Base Metals


Low nickel prices and a failed legal dispute with Australia’s Axiom Mining are behind the company’s decision.

Sumitomo Metal Mining’s (TSE:5713) share price fell 1.07 percent on Tuesday (August 8) after it stepped back from a nickel exploration project in the Solomon Islands. 
SMM Solomon, a subsidiary of Sumitomo, began exploration activities at the project in 2005, but then became involved in a six-year legal battle with Australian firm Axiom Mining (ASX:AVQ). It concluded in March 2017, with neither party being granted the rights to the deposit.
According to Sumitomo, nickel prices “tumbled” during the proceedings, and some market watchers expect “harsh market conditions” to continue into the future. Due to those circumstances and the loss of the dispute with Axiom, the company plans to withdraw all its pending applications for mining leases related to the project and will stop operating SMM Solomon.

Sumitomo expects the withdrawal to have a minor impact on its financials for the current financial year to March 2018. A company spokesman was quoted by Reuters as saying, “even if the market picks up, it would be difficult to conduct the project as the social and legal system has not been developed in the Solomon Islands.”
Instead, the company will “continue to work towards securing new nickel resources through projects in the Philippines and Indonesia and other such activities.” Sumitomo is aiming to ramp up nickel output from its mine holdings to 150,000 tonnes per year by 2021, up from the 100,000 tonnes it currently produces.
Axiom Mining has not commented on the results of the legal proceedings, and its share price was up 5.56 percent on Tuesday. In the firm’s latest quarterly activities report, CEO Ryan Mount said, “we remain confident that we can deliver the licenses for the [Solomon Islands] nickel project and will continue to ensure that due process is followed to that end.”
Sumitomo is not the only large company that is reconsidering moving forward with a nickel project. Vale (NYSE:VALE) CEO Fabio Schvartsman announced last month that the company is reviewing its loss-making nickel operations in New Caledonia. The company has a mine, processing plant port on the Pacific Island, and is said to have lost $1.3 billion while waiting for nickel prices to rise.
Similarly, SLN, a nickel-focused subsidiary of France’s Eramet (EPA:ERA), is reportedly losing over $20 million a month. SLN operates eight mining centers in New Caledonia.
Nickel prices are currently just above $10,000 a tonne, a far cry from 2007, when prices hit $50,000. 
Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.


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