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BMI: nickel output to resist headwinds




Posted on February 17, 2017


THE PHILIPPINES’ nickel output this year should resist headwinds from the government’s widening crackdown on perceived erring miners, supported largely by a recovery in world prices, BMI Research said in a Feb. 15 note.

A view of nickel-ore mine Zambales Diversified Metals Corporation ordered closed by Environment secretary Regina Lopez in Sta Cruz Zambales on Feb. 7, 2017. Reuters
“The Philippine nickel industry will not suffer a significant decrease in overall output in 2017 in relation to 2016, as prices recover and the government’s mine closures largely affect smaller players,” the Fitch Group unit said in a report e-mailed to reporters yesterday.

BMI sees nickel output maintaining a 2.4% average growth rate from this year to 2021. This, despite the ongoing regulatory crackdown on miners.

The Mines and Geosciences Bureau reported on Feb. 1 that nickel direct shipping ore production volume and value fell 23% and 41%, respectively, to 24,652,913 dry metric tons worth P21.77 billion in 2016 from 32,076,948 dry metric tons worth P36.60 billion in 2015.

The Fitch unit projects nickel prices to average $10,500/ton this year, edging up to $13,500/ton by 2021. Prices fell to $9,647/ton last year from $11,877/ton in 2015.

CRACKDOWN
Last Tuesday, the Department of Environment and Natural Resources ordered 75 mines still in pre-operation phase to close down, adding to 23 others already operating that were ordered shut on Feb. 2. These account for a third of 311 projects that have mineral production sharing agreements with the government.

Twenty of the 23 operational metal mines ordered closed are nickel mines, BMI noted.

While the environmental crackdown -- which faces legal challenge by affected companies -- “poses a serious risk to existing production rates in the Philippines,” major nickel producers, particularly key members of the Philippine Nickel Miners Association that accounts for about 60% of domestic nickel ore output “have largely avoided any closures or suspensions to their biggest operations.”

Large miners, with better financial capacity, should be able to comply with the government’s move to tighten environment regulations, but small counterparts “will likely be unable to face the higher costs of compliance and will be crowded out of the market.”

The expected “considerable reduction of players active in the Philippine nickel mining sector,” the BMI Research said, will lead to “further consolidation” in the industry.

“Only two mines of the biggest four producers in the country... have been recommended for closure or suspension,” BMI noted, referring to the country’s top four nickel producers: Nickel Asia Corp. (NAC); Global Ferronickel Holdings, Inc. (GFNi); SR Metals, Inc. and CTP Construction and Mining Corp. which altogether account for 64.06% of last year’s 24.65 million dry metric tons.

NAC’s three -- Rio Tuba Nickel Mining Corp., Cagdianao Mining Corp. and Taganito Mining Corp -- of four affiliates and SR Metals were spared, making up 29.04% and 7.75% of nickel shipped last year, while GFNi’s unit Platinum Group Metals Corp. and CTP Corp., which were both ordered closed, constituted 8.15% and 9.98%, respectively.

Hinatuan Mining Corp. -- the lone NAC unit ordered closed -- contributed 7.64% to 2016’s nickel direct shipping ore production. -- Janina C. Lim