Industry Trend Analysis - Nickel: Indonesian Recovery To Sustain Global Production Growth - JAN 2018


BMI View: Global nickel production growth will come out of negative territo ry for the first time since 2014 , driven by Indonesia's export ban moderation. Indonesia and Australia will lead nickel production growt h rates from 2017-2021. However output in the number one global producer, the Philippines, will remain muted in the coming months as a result of environmental shutdowns of mines over 2017 .

Global nickel ore production growth will rebound in 2017 following consistent y-o-y decreases since 2014. We forecast world nickel production to grow by an annual average rate of 2.7% over 2017-2021. However, production growth rates during the next five years will remain lower than the 4.5% average rates achieved during 2012-2016, which were boosted by higher nickel prices experienced in 2012-2013, before the commodities slump and Indonesian growth before the export ban in 2014. By 2021, we expect global annual nickel production to reach 2.56mnt. The Philippines will remain the largest nickel producer in absolute numbers in the years to come, although its global share of the market will stagnate as ores are depleted and policy uncertainty choke new potential projects. The best performing country in terms of nickel production growth during 2017-2021 will be Indonesia, following the moderation of its export ban in January 2017. The other outperforming major producer will be Australia, which maintains a stable regulatory environment and solid project pipeline. Finally, Russian nickel production will grow at the slowest rate of the top five major producing countries in the coming years as few projects come online. Consequently, we expect Russia to drop on the list of major nickel producers, from second in 2017 to fourth in 2021.

Philippines To Dominate Quantity; Indonesia To Lead Growth
Global Nickel Mine Production (kt)
Source: BMI, USGS

Indonesia - Production To Recover Following Export Ban Moderation

Indonesia's nickel sector will be the best performing out of all major producers in the coming years. The country's sector received a boost in 2017 following the recent decision by the government to allow the export of unprocessed ore, under certain conditions. On the back of this ban moderation, we forecast production in Indonesia to grow from 168kt in 2016 to 236kt in 2017, a 40% y-o-y rise and the highest yearly production growth rate since the imposition of the ban in 2013. Moving forward, Indonesia will also benefit from stricter environmental regulations in its biggest regional competitor, the Philippines. This development will increase the rate at which Indonesia regains part of the Chinese market share it had previously lost to its neighbour, following the imposition of its export ban. As a consequence, the country will see an average production growth of 21.0% over 2017-2021, compared to 6.6% between 2012 and 2016, outperforming all other global nickel producers by a significant margin during the same period.

While the recent ban moderation will increase nickel output in Indonesia, it will also likely reduce investment into the country's growing smelting sector which refines the mined nickel ore. For instance, Chinese stainless steel company Tsingshan has spent USD6.0bn to date on the construction of a smelter, port and power station - an investment made as a result of the previous export ban which was looking to incentivise local refinement of ores. State-owned company Antam is, however, well-poised to benefit from the ban removal, as it has since stockpiled vast amounts of low-grade wet nickel ore available for immediate shipping. For instance, in October 2017, the company received permission to export up to 1.5mnt of stockpiled nickel ore to China.

Indonesia Outperforming
Indonesia - Nickel Production & Nickel Production Growth
f = forecast. Source: BMI, USGS

Philippines - Regulatory Crackdown Taking A Toll

Philippine nickel mining production will decline 50kt in 2017, a 10% y-o-y decrease as a result of mining closures from ex-environmental secretary Regina Lopez over the first months of 2017. Soon after Lopez had been appointed in June 2016, she carried out a series of environmental audits that led to the closure of many of the country's 41 nickel mines and has resulted in a 24% y-o-y decrease in nickel production growth during H117, according to Bloomberg data. In May 2017, Lopez was replaced as Environmental Secretary by Roy Cimatu, who is likely to take a laxer stance on mines compliance in the coming months. However, in November 2017 President Rodrigo Duterte rejected calls to lift the ban on open-pit mining, meaning production will likely remain subdued at least during the first quarters of 2018.

Moving forward, the Philippines will maintain a slow but steady average production growth rate of 0.3%, which will maintain the country's position as the largest absolute producer of nickel ore in the world. However, the country's global market share will stagnated at 20.0% from 2017-2021. Domestic miners, SR Metals, Global Ferronickel, Nickel Asia Corporation and CTP Corp, will account for the vast majority of nickel production in the country. Nickel Asia, in particular, will remain the driver of nickel production in the Philippines, especially as its Taganito and Cagdianoa mines, the first and second largest in the country respectively, have not been hit by the recent closures and suspensions.

