World nickel price are shining, but is Zimbabwe’s Bindura ready?

Zimbabwe nickel

News that nickel prices have hit five-year highs should cheer Zimbabwe’s Bindura Nickel Corporation (BNC), the country’s nickel miner.

But, just as Zimbabwe’s gold producers are missing out on a gold rally, BNC may not be in a position to take full advantage of the surprise nickel price bull run. The power crisis, forex shortages, the strong US dollar, poor rail infrastructure and an inability to access capital means the country’s nickel producer may be a spectator to the boom.

The prices of nickel, used in stainless steel and in demand in the electric vehicle market, have hit US$18,470 a tonne, the highest price since September 2014. At this price, nickel is already above BNC’s forecasts; US$12,000 per tonne this year, US$13,000 per tonne up to March 2020, and US$16,625 per tonne by March 2021.

The nickel price spike came after a surprise announcement by Indonesia, the world’s number one producer, that it would ban the export of unprocessed nickel ore.  This is part of Indonesia’s push to force nickel miners there into downstream processing, and industry experts say this could remove 10% of global supply from the market, driving up prices.

In a note, Goldman Sachs forecast nickel prices to reach $20,000 a tonne in three months, before receding to $16,000 in 12 months as supply and demand respond to higher prices.

Nickel prices are up 80% since the start of 2019 (Goldman Sachs)

This is where BNC would be rubbing its hands in gleeful anticipation.

The company’s project to revive its smelter is 83% complete. However, BNC decided not to continue with the project, because nickel prices were too low to justify the investment. Since the project began in 2015, nickel prices have averaged US$12,000 per tonne, according to the company’s last earnings report. For the smelter to make sense, BNC has said it needs a nickel price of US$16,200 per tonne.

“With the promising global nickel price outlook, plans are afoot to complete the project in the near future,” BNC said in its financials for the year to March.

If Goldman Sachs are correct, then BNC would immediately run with the smelter rebuild to completion.

But it may not be that easy.

According to BNC chairman Much Masunda, the company needs at least US$500 million of capex to ramp up production to where it needs to be. But, he said, Zimbabwe’s poor credit score and isolation means the company cannot access that money from global markets.

“For us to uptake any meaningful project we need nothing less than US$500 million. We need to be taking advantage of the demand for electric motor vehicles which is pushing demand for nickel. Basically, what I’m saying is we must learn to come in at the opportune time as we are not in living in a vacuum,” Masunda told The Independent recently.

The company is also just getting half of its power needs, according to BNC MD Batirai Manhando.

“We are running on 5MW, which is not adequate to run operations. Our operations require at least 10MW,” says Manhando. The alternative of importing directly from Mozambique’s HCB is threatened by Zimbabwe’s debts to the utility.

Nickel and BNC’s future

Beyond Bindura, BNC has plans to develop resources at Hunters’ Road, sitting on 200 000 tonnes of nickel, and at Damba Silwane, where exploration estimates 67 000 tonnes. BNC is currently trading under a cautionary, pending talks with a potential new investor. But new investment will face another hurdle; the state of the country’s rail.

When its nickel concentrate sales fell 14% in the 2019 half year, BNC partly blamed the “logistical challenges that were experienced in moving outbound material”. The company was referring to the difficulties in shifting output to market via rail, the outcome of the collapse of the National Railways of Zimbabwe.

The smelter that BNC is now trying to revive once took in product from other countries, including from the Americas and the region, via rail. The state of rail infrastructure now makes this unlikely. 

Chinese firm Tsingshan, the world’s largest stainless steel maker, has already built a plant in Indonesia to produce high grade nickel for battery packs.

In Zimbabwe, Tsingshan has signed an outline agreement to build a stainless steel plant at Mvuma, which would need feed of 200 000 tonnes of nickel.

But Tsingshan has had to make plans to go around the same hurdles that BNC faces; the Chinese company is to build its own power supply of 600MW and has a plan to help refurbish rail infrastructure, Tsingshan chairman Xiang Guangda announced in April.