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  • Luisa Moreno Explains Why Metallurgy Is So Important In Critical Metals Projects

    Luisa Moreno, managing partner and analyst with Toronto-based Tahuti Global, says there are many things investors must pay attention to when it comes to critical metals projects, but nothing should trump metallurgy. That's because no two deposits are precisely the same, and having a clear understanding of how to economically recover those metals and get them into end-users' hands is usually the difference between higher share prices and failure. In this interview with The Gold Report, Moreno discusses several plays in developing critical metals deposits with established metallurgy and other attributes that put them on the path to success.

    The Gold Report: With development capital still at a premium, are companies with critical metals projects getting financed? What typically gets financed and what doesn't?

    Luisa Moreno: The financing environment for the mining space is still difficult, and that is no different for the critical metals equities. Nowadays, the mining and related processing projects that are more likely to get financed are those that are close to production, have relatively low capital requirements, have competitive production costs, have offtake agreements or will be selling into metals markets that have seen prices stabilize and have solid demand.

    TGR: In July 2011, you produced a tantalum and niobium primer for Jacob Securities Inc. Reading through that report again, little has changed. What makes these metals newsworthy now?

    LM: Tantalum has major applications in electronics that are used in nearly all devices that we have in our homes. Niobium is a major metal in the production of high-performance steel. Tantalum mine production fell by more than 50% in late-2008 and 2009 affected in part by the recession, and it never recovered. More than 90% of the world's niobium is produced in Brazil, and although Brazil is not considered a hostile jurisdiction for mining, niobium was listed by the European Union as a critical metal given its geographic risk profile. To mitigate potential risk, end users are eager to find stable niobium supplies in stable countries. Both tantalum and niobium are highly strategic, critical and relevant. It's important to continue to develop new projects.

    TGR: The gorilla in the niobium market is Companhia Brasileira de Metalurgia e Mineração [CBMM]. How does it affect smaller niobium players? Is it likely to play the role of acquirer?

    LM: CBMM's production accounts for more than 85% of niobium supply. The company is the lowest-cost producer; its grades are generally above 2% Nb2O5, whereas most other projects are at about 0.6-0.7% Nb2O5. I don't see CBMM playing a role as an acquirer because it has over 200 years of mine life left and its costs are the lowest. It will continue having the leading position that it has in the market for a long time, I think. There is, as I mentioned, a need for new players in order to attain geographic diversification that end users would like to see.

    TGR: Please provide us with an overview of the tantalum market.

    LM: Tantalum witnessed a significant increase in demand in the late 1990s and into 2000. That was driven by a substantial increase in technology associated with the dot-com boom and the proliferation of mobile devices. Prices spiked during that period. Demand collapsed with the onset of the 2001 recession but then gradually went up again. After the 2008-2009 recession, prices fell but found the $140-150/kilogram [$140-150/kg] level again in 2010-2011. At the end of 2011 and in early 2012, we saw again a slowdown in commodity prices and demand, including many strategic metals. Currently, tantalum prices have stabilized at about $80-90/kg. Tantalum demand obviously moves with the ebbs and flows of the global economy, but it tends to be influenced by developments in the technology space. Niobium has been less volatile, but that has been sort of the pattern for some critical metals.

    TGR: From the few publicly traded companies that are developing tantalum and niobium projects, what do you want to see in a development-stage tantalum-niobium project?

    LM: Brian, I appreciate the companies that are following an unconventional mining development path by focusing strongly on reaching, in as short a period of time as possible, production and revenues at the lowest possible costs, by building strong management and technical teams and establishing contacts and partnerships with end users as early as possible in project development. Defining a resource is important as the company grows, and the grade and the surrounding infrastructure are important too, of course, but, ultimately, if a company doesn't have the appropriate metallurgy program, that could become a major hurdle.

    For projects that are still being developed and require some form of hydrometallurgy, it's really about optimizing the chemical process and achieving sustainable operating costs, thus a strong technical team matters. Another important aspect, as I mentioned, is agreements with end users. Tantalum and niobium are strategic materials with stable markets at the moment, so as long as a company can produce them economically and to end-users' specifications, there is a good chance of project success.