Production Growth Will Not Stop Global Decline
Philippines - Nickel Production & % Of Global
Source: BMI, USGS
Select New Global Nickel Mines
Country Mine Primary Company Notes
Source: BMI Mining Database
Australia West Musgrave Cassini Resources (100%) Cassini acquired the project from BHP Billiton in April 2014; Project is in advance exploration stage; The consolidated West Musgrave Project now includes the Nebo-Babel nickel-copper sulphide deposits and the Succoth copper prospect; Combined Mineral Resources - 203.1mnt
Australia Plumridge Segue Resources (100%)
February 2015 - Segue Resources has completed the detailed gravity survey that will form the basis for targeting the next phase of drilling at its Plumridge Nickel Project
Savannah February 2017 - Feasibility study completed, which has significantly extended the mine life by up to 10 years
Australia Panoramic Resources (100%)
Brazil Conceicao Avanco Resources (100%) Significant potential for the discovery of high grade nickel-copper-PGM sulphides
Brazil Araguaia Horizonte Minerals (100%) Estimated production - 15kt/yr; Targeted production in 2019; Horizonte has reached agreement to acquire Glencore's Araguaia nickel project and integrate the two projects; Proved and Probable Reserves - 24.6mnt
Brazil Jacare Anglo American (100%) Phase I would see 34-35kt/yr production with phase 2 potentially delivering a further 50kt/yr; Feasibility studies set for completion in 2014/2015
Cameroon Nkamouna-Mada Jiangxi Rare Metals (60.5%) The remaining 39.5% stake is held by the National Investment Corporation of Cameroon; Proved and Probable Reserves - 68.1mnt; The company expects average annual production for the first 11 years of full production of 3.3kt of nickel
Canada Natashquan Altius Minerals Corporation (100%) Under exploration stage; Altius is currently seeking a partner to advance this project; Anglo American entered into a JV agreement with Altius to earn a 66% share in the project; Anglo withdrew from the option in 2014 as no significant mineralisation prospect was encountered
Canada Shebandowan North American Palladium (NAP) (50%), Vale (50%) The project includes Shebandowan mine and Shebandowan West mine; Measured and indicated resources: 2.6mnt
China H-989 Hami Jiatai (100%) Mineral Resources - 5.8mnt
Cote dIvoire Bounta Sama Resources (100%) September 2014 - Sama has announced a new mineralised surface discovery, Bounta, showing grading of up to 2.11% nickel and up to 1.89% copper
Cote dIvoire Touba-Biankouma (Sipilou) Nickel de l'Ouest Cote d'Ivoire (NOCI), Government of Cote d'Ivoire (10%), SODEMI (5%) November 2016 - Government of Cote dIvoire granted the mining permit to Nickel de l'Ouest Cote d'Ivoire (NOCI); August 2015 - Glencore disposed the project; August 2013 - Glencore and Ivorian state will join together to create a joint venture in charge of exploration and exploitation of nickel deposits and Sipilou Biankouma. Reserves - 259mnt
Finland Kuhmo Boliden (95%), Polar Mining Oy (5%) Reserves - 75kt; June 30 2015 - Boliden acquired Altona's stake in the mine
Guatemala Mayaniquel Cunico Resources (100%) Estimated production - 36.5kt/yr; Proved Reserves - 6.7mnt; Under advanced exploration; April 2014 - Anfield Gold Corp sold the project to Cunico Resources
Indonesia Wetar Finders Resources (72%) October 2016 - The project is expected to reach its nameplate capacity of 25kt/yr of copper cathode by the December 2016; Proved and Probable Reserves - 8.9mnt
Mauritania Akjoujt South OreCorp (90%) September 2014 - Project under exploration stage
Myanmar Mwetaung Zijin Mining Group Co (100%) Estimated Reserves - 36.1mnt
Philippines Botolan Mina Tierra Gracia (100%) Resources - 5.8mnt
Philippines Mindoro Intex Resources (100%) Proved and Probable Reserves - 126.3mnt; Estimated production - 53kt/yr
Solomon Islands Isabel Axiom Mining (80%) The remaining 20% stake is held by the original landowning tribes; Historic non-JORC Resource estimate - 159mnt; The company targeting the establishment of a DSO operation by late 2015; First shipment expected in Q116
South Africa Zebediela Uru Metals (100%) November 2016 - A new programme is planned for 2017 which includes drill testing potential extensions, infill drilling and metallurgical studies; Inferred and Indicated Resources - 1.5bn tonnes; Estimated production - 20kt/yr
Tanzania Kabanga Barrick Gold (50%), Glencore (50%) 2013 - The operation may be capable of producing more than 40kt/yr of nickel-in-concentrate at full production; Measured and Indicated Resource - 37.2mnt
United States NorthMet PolyMet Mining (100%) March 2016 - The Minnesota Department of Natural Resources has approved the final environmental review as it has met the state's standards for adequacy; Proved and Probable Reserves - 275mnt
Vietnam Son La Asian Mineral Resources (100%) Exploratory stage
Zimbabwe Hunter's Road Asa Resource Group (100%) JORC compliant resource - 36.4mnt

