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Poseidon Nickel Takes Control Of Black Swan From Norilsk

Poseidon Nickel (ASX:POS) now has the second largest nickel sulphide processing capability in Australia after completing the purchase of the Black Swan nickel project from Norilsk Nickel.

This includes the Black Swan processing plant, Black Swan open pit mine, Silver Swan underground mine and a 1.6 million tonne stockpile of mined ore containing 178,700 tonnes of nickel metal.

The concentrator plant was extensively upgraded and expanded in 2006 and was put on care and maintenance in February 2009 during the financial crisis.

It has a proven throughput capacity of 2,150,000 tonnes per annum of ore though the company plans to start operations at 1.1 million tonnes per annum.

In November, Poseidon delivered an initial Probable Ore Reserve of 3.37 million tonnes at 0.63% nickel for 21,500 tonnes contained nickel at the project.

This represents a nominal three years of plant throughput.

Capex to restart Black Swan - excluding working capital - has been estimated at A$12.9 million.

"This project, when in production, mined the highest nickel grade ore in the world at Silver Swan and today includes a very substantial resource," managing director David Singleton said.

"We have already completed and announced the results of the resource upgrade and restart feasibility study for the project in late 2014.

"Whilst our short term focus remains on our Lake Johnston and Windarra projects, we will now commence further work intended to lead towards the reopening of the mine."

Black Swan Nickel Project

The Black Swan project is located 45 minutes' drive from Kalgoorlie by existing roads and is connected to the main electrical power grid.

Whilst the transaction has been completed, there remains an unresolved historic mortgage transfer at Black Swan that is currently in the name of Norilsk and needs to transfer to Poseidon.

This transfer will now be dealt with as a condition subsequent to the transaction.

It does not prevent Poseidon from undertaking its activities or restarting the mine whilst the parties continue to satisfy this remaining condition.

In August 2014, Poseidon published an engineering study into the restart of Black Swan using a configuration that also allowed for the processing of ore from Poseidon's other operation at Windarra. Key outcomes include:

- Cash cost of US$4.05 per pound;
- Initial operating life for both mines of circa 7 years;
- Production 9,600 tonnes nickel in concentrate per annum; and
- Capex of A$12.8 million for Black Swan only, excluding working capital.

Process plant and associated facilities

The current nickel concentrator at Black Swan was built to enable an increase in processing capacity for the Silver Swan underground mine and the Black Swan open pit mine and successfully operated for over 24 months demonstrating both its design capacity and reliability in operation.

The plant was designed by Lycopodium and is ideally suited to processing Windarra style nickel ore as well as Black Swan Ore which has been confirmed by the work completed to date.

It comprises the following major components:

- Single stage jaw crushing circuit;
- Two stage grinding through a 4.8MW SAG mill in a closed circuit with 185k W Terex gyracone pebble crusher and a 5.5MW ball mill;
- Multi stage flotation circuit;
- Concentrate and tailings thickeners;
- Ceramic disc concentrate filters as well as concentrate storage and load out facilities;
- Power from the main grid via two separate sub stations;
- Single cell tailings storage facility with an estimated capacity of approximately 4 years before an additional wall lift is required; and
- Water from the Black Swan borefield and mine ingress water.

The plant was designed to have the option to only use the SAG mill for operations which fits with the initial operating plans of 1.1m tonnes of throughput.

The float cells can be reconfigured to the initial operating throughput and progressively brought back into operation as throughput is increased beyond that envisaged in this report.

GR Engineering has produced a detailed estimate of costs to refurbish the plant suitable for operations.

This cost estimate was reviewed in line with the initial operating requirements and provided an estimated plant refurbishment cost of $9.4 million (including infrastructure).

Analysis

There are exciting times ahead for Poseidon Nickel, which now has Australia's second largest nickel sulphide processing capacity.

While the company is focused on restarting on its Windarra and Lake Johnston projects, it will also start further work to reopen the Black Swan mine.

The company has $15.36 million in cash at hand and term deposits as at 31st December 2014.

Proactive Investors maintains its 12 month price target for Poseidon Nickel of $0.40 - $0.52.

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