    TGR: In metallurgy, what are the common host minerals that are most amenable to known processing technology?

    LM: The most common tantalum and niobium minerals are the columbite-tantalite [also known as coltan] group minerals. Technically when tantalum outweighs niobium the mineral is called tantalite; when niobium outweighs tantalum the mineral is columbite. Another important mineral source for tantalum is wodginite and for niobium is the pyrochlore mineral. Those are common minerals, but ultimately it's about the ability to extract these elements economically. Companies will use different chemical processes depending on the type of ore and mineralogy. It's not a linear situation. It must take into consideration the deleterious elements also. Some deposits have high concentrations of thorium and uranium, which could be a nuisance to separate and dispose. Recovery rates are very important, too. When there are equal distributions of tantalum and niobium it could be complicated to separate the tantalum from the niobium, in some cases, because their respective chemical properties are very similar.

    TGR: Is metallurgy as important with vanadium development projects?

    LM: Metallurgy is generally an important aspect for many strategic materials. It will always be important for most metal processes, but the vanadium production process is not one that requires major new developments such as what we are seeing in the REE and titanium dioxide space.

    TGR: You also cover the titanium market, a growing market and perhaps one of the most complex markets for investors to grasp. Please give us the essentials.

    LM: Titanium metal is used primarily in the aerospace and chemical processing industries. Titanium metal is most useful in corrosion-resistance applications. It has a high strength-to-weight ratio-the highest of any metal. Titanium is as strong as some steels, but almost 50% lighter. It should be noted, however, that only 5% of titanium is used in metal applications; 95% is used for the manufacturing of titanium dioxide. Titanium dioxide is most commonly used as a white pigment in a variety of applications, including paints and coatings, which account for about 60% of the market, and plastics, which account for 20%. The remaining applications are paper, inks, fibers, cosmetics, etc. It's a diverse market.

    TGR: Where is the growth coming from?

    LM: Titanium dioxide is the most significant market for the element, which strongly correlates with gross domestic product growth. If we see a recovery in the world economy in the next two or three years, we should see an increase in demand for titanium dioxide.

    TGR: How would you convince skeptical investors that they can still make money in the REE space?

    LM: It's important for investors to remember the reasons why folks got interested in REEs in the first place, back in 2010. It was in part because China was restricting exports, but ultimately the incident between China and Japan, where essentially China threatened not to sell any more REEs to Japan over territorial disputes, led to a market frenzy for these elements. China controlled and still controls most of the supply, close to 100% for some elements. The other reason was that we realized the importance of REEs in the green agenda that continues to move ahead in Europe and North America. But nothing has changed. We still don't have REE production outside Asia and the green agenda continues to take hold. Will the West always depend on China and the rest of Asia as a source for the most strategic rare earths elements?

    TGR: Thank you for your insights, Luisa.

    This interview was conducted by Brian Sylvester of The Gold Report and can be read in its entirety here.

    Luisa Moreno is managing partner and analyst with Toronto-based Tahuti Global. She covers industry metals with a major focus on technology and energy metal companies. She has been a guest speaker on television and at international conferences. Moreno has published reports on rare earths and other critical metals and has been quoted in newspapers and industry blogs. She holds a bachelor's degree and a master's degree in physics engineering, as well as a Ph.D. in materials and mechanics from Imperial College, London.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Interviews page.

    Bottom of Form

    DISCLOSURE:
    1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    3) Luisa Moreno: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.

    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (NYSE:I) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

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    Jul 23 2:49 PM | Link | Comment!
  • Salman Partners Economist Calls Bottom In Copper

    Experienced investors know that commodities and equities move in cycles, and understanding where copper, iron ore, nickel and zinc are in the cycle can result in much smarter decisions than blindly following the pack. In this interview with The Gold Report, Salman Partners Vice President of Commodity Economics Raymond Goldie brings some perspective to the charts and names the junior mining companies that could ride the inevitable waves up.