Australia Performing Well

On top of the positive growth outlook for Indonesia, the other well-performing nickel producer in the coming years will be Australia. Production growth rates will not reach the levels seen prior to the commodity slump, but will nonetheless be higher than in all other markets except for Indonesia. Australia will post a positive average nickel production growth rate of 1.0% during 2017-2021.

In Australia, Independence Group (IGO) will drive nickel production growth in the country in the years to come, following the acquisition of Sirius Resources in 2015. This purchase will allow IGO to take over the Nova nickel-copper project, which is expected to produce around 5.0-6.0kt of nickel in 2017. Moving forward, IGO aims to discover and develop similar nickel deposits that will further boost Australia's output. As an added tailwind, Australia's nickel reserves will be in demand for use in electric vehicle batteries due to their high quality. BMI's autos team forecasts electric vehicles to experience significant production growth in the coming years, meaning the Australian nickel sector will likely attract further investor interest in the medium to long term.

Australia To Witness Positive Growth
Selected Countries - Average y-o-y Nickel Production Growth (%)
Source: BMI Calculation/USGS

Russia: Global Market Share In Decline

Russia will continue to lose out in terms of its share of global nickel production. The country will contribute 9.5% of global production in 2021, down from 11.1% in 2017. It is the only country, apart from Canada, of the top five major nickel producers to witness a decline in global contribution during the same time period. Furthermore, we forecast the country's average production growth rate to be -1.0% during 2017-2021, the slowest of all major global nickel producers.

Norilsk Nickel is the world's largest nickel producer and will be the main driver of nickel production in Russia in the years to come. In 2016, the company's total revenue decreased by 3.0% y-o-y to USD8.3bn mainly due to lower metal prices and downstream configurations. Norilsk will focus on improving operational efficiency at its Tier 1 assets, which refer to assets that are large-scale, delivering more than USD1.0bn in revenue, with margins of over 40% and a reserve life of more than 20 years. As such, the Polar Division in Russia will be a priority.

