<p>Nickel<br/>The Wildcard<br/> Nickel Needs Help — For nickel prices to see meaningful upside over the next<br/>few years two factors are required: 1) The failure of all leaching projects 2) A<br/>recovery in austenitic stainless steel production.<br/> A Laterite Leaching Letdown? — Laterites account for three quarters of the<br/>growth in nickel supply. The potential economic failure of laterite leach<br/>technology is a source of risk we have long highlighted. Ravensthorpe closure<br/>whilst co-incident with a depressed nickel market reflects design failure, even<br/>after several capital cost escalations. This raises significant questions over<br/>other large scale acid leach operations.<br/> Cost Curve Coerces Cuts — 20% of nickel supply has been cut. There are two<br/>reasons for the large curtailments. Firstly, the steep cost curve means that high<br/>cost producers have come under sever pressure very rapidly. Secondly<br/>curtailments in laterite leach production.<br/> Changing Costs — We expect a significant flattening of the nickel cost curve in<br/>2009 as rising costs at the bottom end of the curve offset cost declines at the<br/>top of the curve. Falling by-product credits will impact low cost operations.<br/>High cost producers will benefit from lower energy costs.<br/> Nickel in Pig Plummets — Nickel-in-pig represents a significant proportion of<br/>production at the top of the cost curve. Its future is important in the supply<br/>demand outlook and in marginal cost pricing. However we believe the current<br/>price environment has seen nearly all blast furnace operations close, resulting<br/>in total nickel in pig production falling by 50%.<br/> Austenitic Upside Essential — High nickel content stainless steel alloys<br/>continue to be substituted by low nickel alloys despite depressed nickel prices.<br/>But if the austenitic ratio were to increase and if leaching projects were to fail<br/>the nickel market would tighten much more rapidly.<br/> Price Potential — Our base case outlook for nickel remains unchanged at<br/>$US4.80/lb and $5.00/lb for 2009 /10 respectively. If leaching is a failure and<br/>demand recovers (or austenitic regain market share) nickel prices could reach<br/>$US10/lb in the outer year of our forecasts.</p><p>Contents<br/>Supply 3<br/>Laterites & Leaching 4<br/>Industry Costs – Changing 10<br/>Nickel in Pig – Chinese Production Collapse 13<br/>Demand – Substitution Stings 16<br/>Appendix: Nickel Leaching Technologies 21<br/>Ammonia leaching 21<br/>Pressure acid leaching 22<br/>Atmospheric Pressure (VAT) Leaching 23<br/>Heap Leaching 25<br/>Appendix A-1 34</p><p></p><p> <br/></p><p></p>