Industry Trend Analysis - Mining - Weekly Projects Round-Up & Developments - MAR 2018
Canada: New Nickel Project To Boost Output - Canada's nickel production will return to modest growth in 2018, as a key project ramps up. We forecast the country's nickel production to edge higher, from 240kt in 2018 to 290kt by 2027, buoyed over the long term by a solid project pipeline. Namely, Royal Nickel Corp's (RNC) Dumont nickel-cobalt deposit will drive a return to growth, with production guidance of 33kt annually over the first few years and 54kt annually by 2021. RNC is progressing the project to make a decision to begin construction in 2019. In February, the firm announced that Cobalt 27 will acquire a 1.75% net smelter return on all future production of all metals from the Dumont project. Additional projects include Noront Resources' advanced-stage USD769mn Eagle's Nest nickel-copper-PMG deposit, First Point Minerals' USD2.1bn Decar project and Hard Creek Nickel's Turnagain project. Low-cost operations will be key to developing projects in a weak nickel price environment. Noront Resources expects the Eagle's Nest project to average cash costs of USD1.5/lb net of byproduct credits, making the operation among the lowest-cost nickel mines globally.
Global: Freeport-McMoRan Q2 2018 - Freeport will experience a solid financial recovery as copper prices improve and the firm remains focused on lowering costs and reducing debt. Nonetheless, ongoing negotiations with the Indonesian government over royalties and ownership of a key asset poses a downside risk to an otherwise positive outlook. In Q417, Freeport reported strong financial results, recording a 15.2% y-o-y increase in revenues to USD5.0bn and more than tripling net income to USD1.0bn. The firm cited productivity, cost and capital discipline, as well as higher copper prices for the improvement. For the year, Freeport saw a 10.6% y-o-y uptick in revenues to USD16.4bn and significantly increased EBITDA to USD5.3bn in 2017 compared to a USD182 loss the previous year. Freeport's total debt remains elevated at USD13.1bn as of December 2017, however has steadily declined over the past few years. Operationally, the firm recorded an 11.5% y-o-y decline in copper production to 1.7mnt, but increased gold production by 44.9% y-o-y to 1.6moz.
Africa: Upcoming Rand Weakness To Aid South African Miners - The negative impact of a strengthening rand on South African gold miners witnessed over 2017 is likely to be short-lived. Traditionally, mining companies outside of the US receive their revenues in US dollars but pay a significant share of their costs in local currencies. As such, when local currencies depreciate relative to the US dollar, operating costs that include wages and electricity become less expensive relative to the sales revenue earned and vice versa (See 'Currency Movements: Winners & Losers In The Mining Industry', May 25). In South Africa, over the past 12 months we have seen how despite rising gold prices, an appreciating rand has led to subdued earnings among local gold miners on an annual basis. While Cyril Ramaphosa's election as new ANC leader on December 18 2017 and as President of South Africa on February 15 2018 gave the rand a further appreciatory boost, we expect this trend to be reversed in the coming months as attempts to implement reforms in the country stall and inherent weaknesses in the South African economy continue to weigh on the currency, while gold prices continue to head upwards.
|Low-Cost Projects To Offset Weak Price Outlook|
|Canada Nickel Mine Production ('000 tonnes) & Global Nickel Prices (USD/tonne)|
|e/f = BMI estimate/forecast. Source: USGS, Bloomberg, BMI|