    The Gold Report: You recently wrote a paper called "Stagnation: The New Paradigm?" where you put current commodity prices in perspective by showing charts going back to 1999. What happened over the last five years in iron ore and copper and what can we expect going forward?

    Raymond Goldie: The price of iron ore from 2011 to 2015 dropped more than 70%. If you look at the other great indicator of the mining industry-the price of copper-you find a similar, but smaller, decline over the same time period.

    TGR: What were the fundamentals both behind iron ore and copper's astronomical moves up going back to 2004 and the subsequent falls?

    RG: Iron ore prices really started to rise in 2008 because of increasing demand for infrastructure needs globally. Copper received added attention in China as it became seen as money right alongside gold. Chinese bankers started using copper, especially for foreign trade financing, which helped push copper prices up to levels that may not have been sustainable.

    In both cases, the main reason for the following shift down was that supply had increased faster than demand.

    Both iron ore prices and copper prices are, even at their relatively depressed levels today, higher than any price that they'd ever seen before 2006.

    TGR: The continuing trend lines that you have on both iron ore and copper in these charts show slow, steady growth going forward. What prices are you expecting in 2016 and beyond?

    RG: One of the things I've learned is that I'm not particularly good at forecasting prices. The forward strip markets, the futures prices on the London Metal Exchange, incorporate the aggregate of expectations and are better at forecasting prices. That seems to be calling for a steady increase in copper prices over the next 10 years.

    In the case of iron ore, there is no forward strip market, so I relied on the Australian government forecast. We're at a pretty flat bottom now and the best estimate is a steady increase in iron ore prices.

    TGR: What would steadily increasing commodity prices mean for the commodity equities market?

    RG: That's a very good question-how strong is the relationship between commodity prices and commodity equities? One of the answers is that stocks of companies that produce copper, like Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), the biggest one, and some of the smaller producers-the biggest one in Canada is First Quantum Minerals Ltd. (OTCPK:FQVLF) [FM:TSX; FQM:LSE]-follow the larger equity market closer than the commodity prices.

    One of the charts that I've put together shows the relative performance of the Toronto Stock Exchange diversified mining index against the overall Toronto composite index. It shows seven clear economic cycles since 1960. In every one of those cycles, equities have experienced two peaks and two troughs. One of the peaks happens as you recover from the end of the recession. Then in the middle of each cycle, those equities tend to languish and decline and form a second trough, finally running up to the cycle end peak. I believe we are at the middle of one of these mid-cycle peaks right now.

    TGR: Is there anything different about this cycle than the previous cycles? Is it acting as predicted?

    RG: Many have said we are experiencing uncommon demand, but if we look at the Western world's demand for base metals in this cycle compared with some of the previous cycles, we find that the trend of the line for demand has been pretty much in the middle of previous cyclical trends. Even China's export data is, on average, sideways. There may, indeed, be strong growth in China in demand for copper, but there's also been strong growth in production of copper in China. The net result is that China's impact on the rest of the world copper market is pretty flat. So it's not a demand story.

    I think it's a supply side story that is resulting in copper prices that are stronger than at any time before 2006.

    TGR: What is causing the lack of supply and will that continue?

    RG: At the beginning of every year, copper mining companies publish their production goals, and typically up to 2005, they achieved that. One of the ways they did that is by tucking away some high-grade ore so they could kick up the pounds if needed at the end of the year. But since 2005, the world's copper industry has consistently produced 7% less copper than planned. One of the reasons we've had these shortfalls is that those areas of high-grade ore don't exist anymore. They've been mined out.

    That is why we have a supply side issue at existing mines. When it comes to building new mines, not only are we not finding sparkling new copper deposits at the rate we used to, but also it takes longer to get mines into production-12, 15, 20 years-because of new environmental compliance regulations.

    That is why this isn't a typical cycle. This is a cycle constrained by government compliance and governmental regulations.

