BHP Billiton to spend £760m in nickel move

BHP Billiton, the mining giant, is to spend $1.4bn (£760m) to raise its nickel output by a half and become the third-biggest producer of the sought-after metal.

BHP Billiton, the mining giant, is to spend $1.4bn (£760m) to raise its nickel output by a half and become the third-biggest producer of the sought-after metal.

It will invest the money on developing its Ravensthorpe nickel mine and expanding its Yabulu refinery in Australia, increasing the plant's production capacity by more than 140 per cent to an estimated 76,000 tonnes a year from late 2007.

Volatile prices of nickel have soared in the past year on demand for stainless steel, used widely in construction, food preparation equipment and medical apparatus. However, some analysts warned that the strategy was risky.

Mark Pervan, of Daiwa Securities, said: "It is a very large project in nickel, when a number of commentators would think that by the time this comes on line, the nickel market might be a fair bit weaker. It is a fairly high-risk play."

The scheme will extend the Queensland refinery's life by about 25 years and make the company the third-biggest nickel producer, from fifth place now. Norilsk Nickel of Russia and Toronto-based Inco are the two leading producers.

Chris Pointon, the head of BHP's stainless steel materials business, said: "This project, to put it in its strategic context for us, represents a major step in the strategy to develop a leading nickel business for BHP Billiton." Output capacity from BHP Billiton's Australian and Colombian nickel operations will rise to a combined 130,000 tonnes a year by 2007 from 85,000 tonnes, and unit production costs should fall with the Queensland expansion.

Earlier this year, nickel prices rose to 15-year highs of about $17,000 a tonne on the London Metal Exchange, compared with below $4,000 in the late 1990s. The metal last closed at $13,900.