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Long-term losses challenge Queensland Nickel recovery

A nickel ore ship at Townsville, where (inset) Clive Palmer's Yabulu refinery processes it. Photo: Chris Mackey / Southern Cross Maritime. (Inset: Creative Commons / Benjamin J Macdonald)

Any party looking to revive Clive Palmer’s embattled refinery business Queensland Nickel will have to eat cash losses until at least 2017, the company’s administrator has reportedly told its major creditors.

According to a Fairfax report this week, administrator FTI Consulting met with Queensland Nickel’s major creditors – including Aurizon and the Australian Taxation Office – to discuss Palmer’s business activities relating to the refinery, which Palmer put into voluntary administration on January 18.

While the company reportedly has enough cash to operate until April 30, any operation beyond that point will result in cash losses until the nickel price recovers, an event the administrator has predicted won’t occur until 2017.

Queensland Nickel’s Yabulu refinery, near Townsville, reportedly produces nickel for roughly US$4.40 a pound. The nickel price is currently sitting around US$3.80 a pound.

Movement in the nickel price, as well as the cost of fuel and exchange rates, could all influence the operation’s ability to keep its head above water in the future, making it a risky potential investment, FTI Consulting director John Park reportedly told the Australian Financial Review.

“This is really a play on various parties taking a longer-term view of the ongoing outlook for the nickel price,” Park was quoted to have said.

“We don’t see a huge material uplift in nickel for 2016 but beyond that it looks promising.

“It needs a proposal where someone is willing to bankroll the operating losses until there is a recovery in the nickel price. It’s no more complicated than that.”

Aurizon, believed to be Queensland Nickel’s biggest creditor, does not operate in the resource production sector.

The former government-owned rail operator was floated on the ASX in November 2010, and has excelled since then in the operation of intermodal and bulk rail services.

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