    TGR: Can the junior companies fill that demand in the coming cycle?

    RG: Many juniors have superb projects, but they're lacking financing. Banks generally want to lend to big companies. So the juniors are sitting, waiting to be taken over or engage in a joint venture with a big company. But big company shareholders often do not want to see their companies underwriting big new expansion projects. They'd rather see that cash returned to them.

    TGR: What are the companies that have some money to move projects ahead?

    RG: First Quantum has become a big company by growing internally and through the recent takeover of Inmet Mining Corp. That big company interest will allow Cobre Panama to come on stream roughly as planned.

    TGR: Are you following other copper companies?

    RG: Reservoir Minerals Inc. (OTCPK:RVRLF) [RMC:TSX.V] has a joint venture with Freeport-McMoRan, which has named Reservoir's Timok Project in Serbia as one of its top priorities. This is a country that has been wracked with war; only recently has there been calm. The political instability resulted in a lack of new technology used to explore ore deposits in a seasoned mining area. The Timok project combines a known occurrence of large, high-grade ore deposits with modern exploration methods to find some humdinger resources. The company is working on permitting and engineering in preparation for raising final financing.

    TGR: Is nickel following the same pinch-point curve™* as copper?

    RG: Nickel is also in a mid-cycle low, something that occurs well before the end of an economic cycle. As long as economic growth continues, we will see a recovery in the price of commodities that relate to that recovery. Nickel is one of them. In fact, I'm more optimistic about nickel than most other commodities because it is a supply side story. The demand is growing fairly consistently at about 4% or so a year.

    The supply side issue is that in January of 2014, the government of Indonesia, the Saudi Arabia of nickel, banned exports of raw nickel as part of a move to producing finished nickel. China had been making lots of cheap nickel from this high-grade Indonesian ore and stocked up before the door shut. We're not quite sure when the Chinese will run out of that ore, but it's almost certainly before the end of this year. Once that happens, a shortfall of 200,000 or 300,000 tons a year could push the price up from the current $5 a pound [$5/lb] range to something more like $11, 12 or 13/lb. Remember, the price of nickel got into the $20/lb neighborhood in 2007.

    TGR: Looming supply challenges have been reported in the zinc space. What is your outlook in that market?

    RG: A few months ago a lot of investors noticed that many of the big world zinc mines are closing down. Some speculated we were running out of zinc and that the price might go from the current $0.91/lb to as high as $2/lb in a couple of years. The problem is that because of that prediction, a lot of production-particularly in China, Peru and at Vedanta Resources Plc's [VED:LSE] projects in Africa and Asia-ramped up fast. The net result is the price of zinc isn't $2/lb. It's about $0.91/lb and likely to stay in that range for the next few years.

    TGR: Do you have any words of wisdom that can help investors re-engaging with the market as the summer comes to a close?

    RG: We have seen the bottom in copper. We are still waiting for the bottom in nickel, and zinc could be a couple of years out. I would focus on copper equities. Start with the big, liquid copper producers. That used to mean Freeport McMoRan, but it also now has huge interests in oil and gas. I have really no idea what's going to happen to oil and gas prices in the foreseeable future. So I turn to First Quantum, which is Canada's go-to copper play. This is probably the best performer among base metals equities between now and the end of this year. Looking out further will be the time for other junior copper plays and then later, nickel, and even later, zinc.

    TGR: Thank you for your time.

    This interview was conducted by JT Long of The Gold Report and can be read in its entirety here.

    *Pinch-point curve™ is a term trademarked by Raymond Goldie.

    Raymond Goldie, vice-president of commodity economics and senior mining analyst at Salman Partners, has extensive experience in the investment business, including more than 20 years as a mining analyst covering non-precious-non-ferrous and precious minerals [gold, silver, PGEs, diamonds] and fertilizer companies. In geology, Goldie holds a Bachelor of Science from Victoria University in Wellington, New Zealand; a Master of Science from McGill University; a Ph.D. from Queens University; and a Diploma in Business Administration from the University of Toronto.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Interviews page.

