Belvedere Resources' off-take extension protects from future nickel price fall, says broker

The extension to Belvedere Resources (CVE:BEL) Chinese off-take provides the firm with protection from any further downside to the nickel price, according to Ocean Equities.

Analyst Christopher Welch said the deal means that the Hitura mine can be expanded without the fear of financial instability.

Yesterday, Belvedere confirmed that it has extended its sales agreement with Jinchuan Group, China’s largest nickel producer. 

A fixed-price sales agreement has been extended for two years on broadly similar terms to a deal it agreed back in 2010.

Belvedere initially restarted the Hitura mine back in early 2010 and it is currently at the late stages of completing a final feasibility study for the pit expansion project.

According to Welch, the pit expansion will have a benefical effect on Belvedere because it will shelter the company from all but the worst conditions in the nickel market.

“The primary benefit of the (expansion) project is that it will significantly reduce the operating costs at Hitura by lower mining costs and increasing throughput,” Welch said.

“The company believes that the project has the potential to lift output capacity from its current 2,200 tonne nickel-in-concentrate per annum. Significantly reducing the opex will give Belvedere greater shelter from any further volatility in the nickel price.”

Additionally Welch reckons that Jinchuan’s decision to lock in the price reveals two things. Firstly he says it reflects the good working relationship between Belvedere and Jinchuan.

But more importantly, he says, it shows that the underlying demand for intermediary nickel products, particularly nickel sulphide concentrates, remains stronger than is reflected in the spot nickel price.

“In our view, the fundamentals of the nickel market are more stable than the price would suggest,” he said.

Welch added: “Once Belvedere has completed its open pit expansion it will offer good exposure to uplift in the nickel price. Having agreed a price protection component in the latest agreement the company can now get to this point at little risk to the shareholder.”

The pit expansion is just part of the development work Belvedere plans to undertake in Finland. 

The nearby Kopsa gold deposit is another of the firm’s key projects. With the development of this gold project Belvedere is aiming to turn Hitura into a multi-metal mining complex and transition its business into a precious and base metals producer.

Yesterday chief executive David Pym said: “We are pleased to continue our cooperation with Jinchuan group through this agreement, which allows the Hitura mine to continue operating profitably while protecting the company from volatility in the nickel market.” 

“The company aims to expand operations during 2012 by re-opening the open pit at Hitura subject to a positive final feasibility study and is investigating the feasibility of starting its first gold mine at the nearby Kopsa project.”