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By: Peter Cole
A Bloomberg Financial survey of 24 economists has estimated that China’s
economy is currently growing at 11.7 percent, a faster rate of growth than
before the 2008 global recession.
This means that China is hungry for nickel – the key ingredient in stainless
steel.
Stainless steel demand is tied directly to infrastructure spending. It is
required for the manufacture of automobiles, planes, factories, buildings,
bridges etc.
Without new supplies of nickel, the Chinese economic growth will be in jeopardy.
With yearly domestic nickel imports worth about $1 billion, it’s a safe bet that
China nickel shopping basket is not full.
Indeed, last August a Chinese-Canadian joint venture (Goldbrook and Jilin Jien
Nickel Industry Co) bought out Canadian Royalties for $191 million cash. The
joint venture acquired all shares of Canadian Royalties for 80 cents, a 30%
premium over the closing price on the Toronto Stock Exchange.
Canadian Royalties handed over the fully permitted and construction-ready
Nunavik Nickel Project in Nunavik, Northern Quebec, about 1,500 miles (1,700 km)
north of Montreal.
And they may not have to look far for a new asset.
Knight Resources (TSX:KNP) holds a 45% interest in a joint venture with Anglo
American at the West Raglan nickel project in northern Québec, 90 kilometres
west of Xstrata’s nickel mine.
On July 7th 2010, Knight Resources announced that drills were turning on their
West Raglan project in Northern Quebec. Two drills are active on the project,
and a revised budget of $5.75-million has been approved for the 2010 exploration
program.
The London Metal Exchange (LME) inventory levels are down 20% from the peak in
February and the latest International Stainless Steel Forum (ISSF) production
data suggests that the nickel market will remain in a global deficit of 36,000
metric tonnes for 2010.
Barclays Capital is also seeing a supply/demand imbalance.
Barclay’s is forecasting nickel spot price increases of 30% for over the next 24
months, supported by China's furious pace of industrialisation.
These estimates may be conservative. While gold, silver and copper have all
flirted with or surpassed their 36 month highs, nickel still has a long way to
run.
The cash-rich Chinese steel manufacturers – and the Chinese government - are
unlikely to tolerate this sort of pricing uncertainty in one of the key drivers
of their economic engine.
KNP has identified several high grade nickel zones that look similar to
Xstrata’s. The last drill hole returned values of 28.28 metres of 3.21% nickel
and 1.3% copper. They’ve just completed a financing and are about to begin
drilling.
With all the positive macro fundamentals pushing nickel, and the Chinese hunger
for a new nickel asset, we look at the nickel exploration companies to fill the
worlds growing demand.