    Bottom of Form

    DISCLOSURE:
    1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    3) Raymond Goldie: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (NYSE:I) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
    Petaluma, CA 94952

    Tel.: (707) 981-8999
    Fax: (707) 981-8998
    Email: jluther@streetwisereports.com

    Jul 20 2:03 PM | Link | Comment!
  • Stefan Ioannou's Ways To Ride The Next Zinc And Nickel Waves

    Base metals prices are feeling the undertow but Stefan Ioannou, mining analyst with Haywood Securities, says that this is temporary-and that investors may not have to wait long for the next wave of higher zinc and nickel prices. Ioannou says zinc prices could even reach "bonanza" prices over the medium term. Nickel prices, meanwhile, could rebound as quickly as late 2015. In this interview with The Gold Report, Ioannou discusses some equities well positioned to ride the base metals waves as they come in cycles.

    The Gold Report: In late June, zinc and nickel prices on the London Metals Exchange [LME] dipped on concerns surrounding the economic fallout from Greece exiting the Eurozone. What's your view?

    Stefan Ioannou: When the referendum was first announced in late June there was a big reaction. There is no doubt the issue is a political crisis. However, unless you live in Greece, the actual financial impact is questionable. That's not to say that it hasn't justifiably sparked concern for the well being of the greater Eurozone. Although there is now better clarity regarding the European Union's bailout package, the jury is still out on the ultimate implications of the situation. Nevertheless, we expect general market sentiment regarding the base metals will continue to be centered on Asian demand. Looking further ahead, we continue to anticipate a lack of timely new mine development will lead to a supply constrained market, which will drive market fundamentals.

    TGR: The spot price for zinc flirted with $1.10/pound [$1.10/lb] in May, but now it's around $0.90/lb. Which zinc price is real and which one is the imposter?

    SI: Relatively high zinc inventories are behind the current zinc price. The zinc price spiked to $1.10/lb in the spring, but our feeling at Haywood was that it was a bit too much too soon. Nevertheless, higher prices appeared to be driven by steady inventory drawdowns on the order of 2,000 tonnes per day. This relatively persistent trend saw LME inventories drop by half over the last year. However, more recently we have seen sporadic inventory spikes, on the order of 5,000 tonnes per day, occur more regularly, which in turn has prompted the LME inventory levels to stagnate around the 450,000-tonne to 460,000-tonne level, which hasn't helped near-term zinc pricing or sentiment.

    TGR: What is your near- and medium-term forecast?

    SI: Looking a little further out, there's a strong argument that zinc prices will rally as we go into 2016. We've seen a number of large zinc mines shut down over the last couple of years. The Brunswick mine in New Brunswick, which provided roughly 2% of the world's supply, shut down in 2013. Later this year, the Century mine, Australia's largest open-pit zinc mine, and Ireland's Lisheen mine will cease zinc production. The production from those two mines alone is roughly equivalent to the zinc that's on the LME today. We're losing mines and there aren't any new large-scale projects being developed to fill that gap.

    The market continues to face an undersupplied medium-term outlook, which will drive prices higher. The one black box consideration is China. It has always been able to fill zinc supply gaps. However, the consensus is that a lot of the Chinese production is higher cost and that's why we haven't seen much of it to date. Haywood's zinc price forecast includes US$0.95/lb this year and a long-term price of $1.15/lb. However, in the medium term, say the 2016-2018 timeframe, there is potential to see spectacular prices on the order of $1.50/lb to $2/lb. That said, one thing to remain cognizant of is that higher medium-term pricing will prompt additional production over the longer term, which will eventually balance the market and regulate zinc pricing.

    TGR: Is it fair to say that you are more bullish on zinc than any of the other base metals?

    SI: Yes, at least from a timeline perspective. All commodities are cyclical, but we're the closest to seeing higher zinc prices versus copper or arguably even nickel.

    TGR: Given the performance of nickel equities in recent years investors might call nickel stocks, "fickle" stocks. Are there reasons to believe that could change over the near to medium term?

