Sean McCaughan: Long-term projected nickel supply does not meet expected growth in global demand

Asian Metal: Thanks for granting this interview Sean, could you tell us a little bit more about Sherritt International and your business operations?

SM: Sherritt’s core business is nickel production, along with a cobalt by-product at our Moa mine in Cuba and Ambatovy mine in Madagascar. The Moa joint venture was established in 1994, and Ambatovy was commissioned in 2012. We also own a unique oil and gas business in Cuba, which was established over 20 years ago and produces in excess of 19,000 barrels of oil per day. Our other business in Cuba is our power division, which is the largest independent power producer in the country. We use natural gas to produce electricity, with a combined capacity of over 500 megawatts. We previously owned a coal operation, which we sold earlier this year.

Asian Metal: You set quarterly records at both of your mines this quarter. What can we expect from a metals production standpoint from Sherritt in Q4 as well as Q1 of next year, in terms of guidance estimates?

SM: We had record quarters at Moa and Ambatovy in Q3, and have recently updated our yearly production guidance to 70,500-74,500t nickel and 6,050-6,450t of cobalt for 2014. At Moa, our output has been consistent, and our Q4 production should be on par with previous years. Our main focus at Moa is cost reduction. At Ambatovy, we continue to ramp up production. We have scheduled a planned maintenance this November. Taking that into account, we are positioning ourselves to make significant leaps in production during H1 2015. Our goal is to reach a throughput rate of 90% capacity over a 90-day period by mid-2015.

Asian Metal: The global nickel market remains in surplus with LME inventories at high levels, Chinese growth being slower than expected, and the Indonesian ore ban still in effect. Due to this combination of global factors, how does Sherritt project nickel prices for 2015?

SM: There are lots of factors to consider here, as is always the case with commodities. We saw a nickel price reaction in H1 2014 due to the Indonesian ore ban. Chinese pig iron production has been higher than expected because of their existing stockpiles as well as ore imports from the Philippines. Looking at the market, we are estimating a supply deficit in 2015. Pig iron production is projected to slow down next year, and prices could rebound especially if the Indonesian ore ban remains in effect. Looking beyond 2015, we expect more dramatic changes over the next several years. Even after accounting for new projects coming online from now through 2018, the projected supply does not meet the anticipated growth in global demand.

Asian Metal: As a significant producer of cobalt, where is your company’s outlook on cobalt over the course of next year? What markets are you expecting to see the most growth?

SM: Cobalt has been similar to that of nickel in that is growing consistently, albeit with different market dynamics. Based on yearly demand increases and the upside of battery and high-tech applications, the outlook should be positive.

Asian Metal: Which nickel-consuming downstream industries do you feel are primed for growth both in the short and long-term?

SM: The nickel market has been growing around 4% per year and forecasts are for that to continue. The main downstream industries are stainless steel which is two thirds of the nickel market. GDP and industrial production drive this. Nickel is used in many applications and industries including being consumed in battery technologies and the super alloy markets as well.

Asian Metal: Thank you very much Sean for taking the time to speak with us. We wish you at Sherritt all the best!