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Nickel Diving

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May 23, 2008 – Comments (2)

Yves has a post about how wrong Wall Street is in predicting.  One line that got my attention:

"As anyone who holds mining stocks will confirm, the sector dutifully collapsed, albeit in the short run..."

I wonder how "they" know it is in the short run?  I did very well on mining stocks and when I looked at then numbers, boy did they look profitable.  But I also kept my eye open to what the bears were saying, and Frank Veneroso is the best of the mining bears.  I had an excellent opportunity to talk with him at an investment conference in Vancouver in January 07.

What he was saying about nickel, which did an ascent to about $23-24/lb, was that the price had gotten so high that now what was known has pig nickel was profitable and could be produced at about $8/lb.  So, ores that had previously been overlooked were now being imported into China.  The $8/lb price was when nickel was at a top.  As the price of nickel declined, the price of importing the nickel ores also declined.  I would suspect at this point the energy costs are cancelling out any gains from the decline in ore price.

I am surprised at how long nickel price held up.  It was in the $14/lb range for ages and I expected it to go down to the $8-12 range.  It seems that nickel has truly broken now, and it is at $10.73/lb today.  This is a disaster for nickel mining companies.

I just had a peek at FNX and 66c/share cash flow... So, that was for a quarter when average nickel price was $14.43/lb.  At 3,150,000 lbs that looks like a revenue drop for the next quarter in the range of $10 million.  Well, actually, much of this quarter has continued to benefit from higher nickel prices, so this decline will take until Q3 to show up.  But, this one is heading from 28c/share probably to 10-15c/share.  The decline in nickel price will cost about 7-10c/share.

The rest of the metal prices are hard to match as well, "the average metal prices received during the first quarter were US$14.43 per lb for nickel, US$3.84 per lb for copper, US$2,727 per oz of platinum, US$630 per oz of palladium and US$1,013 per oz of gold."  Kitco is a good place to check base metal prices.  Hmmm, those precious metals that hid the gross decline in base metal prices for last quarter have done some major cliff diving as well.

And I have been so blasted for warning people that they would lose their shirts on this one.  The analyst's price on this one through last fall was $40/share.  Mine was $8-10/share.  Check back in a year...

 

2 Comments – Post Your Own

#1) On May 23, 2008 at 9:24 AM, dwot (97.03) wrote:

My reading list...


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#2) On May 23, 2008 at 10:47 PM, nuf2bdangrus (< 20) wrote:

Dwot...I notice we often are reading the same things.  I hope my score becomes as good as yours.  One thing.  I only post stock positions on CAPS that I hold in my portfolio.  I've just decided to play it that way.

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