Poseidon Nickel (ASX:POS) has received the results of a Definitive Feasibility Study (NYSE:DFS) for the Windarra Nickel Project that demonstrate it could become the newest nickel producer in Australia.
A feature of the DFS was the low cost, long life nickel operation where Windarra could be producing at a cost of US$3.35 per pound, net of gold credits.
The Windarra Nickel Project is located 260 kilometres north east of Kalgoorlie in Western Australia, and is on track to forge Australia's new nickel force, scheduled to be ready to meet projected nickel supply shortfalls in 2014/2015.
Poseidon has revealed it is in current discussions regarding debt financing of the Project.
- DFS results confirm the viability of the Windarra Nickel Project in Western Australia
- Expected average annual production of 9,600 tonnes of contained nickel in concentrate at an average operating cost of US$3.35/lb over initial 10 year life of mine (net of gold credits)
- Additional gold processing facility estimated to produce over 45,000 ounces of gold in the first 3 years
- Expected to deliver a total EBITDA of US$1.8 billion and has an NPV of [US$546m] over initial 10 year life of mine
- Pre-start Project capital cost estimated at A$197 million (excludes nickel tailings), comparing favourably to global capital intensity costs for the industry
- First concentrate sales revenue expected 16 months after final financing
- Poseidon in discussions regarding debt financing of Project
- Further potential for significant mine life extension beyond 10 years through near mine and regional exploration opportunities
- All necessary government approvals to commence production received (subject to final financing and offtake arrangements), with Poseidon now moving to fast-track construction and financing arrangements
The DFS incorporates the development of the existing brownfields Mt Windarra underground mine, the nearby greenfields Cerberus underground mine, a nickel sulphide concentrator plant and a re-treatment plant. It also details the development of gold production facility on the site.
The DFS establishes a robust financial position for the Project, with second quartile operating costs and favourable capital intensity per pound of nickel produced.
Poseidon expects to return the Mt Windarra Nickel Mine to production in 2014 assuming final financing this financial year.
Poseidon's Chairman, Andrew Forrest said "The DFS confirms a strong future for Poseidon as a low cost producer of nickel in Australia with a mine life potentially well beyond a decade.
I very much look forward to the day we will cut the ribbon on first production at Poseidon, built upon the foundations of the celebrated Windarra mine," said Forrest.
Poseidon's managing director, David Singleton, said the company's objective was to immediately move to finance completion, construction and production.
"We are in the fortunate position of expecting to have two-thirds of the required capital items secured in signed contracts by the time financing is completed.
"We see the timing of the Project as significant, with Windarra's development in parallel with widely held expectations of a substantial recovery in nickel price and demand."
Successful return to production at Windarra will represent a link back to the celebrated past of Western Australia's nickel industry, with a homecoming back to the original 1969 Poseidon Nickel discovery that commenced the 1970s nickel boom.
Regarding financing for the Project, Poseidon is currently in discussions with international investment banks with significant experience in securing debt finance for Australian resources companies.
Poseidon expects to provide shareholders with more information about financing arrangements for the Project in the next few months.
Definitive Feasibility Study Summary
The DFS proposes the parallel mining of the Mt Windarra brownfields ore body and the greenfields Cerberus ore body (in an approximate life of mine ("LOM") ratio of 3:2) to supply feed to the concentrator over an initial 10 year period.
The plant will possess approximately 30% more nameplate capacity than required for the proposed mine throughput of circa 700,000tpa to give flexibility on increased mining rates anticipated from further exploration activities.
In addition to the nickel ore, the project includes a 4.36 million tonne gold tailings reserve in the North and South tailings dams.
This will be reprocessed through a standard CIL plant to be constructed adjacent to the nickel sulphide concentrator facility.
The combined nickel and gold plant tailings will be pumped via pipeline and deposited into the South Windarra pit, avoiding the need for surface tailing facilities and reducing the environmental footprint of the project.
After completion of the DFS a number of option studies were conducted on additional identified opportunities including a study to reprocess nickel tailings (see later comments) and the use of gas for power from year 4 onwards. These options have been included in the projected financial results below.
Mt Windarra Underground Mine
Approximately 61% or 440,000tpa of the annual ore production for the project is planned to be mined from the existing underground mine at Mt Windarra.
The existing Mt Windarra infrastructure includes a vertical hoisting shaft approximately 460 metres deep and includes the associated surface, head frame, winder and ore haulage bins.
Existing underground facilities include a crusher chamber and associated infrastructure. The final refurbishment of this infrastructure is included in the capital cost estimate for the project.
Cerberus Underground Mine
Cerberus was discovered by Poseidon in 2008 (Figure 4) and will provide the balance of ore feed to the nickel sulphide concentrator plant.
Cerberus has a total Indicated and Inferred resource of 4.55Mt at 1.51% for 68,600 tonnes of nickel including a Probable reserve of 1.22Mt at 1.3% for 15,880 tonnes of nickel. The mining cost has been estimated at A$76/t in the DFS.
Nickel Sulphide Concentrator Plant
The proposed Windarra nickel processing plant (Figure 5) will be a conventional nickel sulphide ore treatment plant similar in design to many other nickel sulphide plants in Western Australia and globally.
The nickel ore treatment process plant has been designed to treat 900,000tpa while production is planned to ramp up to 720,000tpa, producing around 85,000tpa of nickel concentrate at a grade of circa 12% nickel.
Overall forecast nickel recovery is in excess of 83%. It is planned to blend material from the two deposits, Mt Windarra and Cerberus.
