about US$9.50 per lb. in August and about US$24 per lb. last summer.
At US$4.90 per lb. nickel, about 40% of the world’s nickel producers are uneconomic, says David Pym, Belvedere’s chief executive.
“Stopping development work saves about one-third of our operating costs and come December, we can review the situation.”
Pym says the company can maintain a profitable mine down to about US$6 per lb. nickel, “but anything below that we have to make serious decisions about what we need to save and what we don’t need to save.”
The situation is dire for nickel refineries as well as producers. The actual cost to a refinery of producing a tonne of end-product nickel comes in at a minimum of US$16,000 and can run as high as US$21,000, Pym notes. “That’s the actual marginal cost of production, so we’re well below that at the moment.”
Pym notes that even before the latest 30% drop in nickel prices, the Russians had shut down some nickel refining capacity. And in August, Xstrata (XSRAF-O, XTA-l) said it was temporarily suspending operations at Falcondo, a nickel mining and processing operation with an annual capacity of 29,000 tonnes of nickel in ferronickel, in the Dominican Republic.
“You will see a lot more news of people falling out of the market fairly quickly if the price stays where it is,” he adds.
Pym attributes the drop in nickel prices to the panic that is gripping the equity markets. He also blames hedge funds, which were “in big” with commodities. The high-risk investment vehicles liquidated about US$50 billion in the month of September alone, Pym says.
Hedge funds have “usually gone long on commodity prices and short on financial stocks, so there is a lot of this chicanery going on in the market and it’s just carnage out there in commodity prices as well as in stocks,” he explains.
“Hedge funds have agreements with shareholders that if the value of their holdings reaches a certain point, they have to liquidate and all of these things have happened or they’re liquidating to meet margin calls in other areas.”
Belvedere’s suspension of development work at Hitura means that 36 of the company’s 110 permanent employees will be dismissed temporarily.
Management expects to meet operating targets during the fourth quarter, delivering a minimum of 16,000 tonnes of concentrate (containing 1,300 tonnes of nickel).
Concentrate deliveries include all production since July 1, 2008.
Final pricing is determined by the average monthly nickel price for two months after delivery.
“Due to the current volatility in nickel prices and large inventories dependent on December pricing, a number of options to further reduce operating costs are currently being considered by management,” he says.
If nickel prices drop even further, Pym does not rule out putting Hitura on care and maintenance.
“The main thing is not to keep it going and losing money on production,” he explains. “We’ve got another project due to come into production in the second half of next year and it’s a multi-element project, so it’s not the end of the world for us as a company. . . We’re in a much better position than a lot of other people. But everybody has to cut costs as much as possible and soldier on.”
Belvedere currently produces 2,500 tonnes annually of nickel in concentrate from its 100%-owned Hitura nickel mine in western Finland, about 475 km northwest of Helsinki.
Since the mine first went into production in 1970, it has churned about 100,000 tonnes of nickel metal in concentrate.
Hitura has proven and probable reserves of 2.35 million tonnes grading 0.62% nickel and 0.22% copper. Measured and indicated resources tally 1.37 million tonnes grading 0.64% nickel and 0.22% copper.
The stock recently traded at about 13 per share in a 12-month range of 11.5-$1.95 per share. Belvedere has 79.18 million shares outstanding.