Tanzania's Nickel Project Eyes Price Benefit from Indonesian Export Ban

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Tanzania's Minister for Energy and Minerals should be impressed with his own timing after pushing last week for the earliest possible commissioning for the country's Kabanga nickel project. The price of nickel is expected to rise following the weekend news of Indonesia's ban on exporting the raw material.

Indonesian nickel makes up 15% of global supplies. Industry players, who were surprised by the ban, are debating how much the price of nickel will increase. Indonesia had been expected to draw back from its decision at the last minute. The London Metal Exchange (LME) had the price of nickel at about $13,980 per ton Tuesday morning, and saw a climb to $14,790 in the coming months.

Tanzania is pulling out all the stops to move the Kabanga project into production. The project has been allocated power from the Rusimo Falls hydropower plant, and the government has said it will buy project shares, which it will later make available to the public. The project also will be linked to an international, 1,672-kilometer (1,037-mile) railway network connecting the capital port city Dar es Salaam, on the Indian Ocean, to Isaka and Keza in Tanzania; Mungozi in Burundi; and Kigali in Rwanda. Work on the rail project is well-advanced.

The Kabanga nickel project was launched some years ago by Barrick Gold Corporation (NYSE:ABX) (Toronto, Ontario) and Xstrata Nickel, now Glencore Xstrata (OTC:GLNCY) (Baar, Switzerland). It will employ 2,000 people when it reaches full capacity.

Since 2005, more than $205 million has been invested in drilling and evaluation studies. Xstrata already had invested $95 million in prefeasibility development. With 58 million tons of reserves, the mine is said to be one of the best greenfield nickel sulfide deposits in the world. As the deposit is deep, Kabanga will be developed as an underground mine, using conventional mining and processing technology. Based on current resources, the mine will have a lifespan of 30 years.

Nickel concentrate from the mine will be extracted for international markets.

Indonesia's export ban has hit small mining operations particularly hard and has led to 30,000 workers losing their jobs. The export ban is designed to encourage smelting and beneficiation of the ore, but many industry observers say it will strangle cash flow needed to capitalize smelter projects.

China is a major customer for Indonesian nickel. The Tanzanian government will be watching price and supply developments, as its project is still many months away from production and export.

Some 66 Indonesian mining companies will be exempt from the ban, as they have smelters, or have projects in the pipeline to process a range of mineral ores.

For related information, see February 23, 2007, article - Barrick and Xstrata Invest $95 Million as Nickel Flirts with $40,000 per Ton.

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