Gold Tailings Retreatment
Poseidon intends to operate a separate processing circuit to retreat the gold tailings that were deposited at the site from local mines during the 1980s and 1990s.
The tailings will be recovered by hydraulic mining using a standard technique commonly employed in the tailings recovery industry.
The slurry will be pumped to a thickener and then to a bank of conventional carbon-in-leach tanks to recover the gold onto activated carbon.
This carbon will be removed from the slurry, washed, bagged and trucked to a custom carbon treatment plant located in Kalgoorlie, Western Australia.
Nickel Tailings Retreatment
Mt Windarra was previously mined between 1974 and 1991 and, as a result, the site has 9.6Mt of tailings3 in dams and 2.98Mt of additional oxidised material which the Company believes can be treated using an atmospheric acid leach process.
Part of the low grade stockpiles and low grade sulphide ore will also be processed through the atmospheric leach process plant.
The nickel tailings studies and testwork have not been completed to a full DFS level as it is not intended to develop these facilities until 2017/18.
The overall construction time for Phase 1 has been estimated at 56 weeks for the nickel sulphide concentrator plant and 48 weeks for the gold plant, with commissioning commencing immediately after construction.
The plant and major infrastructure construction should be built under a lump sum turnkey arrangement with an experienced contractor.
The standard nature of the plant and its design is familiar with local constructors indicating that construction will be low risk and less susceptible to cost and time delays.
The existing site infrastructure including village accommodation, kitchen, dry mess, office areas, process and potable water, electrical power and access roads, will ensure that the project construction can commence immediately after closing of the financing for the Project.
Poseidon expects to confirm an EPC contract before closing of the financing for the Project to enable a fast start of the project construction.
At the Mt Windarra mine, the refurbishment of underground facilities to enable the current drilling program to take place will enable mining operations to commence well ahead of the necessary plant feed schedule.
GSM Mining, which has been undertaking the refurbishment work, has the majority of the necessary mobile equipment on site to commence mining operations. Mining could start up to 6 months ahead of the process plant construction completion.
Immediately after financing, initial activities at Mt Windarra will include completing refurbishment of the decline beyond the current drilling positions, refurbishment of the vertical hoist system and re-establishment of the deep return airways (other return airways have already been completed) prior to restarting the sub-level caving mining.
Poseidon's strategy has been to agree the major and critical path contracts to be finalised ahead of the financing arrangements to reduce capital cost risk and the project lead time.
The company expects to agree contracts worth circa 60% of the capital value of the Project prior to closing of the financing.
Poseidon expects to produce its first gold 14 months after final financing and to commence nickel sulphide production from its mines after 16 months. Poseidon estimates that the project will meet full design output within 18 months of construction.
Infrastructure and Transport Facilities
In addition to the nickel sulphide concentrator plant, initial site infrastructure facilities to be provided as part of the project include a diesel-powered power station, electrical reticulation, raw water supply from a site local borefield and process water from the South Windarra open pit, potable and process water reticulation, operations workforce village accommodation, plant buildings and communication systems.
The total installed power at Windarra is 9.8mW. Poseidon is currently working on several proposals incorporating gas or renewables to significantly reduce the cost of power for the project and has included one of these options in its financial capital and operating plan.
The nickel sulphide concentrator plant is expected to produce a high quality smeltable concentrate suitable for the major nickel markets around the world.
Windarra has good access to external infrastructure with Government maintained roads to the site; a rail loading point is within 80km with access to the export ports of Fremantle (Perth) and Esperance and road access to the Geraldton Port.
The DFS is based on shipment by containerised concentrate through Fremantle Port to the export market, although more efficient bulk options are being assessed.
Poseidon has received several offers for concentrate offtake from smelters and commodity traders which meet or exceed the payable pricing terms used in the DFS and remain under negotiation.
Predicted future shortages from 2014/2015 of concentrates to meet smelter capacity worldwide are expected to lead to strong market demand for the product
Permitting and Approvals
In November 2012, Poseidon announced that Windarra had received approval from the Minister for State Development, conditional on completing its financing and offtake arrangements for the Project, for its application to recommence operations on the site.
The application included all of the necessary tenure, environmental and infrastructure approvals including Native Title applications.
Approvals for the reprocessing of nickel tailings will be required to be in place ahead of developing the processing facilities in 2017/18.
Following the discovery of the Cerberus deposit in 2008, Poseidon has identified a number of other high value targets on the tenement packages.
Poseidon believes that extensions to the Cerberus deposit exist close to the existing deposit. Drilling currently underway at Mt Windarra has already identified similar potential near mine resource extensions around C Shoot and F Shoot.
The Cerberus deposit was discovered using modern geophysical and geochemical techniques combined with a well-developed overall regional geological model.
After the discovery, only limited additional regional drill testing of targets has taken place on the tenements. Poseidon remains confident that there remains reasonable rationale behind further discovery opportunities on the tenements in future years.
With today's DFS results, it reinforces our view that Poseidon's Singleton and Forrest are forging a new nickel force in Australia, developing the only new sulphide project in Western Australia in the last 10 years.
Windarra exhibits low risk and low complexity, along with low OPEX and project capital intensity of a project its size.
The Windarra site includes approximately A$52m worth of in-situ infrastructure left over from previous operations that will not require replicating and presents a considerable capital and timescale advantage to the company.
We expect the DFS to propel project financing negotiations with international investment banks with details likely to be released over the next few months.
Poseidon Nickel represents a rare opportunity to be an owner of the only 'new' nickel sulphide producer ready to meet supply shortfalls in 2014/2015. This is at a valuation that does not take into account the near term production and growing cash flow metrics.
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