October 28, 2015 / 6:49 PM / in 2 years

Canadian miner Sherritt targets costs to fight weak nickel prices

(Reuters) - Canadian miner Sherritt International Corp S.TO is planning deeper cost cuts at its two nickel mines as prices remain low for the metal used to make stainless steel and production cuts that would boost prices prove stubbornly elusive.

Sherritt expects it can reduce the cost of producing nickel at its Moa operation in Cuba by 12 percent to 15 percent a pound once a new sulphuric acid plant it is building is up and running in the second half of 2016, Chief Executive Officer David Pathe told Reuters on Wednesday.

Sulphuric acid is a key input for nickel processing, and it will be cheaper for Sherritt to produce its own than buy it, Pathe said.

“With the asset plant we have under construction at Moa, we have the opportunity to get another 50 to 60 cents a pound out of costs there,” Pathe said in an interview.

Cash costs at Moa dropped to $4.07 a pound in the third quarter from $5.25 a year ago, results released Tuesday night showed.

That is below the latest three-month price for nickel CMNI3 of $4.77 a pound. By comparison, analysts estimate that 50 percent of the world’s nickel is being produced at a loss at current prices.

Sherritt also expects to be able to reduce costs, notably for maintenance, at the Ambatovy nickel operation in Madagascar as the plant’s ramp-up is completed.

During ramp-up the focus will be on volume and “things break and you fix them”, Pathe said. Once the operation steadies, maintenance costs will drop, he said. Sherritt owns 40 percent of Ambatovy.

Costs there fell to $4.24 a pound in the third quarter from $7.26 a year earlier, the company said.

Nickel has been hurt in recent years by a supply glut and softer demand from China, the largest consumer of the metal. Prices are down 30 percent this year and fell to near a seven-year low earlier this month.

Pathe said there had been no significant reduction in nickel production globally but there are signs some production of Chinese nickel pig iron, a cheaper form of nickel, is coming off line.

Despite the losses, producers have been slow to halt production because of the costs associated with shutting down, the loss of employees and expertise hard to replace once the market rebounds, and optimism that prices will recover.

Reporting by Nicole Mordant in Vancouver; Editing by Jeffrey Benkoe

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