Russia Losing Global Influence
Russia - Nickel Production & Percentage Of Global
BMI Calculation/USGS
Global - Nickel Production Forecasts For Top 10 Producers
Geography 2010 2011 2012 2013 2014 2015 2016 2017f 2018f 2019f 2020f 2021f
e/f = BMI estimate/forecast. Source: BMI, USGS
South Africa Nickel Mine Production, '000 tonnes 39.96 43.32 45.95 51.20 54.70 56.70 50.00 51.00 51.51 51.77 52.54 54.12
South Africa Nickel Mine Production Volumes, % y-o-y 15.47 8.41 6.06 11.44 6.84 3.66 -11.82 2.00 1.00 0.50 1.50 3.00
South Africa Nickel mine production, '000 tonnes, % of global 2.6 2.3 2.1 1.9 2.3 2.5 2.2 2.2 2.2 2.1 2.1 2.1
Australia Nickel Mine Production, '000 tonnes 168.50 215.00 246.00 234.00 245.00 222.00 206.00 203.94 208.02 212.18 214.30 216.44
Australia Nickel Mine Production Volumes, % y-o-y 2.12 27.60 14.42 -4.88 4.70 -9.39 -7.21 -1.00 2.00 2.00 1.00 1.00
Australia Nickel mine production, '000 tonnes, % of global 10.9 11.6 11.1 8.9 10.2 9.8 9.2 8.8 8.7 8.7 8.5 8.4
China Nickel Mine Production, '000 tonnes 79.60 89.80 93.30 95.00 100.00 92.00 90.00 91.89 92.35 92.35 91.89 90.97
China Nickel Mine Production Volumes, % y-o-y -6.13 12.81 3.90 1.82 5.26 -8.00 -2.17 2.10 0.50 0.00 -0.50 -1.00
China Nickel mine production, '000 tonnes, % of global 5.2 4.9 4.2 3.6 4.2 4.0 4.0 3.9 3.8 3.7 3.6 3.4
Indonesia Nickel Mine Production, '000 tonnes 232.00 290.00 228.00 440.00 177.00 130.00 168.50 235.90 283.08 339.70 390.65 429.72
Indonesia Nickel Mine Production Volumes, % y-o-y 14.40 25.00 -21.38 92.98 -59.77 -26.55 29.62 40.00 20.00 20.00 15.00 10.00
Indonesia Nickel mine production, '000 tonnes, % of global 15.0 15.7 10.3 16.7 7.4 5.6 7.5 10.1 11.8 13.7 15.2 16.1
Philippines Nickel Mine Production, '000 tonnes 173.00 270.00 424.00 446.00 523.00 530.00 500.00 450.00 459.45 470.48 485.06 503.49
Philippines Nickel Mine Production Volumes, % y-o-y 26.28 56.07 57.04 5.19 17.26 1.34 -5.66 -10.00 2.10 2.40 3.10 3.80
Philippines Nickel mine production, '000 tonnes, % of global 11.2 14.6 19.1 17.0 21.8 23.0 22.4 19.3 19.1 18.9 18.8 18.8
Cuba Nickel Mine Production, '000 tonnes 65.50 69.00 68.20 66.00 66.00 56.40 56.00 44.80 49.28 48.79 48.54 48.11
Cuba Nickel Mine Production Volumes, % y-o-y 0.77 5.34 -1.16 -3.23 0.00 -14.55 -0.71 -20.00 10.00 -1.00 -0.50 -0.90
Cuba Nickel mine production, '000 tonnes, % of global 4.2 3.7 3.1 2.5 2.8 2.4 2.5 1.9 2.0 2.0 1.9 1.8
Russia Nickel Mine Production, '000 tonnes 265.00 267.39 255.00 275.00 239.00 269.00 256.00 243.20 240.77 240.77 241.97 243.18
Russia Nickel Mine Production Volumes, % y-o-y 1.23 0.90 -4.63 7.84 -13.09 12.55 -4.83 -5.00 -1.00 0.00 0.50 0.50
Russia Nickel mine production, '000 tonnes, % of global 17.2 14.5 11.5 10.5 10.0 11.8 11.4 10.5 10.1 9.9 9.7 9.4
Brazil Nickel Mine Production, '000 tonnes 108.98 109.00 139.00 138.00 102.00 160.00 142.00 127.80 123.97 133.88 139.24 143.42
Brazil Nickel Mine Production Volumes, % y-o-y 165.43 0.02 27.52 -0.72 -26.09 56.86 -11.25 -10.00 -3.00 8.00 4.00 3.00
Brazil Nickel mine production, '000 tonnes, % of global 7.1 5.9 6.3 5.2 4.3 6.9 6.4 5.5 5.1 5.4 5.4 5.4
Colombia Nickel Mine Production, '000 tonnes 70.20 72.00 51.59 49.39 41.20 40.40 36.80 36.25 40.05 40.25 40.66 41.27
Colombia Nickel Mine Production Volumes, % y-o-y -2.50 2.56 -28.34 -4.28 -16.58 -1.94 -8.91 -1.50 10.50 0.50 1.00 1.50
Colombia Nickel mine production, '000 tonnes, % of global 4.5 3.9 2.3 1.9 1.7 1.8 1.6 1.6 1.7 1.6 1.6 1.5
Canada Nickel Mine Production, '000 tonnes 160.10 219.61 205.00 223.00 235.00 235.00 255.00 234.60 240.47 242.87 246.51 252.68
Canada Nickel Mine Production Volumes, % y-o-y 18.56 37.17 -6.65 8.78 5.38 0.00 8.51 -8.00 2.50 1.00 1.50 2.50
Canada Nickel mine production, '000 tonnes, % of global 10.4 11.9 9.2 8.5 9.8 10.3 11.4 10.2 10.1 10.0 9.8 9.8