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By: Dave Brown
The Zodiac
2010 is the Year of the Tiger in the Chinese zodiac calendar. And that has been
the epitome of the Chinese economy for the last decade. In particular, the
Chinese have been pouncing on natural resource assets around the globe to keep
their incredible growth curve intact.
One of their most recent purchases – a nickel play in Quebec - could signal an
opportunity for investors in a nearby play as well.
Current Economic Context in China
Chinese real GDP climbed 10.7% in the fourth quarter of 2009 and 8.7% for the
entire year.. The growth and outperformance in China over the last year has been
tremendous and in stark contrast with the economic data reported in other
countries. A Chinese government stimulus helped propel the economy to exceed its
robust 8% growth target.
And prices are rising in China. Consumer prices climbed further in December,
rising 1.9% from the previous year. For the whole year, sales of consumer goods
continued to climb at approximately a 16% rate, investment grew by 30%, with a
primary driver being infrastructure stimulus. Producer prices also turned
positive for the first time in a year, reflecting the increase in commodity
prices.
This continued growth will unlock value for sources of any component materials
necessary in the production of steel. In November of last year, Chinese steel
production increased by 37.4%, while the prior eleven months total was up by
12.1% to 518 million tonnes.
Demand for nickel is predominantly driven by stainless steel production, which
accounts for around two-thirds of total nickel consumption. China alone now
accounts for 25% of world nickel demand compared with 4% ten years ago.
Recent Activity and High Growth Potential
The Chinese appetite for nickel has been most recently been demonstrated by the
Jilin Jien Nickel Industry Co., Ltd., the second largest nickel producer in
China. On November 10, 2009, they completed the takeover of
Canadian Royalties (TSX:CZZ)
for their 21.3 million tonne Nunavik nickel deposit. This near term producer
appears to be scheduled to produce a minimum 1 million tonnes of nickel a year
for more than eight years, at an estimated capital cost of $450 million.
Jilin Jien paid CAD $192 million for the asset and is expected to accelerate the
timeline for production in the region.
The Canadian Royalties deal demonstrates China’s demand for nickel, and
importantly, says they are willing to purchase and operate assets in the Raglan
mining district in northern Quebec.
The area is known for high quality nickel sulfide deposits. Nickel sulfide
deposits are generally rare and also relatively more attractive for investment
than the more common nickel laterite deposits. Sulfide deposits are of higher
grade and are less costly to process than laterite deposits
While alternative older nickel sources are being depleted, the Raglan area is
one of the few remaining large underexplored and underdeveloped nickel sulfide
belts in the world.
Key Takeaway
Discovering the hidden gem from this context might be
Knight Resources
(