In the wake of crumbling nickel prices and mine closures, development has been temporarily suspended at a string of nickel projects, among them, First Nickel’s (FNI-T, FNKLF-o) Lockerby mine and FNX Mining’s (FNX-T, FNXMF-o) Levack nickel contact deposits, both in Ontario’s Sudbury basin.
At presstime, nickel was trading at US$4.66 per lb. Prices for the metal have plunged by about 60% since the start of the year.
First Nickel announced in mid- October that it is suspending production at its 100%-owned Lockerby mine and has put it on care and maintenance due to low metal prices and the “challenging financial environment.”
The company said it had analyzed mining scenarios and near-term metal price projections, all of which ruled out keeping the mine open. Management describes Lockerby, southwest of the city of Sudbury, as the cornerstone of its Sudbury operations.
While First Nickel has tried to cut costs this year, current nickel prices are below Lockerby’s cash costs per lb. of payable nickel, according to William Anderson, the company’s president and chief executive.
“We believe this is the best option to conserve cash,” Anderson said in a statement. “The decision to put the mine on care and maintenance has not been taken lightly and the company recognizes the impact upon our employees, their families and the community. In the weeks ahead, we will continue to firm up our plans and pursue ways to bring the operation back online when conditions improve.”
Meanwhile FNX says it will make a decision at the end of the year whether to prolong the suspension, put the Levack nickel contact deposits on long-term care and maintenance, or reactivate commercial production from this part of the Levack complex.
That decision obviously will depend on the nickel price and final metal accountabilities.
Mining from the Levack nickel deposits will continue during the fourth quarter to produce about 35,000 tons of metallurgical test production, FNX says.
Those tons will be stockpiled until a critical volume is achieved and will then be shipped to the company’s processor for batch processing.
This batch test, along with other metallurgical test work, will help finalize metal accountabilities for the Levack nickel contact deposits.
The company says it doesn’t expect the suspension will cause any layoffs. Employees affected by the decision will be transferred to FNX’s McCreedy West mine, Rob’s deposit, Podolsky mine, or development work on the Levack footwall deposit.
The Levack nickel contact deposits do not contain any precious metals and the suspension from these deposits will not affect FNX’s precious metal production and its agreements with Gold Wheaton Gold Corp. (GLW-T, GLWGF-o),FNX maintains.
The Levack complex consists of the Levack nickel contact deposits, Rob’s transitional copper-nickel-precious metal deposit, the Levack footwall high-grade copper-nickel- precious metal deposit, McCreedy West nickel contact deposits and the McCreedy West PM copper-precious metals deposit.
The suspension — combined with operational changes during the third quarter — will lower production this year.
FNX expects to produce about 1.3 million tons of ore yielding payable metal of about 13.5 million lbs. of nickel, 38 million lbs. of copper and a total of 56,000 oz. of precious metals.
The tons and payable metal produced from the Levack metallurgical batch test and the bulk sample in the first quarter of 2008 from the Levack footwall deposit, were not included in the new forecast.
The company says it will now concentrate on its highest-margin and most profitable deposits and development programs at the Levack footwall deposit, Rob’s deposit and the Podolsky mine will continue to move forward.
At presstime, FNX traded at $6.60 per share. The company has a 52-week trading range of $5.02- 39.77 and 84.7 million shares outstanding.
First Nickel recently traded at about 5 per share, near the bottom of its 52-week trading range of 3.5- 96. The company has 155.6 million shares outstanding.