John, you guys may recall this post a while back (May) So much for "well above US$10 dollars " now, but you get the feel for what he is talking about re: laterites versus sulphides

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Investing in nickel companies: what investors need to know

Posted: May 26, 2008,

10:11 AM by Jonathan Ratner

The price of nickel may have fallen more than 7% since the beginning of 2008 as the market reacts to rising supplies and lower-than-expected consumption from the stainless steel industry, but at well above US$10 per pound, plenty of money can still be made in the metal. The average price for nickel was US$14.43 in the first quarter, compared to US$21.65 in the same period last year.

For investors trying to cash in, a key factor to consider is what type of deposit a nickel miner is working with. There are two distinct kinds: sulphide, which are typically underground, and laterites, which tend to occur close to the surface, according to Octagon Capital analyst Hendrik Visagie.

Sulphide mining may be tricky because of the challenging geological conditions and variable grades, but the rest of the process - putting the ore through a concentrator and sending the product to a smelter and refinery - is relatively simple, he told clients. Laterite deposits, which offer relatively consistent grades and are conducive to open-pit mining, often present a more technically challenging extraction process that involves leaching the ore with acid at high temperatures. The process also differs depending on the type of ore being process, Mr. Visagie noted.

As a result, he said sulphide deposits are preferable. However, these mines are typically smaller with annual production in the range of 5,000 to 10,000 tonnes. Laterite operations are often much larger at 30,000 to 60,000 tonnes per year.

As for costs, developing a sulphide nickel mine ranges from US$12 to US$16 per pound, while laterite deposits can cost twice as much, the analyst said. Developing and ramp-up of laterite mines also takes longer and poses more technical risk, he noted.

"While laterite nickel deposits are undoubtedly the wave of the future, and will supply larger quantities of nickel than they do now, in the nearer term we favour the development of sulphide nickel deposits," Mr. Visagie said.

Among the Canadian companies with sulphide nickel deposits expected to be developed in the few years are Mustang Minerals Corp., Victory Nickel Inc., Canadian Arrow Mines Ltd., Canadian Royalties Inc. and Mirabela Nickel Ltd."

Jonathan Ratner