BNC pins hope of nickel prices

B manhando

BNC managing director Batirai Manhando

BINDURA Nickel Corporation (BNC) is pinning its recovery on projected increases of nickel prices internationally as demand outstrips supply.
Presenting the group’s financial results on Wednesday last week, the mining company’s management was optimistic about the outlook of nickel prices saying several reputable international researchers share the same buoyancy as they see demand outstripping supply.
Nickel prices are currently hovering at between US$12 000 and US$12 500 per tonnes.
BNC managing director Batirai Manhando said business could start making money at a price above US$13 500 per tonne.
He said due to demand which will continue to outstrip demand going forward BNC anticipates nickel prices to close next year at an average price of between US$17 750 per tonne and US$19 000 in 2017.
They also forecast prices of around or below US$13 100 per tonne by the end of the year – an annual average price of US$15 000 per tonne for 2015.
Finance director Herman Jacobs said: “Nickel demand is forecast to improve in the near future and this will have a favourable impact on the price going forward”.
With nickel prices not moving upwards during the first half of the year as anticipated, Bindura’s performance was however said to be within range of expectations.
In 2014 almost everyone went ahead of the market with a huge expectation of stronger market prices, but that was not the case.
The company to a certain extent largely benefited from this over-excitement that caused a surge in prices as a result of the Indonesian ban. As a result, the company had a record year in terms of revenue generation.
BNC’s working capital for the year to March 2015 improved from its negative position in prior year, with a current ratio of 1,55 against a ratio of 0,69 last year.
Obviously commodity prices tend to be very volatile and difficult to predict.
Many analysts argued that management should focus on things under their control in particular costs to ensure the business remains viable even when prices remain depressed.
One of the major cost lines is electricity and management is negotiating for a reasonable tariff since the current US8,8c per kWh is proving to be unsustainable.
A smelter uses a huge amount of power and getting a correct tariff is of paramount importance for the operation.
BNC increased its full-year nickel production by three percent to a record 7 306 tonnes for the year to March from 7 129 tonnes last year.
Revenue increase to US$79 million a 21 percent increase from US$65 million last year, largely due to increase in nickel prices.
“We had a good year in terms of production performance and also the nickel price was much better than the previous year,” Manhando said.
The company, which is 75 percent owned by African miner Mwana Africa, currently sells nickel concentrate to Glencore but plans to start exporting nickel alloy after an ongoing smelter upgrade.
This would raise its revenues by up to 20 percent.
Technical director Thomas Mashungupa said the smelter, which had initially been expected to be completed in December, would be finished in the first quarter of 2016 after delays from suppliers. The first sale of nickel alloy is forecast to start next April.
Analysts say a problem in restarting the smelter was the cost of running it versus current production. Zimbabwe in its current state is not the best destination for any feed. In the absence of an efficient NRZ it becomes costly to transport the matte while the price of power will have a significant impact, bearing in mind that 47 percent of the smelter is power – it has a 17MW furnace which has to be fully heated up.
“40 percent of the project has been covered now and we are within budget. The smelter will be commissioned by the first half of next year,” Mashungupa said.
The nickel miner said it was negotiating with various unnamed parties to secure an off-take agreement for the nickel alloy and for processing third party nickel concentrate.
Bindura also said it plans to start negotiations with the government to lower its power tariff, citing that electricity costs will account for 48 percent of the expenses of running the upgraded smelter.
The business however incurred more costs of production, with cost of sales increasing from US$29,57 million to US$42,76 million because of refurbishment of mobile plant, higher power tariff, salary increases and the costs incurred to deepen the mining area through a 1 000m additional development.
According to BNC the investments and refurbishment programme will provide a stable platform for the company to achieve steady output in future.