    SI: There's definitely a bullish argument for the nickel price over the medium term. One of the key recent events in the nickel space was the Indonesian government's ban on nickel ore exports at the beginning of 2014. The country was a major supplier of nickel laterite ore to China, which the ban basically cut off overnight. The initial global sentiment was that the ban wouldn't last, but it's still in place. It prompted a spike in nickel prices up to about $9/lb last year, but unfortunately nickel is back to about $5.10/lb now.

    Nevertheless, the bullish medium-term argument is that up until now China has been relying on high-grade ore from Indonesia that was stockpiled in China before the ban. That stockpile is dwindling, now below 4 Mt, from over 15 Mt prior to the ban. Once it is consumed, the nickel market will realize that supply is much tighter than today's prices would suggest. China will have to look elsewhere to secure nickel feed for its plants and that could put a squeeze on prices by as early as late 2015. LME inventories have actually increased modestly year-to-date. However, Chinese consumption of this metal, once the country's own stocks have been depleted, could set the stage for higher prices. The key consideration behind this scenario is improving stainless steel demand.

    TGR: The Shanghai futures exchange recently approved Russian nickel miner Norilsk Nickel [GMKN:RTS; NILSY:NASDAQ; MNOD:LSE] for delivery. It's the first foreign company to receive approval. Is this a tangible sign that the Chinese are running shy on nickel?

    SI: The Chinese know better than anyone else how much life is left in that nickel laterite stockpile. Seeing them try to secure supply from Norilsk is a sign that they're thinking 12 months ahead and making the appropriate arrangements.

    TGR: What are some other nickel stories you can share with us?

    SI: Sirius Resources NL (OTC:SRQUF) [SIR:ASX] has a nickel project in Australia that's under construction called Nova-Bollinger, which is a 14 Mt massive sulphide deposit grading about 2% nickel. The company recently received a friendly takeover bid for AU$1.8 billion, which is undoubtedly a very big number for something that is probably geologically similar to Grasset. The reality is that if these explorers develops a 10+ Mt high-grade resource that over time garners a fraction of Sirius's takeover bid, it's still going to be a home run for everyone.

    TGR: Did the initial resource estimate at Tamarack surprise you?

    SI: No. It's right in line with expectations at around 7 Mt grading roughly 2% nickel equivalent. The key is that the Tamarack intrusion is shaped like a tadpole. The current resource is focused on the tail of the tadpole and just a portion of the tail. The resource is open in multiple directions. The reality is that the tail portion of the Tamarack intrusion could easily be 15-20 Mt with additional drilling. The company is starting to step out along the tail and has had some spectacular intercepts earlier this year.

    Tamarack is a joint venture with Rio Tinto Plc [RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK]. Rio Tinto continues to hold onto it because of the potential the tadpole's head offers at depth based on geophysics. Comprehensive drill testing is still required, but if the head of the tadpole represents something like a Voisey's Bay-type structure-50-100 Mt of massive sulphides-it would move the needle for Rio Tinto.

    TGR: Could you mine it in Minnesota?

    SI: Lundin Mining Corp. [LUN:TSX] just started commercial production at its Eagle nickel and copper mine, which is in northern Michigan. That speaks volumes about permitting a mine in the northern U.S. One example people will point to in Minnesota is PolyMet Mining Corp. [POM:TSX; PLM:NYSE.MKT], which has had issues getting its operations permitted. One of the key differences is that Tamarack is not located within a national forest or within federal lands. Furthermore, based on what we have seen to date, Tamarack would most likely be mined using underground methods, which intrinsically entails a significantly smaller surficial footprint.

    TGR: Copper recently made some gains after positive U.S. economic data, but took a deep dive in early July on Chinese economic data. What's your updated copper forecast?

    SI: Right now we are modeling a $2.65/lb average copper price this year, which is in line with year-to-date averages. We anticipate the price will ramp up modestly over the next few years to a long-term price of $3/lb from 2017 forward. This price deck is in line with base case parameters we are seeing in recent copper project feasibility studies.

