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Hard Creek Nickel’s game-changing metallurgical breakthrough boosts company’s outlook

Mar. 21, 2011 3:28 AM ET
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Long/Short Equity

Seeking Alpha Analyst Since 2009

hardcreek.com • 604.681.2300

Mark Jarvis
President & CEO

Although a relatively small company, nothing stops Hard Creek Nickel Corp (TSX: HNC) from dreaming big because it has the goods to back it up: a giant nickel-sulphide deposit – the Turnagain project – in north central British Columbia; a sharp management and technical team; and an excellent track record in raising capital. The company’s recent metallurgical breakthrough is just one of the many reasons President and CEO Mark Jarvis is smiling these days. He discusses how this and other recent company developments enhance Hard Creek Nickel’s standing as a winning proposition.

Resource Intelligence: Could you give us some numbers that would support the claim that Turnagain is a “giant” nickel-sulphide deposit and also help investors evaluate its
economic potential?

Mark Jarvis: My answers are based on an April 2010 technical report that models a traditional mine, mill and flotation circuit, plus a non-traditional leach process coupled with SX-EW to produce metal on site. Our new model will eliminate the leach and SX-EW, leaving a “plain vanilla” technology mine, and the economics are expected to change. With that caveat in mind treat my answers as indicative of scale only.

Giant nickel deposits are generally defined as those capable of producing more than 20,000 tonnes per annum (t.p.a.) of nickel. The Wardrop report modeled average production of 35,000 t.p.a. of nickel at Turnagain, plus 2,000 t.p.a. of cobalt, with a mine life of 24.4 years.

C1 costs of production were estimated at $3.30 per pound of nickel. C1 is the total cash cost to produce nickel metal, net of by-product credits. That cost is in the most competitive quartile of the giant undeveloped nickel deposits in the world.
Resources are estimated at 695 million tonnes grading 0.216% Ni and 0.014% Co in the measured plus indicated category, plus another 510 million tonnes in the inferred category. Constrained by pit walls, total projected tonnage to be mined is 761.2 million tonnes grading 0.212% Ni and 0.014% Co.
The most common valuation method for mining projects is Net Present Value at a discount rate of 8% (PV8). At an assumed price of $8.50 per pound for nickel, PV8 is estimated by Wardrop at $715 million. Internal Rate of Return (IRR) is 10.7%. Payback is 8.1 years. Nickel is currently more than $12 per pound. At $12 nickel, the PV8 is $3.3 billion, the IRR is 19.9%, and the payback is 4.4 years.

RI: What value does your company immediately provide to investors?

MJ: Our project, and an investment in our company, provides an amazing amount of leverage to the current price of nickel. Our company also provides exposure to a very exciting platinum/palladium exploration opportunity on a part of our property separate from the nickel deposit. The platinum/palladium prospect is generating a lot of interest as the price of those metals trade higher.

RI: In an interview in December you mentioned that you just had a “metallurgical breakthrough that is transformative for the
company.” Could you tell us more?

MJ: Under our old metallurgical regime, we could only reliably make a concentrate grading 4% nickel, because too many magnesium minerals were floating along with the pentlandite (nickel sulphide). That low grade made the concentrate non-transportable economically, and the high amount of magnesium in the concentrate meant that traditional smelters would not be able to process the concentrate. This is the reason we looked to a “new tech” solution to process our concentrate on site. However, the mining business does not like new technology because, particularly for high capital cost projects, it is considered too risky.

That is why we circled back and put all our efforts into improving the froth flotation. We were hoping, in our wildest dreams, to make a concentrate grading up to 12% nickel. Our efforts have borne fruit dramatically. We are now making concentrates with nickel grades in the 15% to 25% range and with magnesium levels and iron to magnesium ratios at levels that the smelters will be happy to process.

This is a game-changing development for many reasons: It makes our project “plain vanilla” in terms of technology, which is less risky and therefore more attractive to potential partners; secondly, there is a looming shortage of sulphide-based nickel concentrates, so the existing smelters are getting hungry and in some cases desperate to source feedstock. If we can supply this hungry market with a large output of concentrate for many years, then we will be very attractive to the smelters. Finally, without the constraint of an onsite refinery, we are free to optimize the mine plan to process higher grades in the early years of production. This should boost the PV8 and the IRR, and speed up the payback.

RI: What recent company developments have added value to the company?

MJ: In addition to the metallurgical breakthrough, we have added an important new director to our board, Gary Johnson, who was the managing director of technology at LionOre, a mid-sized nickel producer and explorer. LionOre was acquired in 2007 by Norilsk, the giant Russian nickel company, for more than $6.5 billion. Our newest financial backers were the main financial backers of LionOre. They have a track record of really standing behind companies they believe in.

RI: Financially, how’s the company doing?

MJ: We have no debt and, as of December 31, 2010, $2.9 million working capital. That is enough for planned activities in 2011. Beyond that, we have an excellent track record in raising capital. However, as a small company with a huge project, we will likely require a very large partner to take the project all the way to production.

Investor Highlights:

  • Recent metallurgical breakthrough at Turnagain Nickel Sulphide Deposit identifies potential to develop concentrates exceeding 15% Ni while maintaining greater than 50% nickel recovery
  • Recovery of platinum and palladium now adding value to the nickel concentrate
  • Exploration in 2011 targeting untapped PGE potential
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