The recovery of nickel from the sulphide deposits is becoming more expensive and thus increasing attention is being paid to the nickeliferous laterite ores. One option being considered for the extraction of nickel would be the production of a concentrate by reduction and magnetic separation of the ferronickel alloy. The utilization of methane as a reducing agent offers some environmental benefits when compared to carbon. In this paper, thermodynamic modelling has been used to investigate the pyrometallurgical reduction of a saprolitic laterite ore by methane. The effects of methane additions, temperature, and ore composition on the nickel grade and nickel recovery were determined. It was found that nickel recoveries of 90% could be achieved at about 1000 degrees C with nickel grades of about 60%. The majority of the reduction was due to the carbon in the methane.