    TGR: China drives the bus in terms of copper. How is the Shanghai stock market collapse likely to affect copper?

    SI: Copper is an industrial commodity. It's used to build things. But over the last few years we've seen China use copper and other bulk commodities as collateral in financing mechanisms. However, unlike gold, copper is not money. We would argue this realization has in part, prompted the notable decline in Shanghai copper inventories over the past three months relative to essentially flat inventory levels on the LME.

    We definitely see day-to-day mixed messages in economic data out of China. But over the longer term, the Chinese will continue to consume a lot of copper and going forward will consume more copper in absolute terms, whether it be on large scale regional infrastructure such as power grids, or personal items such as mobile telephones and refrigerators. It just might not happen quite as quickly as we expected a few years ago.

    TGR: What are some copper-focused equities that you cover?

    SI: Producers arethe safe haven for investors because access to capital is rather limited for the developers. Among the producers, the one company I would point toward is Nevsun Resources Ltd. (NYSEMKT:NSU). The company is mining a large, high-grade VMS polymetallic deposit in Eritrea. Bisha has been in production since early 2011 over which time the company has developed a strong relationship with the Eritrean government. Bisha started as a very high-grade gold mine in an oxide cap. Nevsun is now mining supergene ore grading 4-6% copper in an open pit with a low stripping ratio. This is highly profitable.

    Over the next year or so Nevsun will transition from Bisha's supergene enrichment blanket into the primary massive sulphides, which are a mix of copper and zinc. The amount of copper being produced will go down, but the zinc production will come up. The zinc should come to market just as global zinc supply tightens. The timing is perfect. Nevsun has over $440M in cash or about CA$2.60 a share, and no debt, which puts the company in a very strong position to pursue opportunistic corporate growth initiatives.

    TGR: Is it using some of that cash for exploration?

    SI: Last year Nevsun committed $10M to regional exploration in Eritrea along strike from Bisha and some other deposits. The company was extremely successful. Nevsun drilled off a high-grade deposit called Harena, which is already underpinned by a 10 Mt resource that is open in multiple directions and is situated just six miles from Bisha's mill. This year the company is following that up by drilling a series of other satellite targets. VMS deposits typically form in districts or camps. We see that globally. Nevsun has clearly demonstrated that Bisha is in a VMS camp. It's going to be pretty exciting to watch the exploration results this year.

    TGR: With its recent exploration and operational success, is Nevsun clearly on the radar screens of larger players?

    SI: I think so. This could turn into a pretty significant VMS camp very quickly. And the potential of Bisha at depth has never really been looked at in a formal mine plan. One of the big pushes this summer is to update Bisha and Harena's mine plan to consider the economic potential higher throughput and/or ramp-accessed underground mining could offer, noting Bisha's current open-pitable reserve provides mill feed to about 2025 in our model.

    TGR: What is your target and rating on Nevsun?

    SI: Haywood has a CA$5.00 target price and a Buy rating on Nevsun.

    TGR: Do you have any parting thoughts on base metals?

    SI: Patience is key. Investors have to remember that industrial commodities are cyclical both on short-term and, more importantly, long-term cycles. We can see light at the end of the tunnel. We mentioned zinc as a potential 2016 story, which is coming up quickly. There's a solid argument there that we could see bonanza pricing over the medium term. Again, nickel prices are in a trough now, but with dwindling Chinese nickel stockpiles, we could see nickel prices move higher as we move into next year. It's all about catching the wave at the right time and knowing when to get off.

    TGR: Thank you for your market insights today, Stefan.

    This interview was conducted by Brian Sylvester of The Gold Report and can be read in its entirety here.

    Stefan Ioannou has spent the last eight years as a mining analyst covering mid-cap base metal companies at Haywood Securities. Prior to joining Haywood, he worked with a number of exploration and mining companies, as well as government agencies as a field geologist in Nevada and throughout the Canadian Shield in both the gold and base metal sectors.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Interviews page.

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