Rio Tinto targets 5% of global nickel output

Rio Tinto group, the world's third-largest mining company, is betting on two nickel projects to give it 5 per cent of global production as the price of the metal surges to record highs.

The company, based in London, is planning nickel mines in Indonesia and the US, Bret Clayton, who heads Rio Tinto's copper unit, said today. Rio doesn't yet produce the commodity.

Rio Tinto is trying to enter the market as rivals can't meet demand, which is stoking higher prices and interest in acquisitions. Cia Vale do Rio Doce and BHP Billiton had to delay their nickel projects, and Xstrata yesterday made a $4 billion bid to buy producer LionOre Mining International.

"Rio has been interested in nickel for a while, and they've been looking for production at a more viable cost," said Tony Robson, an analyst at Global Mining Research. Still "it could face major opposition to get into the industry since it's been consolidated with heavy dominance" from four rivals.

Russia's OAO GMK Norilsk Nickel, Brazil's Vale, Melbourne -based BHP Billiton and Switzerland's Xstrata are the four largest nickel producers. Nickel is used to make stainless steel.

We see nickel "as an attractive industry to be involved in", Clayton, who was in Singapore for a conference, said. If developed, the two projects "will give us about 4 to 5 per cent of the nickel industry, which will be a good opening position to have."

Nickel futures reached a record $48,500 per metric tonne on the London Metal Exchange, the world's largest such bourse, on March 16. They rose as much as $900, or 2.1 per cent, to $43,400 a tonne today, and traded at $43,000 at 3.22pm. Singapore time.

Rio Tinto's shares, which are listed in Australia and the UK, rose 80 cents, or 1 per cent, to close at A$79.20 in Sydney.

The Australian stock has advanced 2.8 per cent over the past year. Rio Tinto, in January, received initial environmental approval from Michigan to build the only primary nickel mine in the US, and expects construction to start late this year.

Mining at the $150 million Eagle nickel-and-copper project could begin in 2009. The mine could produce 250-300 million pounds of nickel, and 200 million pounds of copper.

The company is also studying a $2 billion investment in Indonesia, which may produce 45,000"�50,000 tonnes of nickel from 2012. The project, sited at Asampala, straddling southeast and central Sulawesi provinces in Indonesia, could be a "world-class ore body," said Clayton.

The International Finance Corp, the investment arm of the World Bank, may be invited to take a stake in the southeast Asian project to help to reduce its risk, he said.

"We are talking to Rio Tinto about a number of mines in Indonesia,'' German Vegarra, the International Finance Corp's country manager, said. "Rio Tinto is a global partner for the IFC, and we are always in discussions and stand ready to support their future expansions in Indonesia.''

Rio Tinto needs to win a government accord for the investment, and also build related infrastructure at the site, which is in a "remote environment", Eric Finlayson, Rio's head of exploration, said. Finlayson was also in Singapore today for the mining conference.

"There's no shortage of good-quality laterite nickel ore in Indonesia, but the question is whether you can mine it economically after high infrastructure costs,'' said Global Mining's Robson from Sydney.

Indonesia's parliament is debating a law that will change the industry's contractual framework, giving local governments more say in mine investments. The government may also propose a ban or limit on exports of unprocessed ores. We see nickel "growing at a similar, maybe a little higher rate, than copper," said Clayton.

Nickel inventories will probably be "tight" through to 2010 helping to support higher prices for the metal, Macquarie Bank said yesterday.

Prices may average between $30,000-32,000 a metric tonne over three years, Jim Lennon, Macquarie's head of commodity research, said at the Third New Caledonia Nickel conference in Noumea on March 26.

Nickel prices may continue to surprise investors, said BHP's CEO Charles 'Chip' Goodyear in a March 25 interview. "There is just no additional nickel supply," he said.