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Indonesian mineral export ban helps ASX nickel, aluminium, zinc companies

Monday, January 13, 2014 by Proactive Investors

Nickel prices have risen as Indonesia's mineral export ban went into effect on 12 January 2014.

Nickel prices have risen as Indonesia's mineral export ban went into effect on 12 January 2014.

Indonesian policy maker's ban on unprocessed mineral exports has resulted in an expected rally in global nickel prices along with Australian nickel miners.

London Metal Exchange nickel rose 4% on Friday before increasing a further 2% in early Asian trade today to US$13,675 per tonne.

Indonesia, which accounted for about 15% of global nickel supplies, had last week made final tweaks to its controversial mineral export ban that took effect on Sunday, 12 January 2014.

The policy is designed to force companies to build processing plants and other downstream infrastructure in Indonesia, and has been described by analysts as the biggest supply risk the nickel and aluminium markets has faced in recent years.

Australian listed nickel companies are set to be beneficiaries

The rise in nickel prices is a boon for Australian nickel miners with Western Areas (ASX: WSA) rising 8.94% today to $2.57.

Mincor Resources (ASX: MCR) rose 3.54% to $0.585 and Sirius Resources (ASX: SIR) up 5.66% to $2.24.

Poseidon Nickel (ASX: POS), which aims to restart the Mt Windarra mine, put on 1.45% to $0.07.

A feasibility study on Mt Windarra, which has Reserves of 498,000 tonnes at 1.78% nickel, was completed in April 2013 which looked at a 10 year underground mining operation targeting the restart of Mt Windarra and the greenfields development of the Cerberus satellite deposit.

This defined a C1 cost of US$3.35 per pound, placing the project in a strong competitive position due to being in the second quartile cash cost position, with low capital intensity to catch any shortfall in nickel supply.

Aluminium players also benefitted given that the ban extended to Indonesia’s bauxite exports as well. Alumina (ASX: AWC) climbed 3.59% to $1.15.

While zinc concentrate has been excluded from the ban, zinc companies have also seen more support on the market with analysis having recently predicted that prices would increase as oversupply in the market shrinks.

Ironbark Zinc (ASX: IBG), which has identified over 13 billion pounds of zinc and lead at its Citronen Zinc-Lead deposit in Greenland, gained 3.7% to $0.056.

Its Feasibility Study had forecast production of 3.3 million tonnes of feedstock; initial mine life of 14 years and CAPEX $484.9 million from the project.

Life of Mine OPEX is estimated at US$3.42 billion to produce total revenue of US$5.65 billion.

The Internal Rate of Return is estimated at 32.0% (22.2% post tax), and Net Present Value is US$609 million (US$354 million post tax).  

Ban Impact

China consumes about half of the world’s nickel production, or about 850,000 tonnes per annum.

While it rarely draws down on nickel stocks held by the London Metal Exchange, some analysts believe this could change if its supply of Indonesian nickel pig iron – representing about half its consumption – is cut off.

In addition, the ban could have a net negative effect by reducing foreign investment in smelters.


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