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Nov 2005 - CSM, WMR, BHPB

Is CSM going to rattle WMR/BHPB’s Cage?

In the last two issues of Paydirt (October and November 2005, Issues 122 and 123) this column has discussed the progress that has been made by the junior nickel miners on the Kambalda, Widgiemooltha and Lanfranchi nickel domes. Since then we (ERA) have visited Titan Resource’s prospects and approaching nickel and gold mines at North Widgiemooltha, completing the picture with some surprising outcomes.

One of the surprising outcomes was the role that the re-opened underground nickel mines play in Nickel West’s (previously WMC’s) nickel production in that they appear to have been sold because WMC desperately needed someone to mine them. Nickel ore from the Kambalda region was supplied almost seamlessly to WMC’s (now BHPB’s) Concentrator (still usually referred to as WMR), with Mincor’s start of production from Miitel coinciding closely with the closure of Lanfranchi.

The above conclusion arises from WMR’s famed rejection of ore from Armstrong for failing to meet WMR specifications. One of the key specifications being the Fe:MgO (iron : magnesium ratio) or to put it more simply Armstrong ore has nothing “wrong” with it, it is just that it appears to closely resembles Mt Keith ore and WMC needed Kambalda ore (and hence concentrate) with higher Fe:MgO ratios.

The details on the Fe:MgO requirements and WMC’s nickel (and other) operations can be publicly viewed in the AMC and Grant Samuel technical appraisals of WMC in WMC’s Xstrata bid “reject” defence document. Perseverance’s concentrate at Leinster for example is ~7:1, Mt Keith’s concentrate ranged from 2.5 to 3.5 but could improve by a factor of 1.7 in 2005 if a gravity circuit was installed to upgrade the concentrate for a 2% reduction in recovery, however, it was not yet (then) required because of the high Fe:MgO ore from Kambalda. Kambalda’s concentrate Fe:MgO ratios were ~11:1 in 2004, and when the 3 concentrates were blended together, they met the Kambalda nickel smelter’s (KNS) furnace requirement of a ratio >4.7 : 1 with a target ratio of 5.3:1.

The KNS requirement stems from the fact that at lower Fe:MgO ratios, the magnesia content of the furnace slag increases which requires a higher melting point for the slag and hence needs the furnace to run at higher temperatures in order to maintain slag fluidity. If the furnace operating temperatures are too high, then the furnace can be damaged (although a new furnace was expected to be installed in 2008, it was only expected to then be able to reduce the ratio to 4.7:1).

Average Kambalda nickel grades are also higher at about 2.9%Ni compared to Leinster at 1.8% to 2.2%Ni, and Mt Keith at 0.56%Ni. WMR’s nickel concentrate grades are ~13% to 14% implying a concentration ratio of about 4.6 to 1. If a similar concentration ratio is being applied at Mt Keith then the Fe:MgO ratio of Mt Keith ore may be 0.54 to 0.78:1, which appears to be very similar to that of Armstrong ore. Hence WMR needed iron-rich Kambalda nickel ore not relatively iron-poor nickel ore from Armstrong. The Armstrong open-cut ore has been tested, achieves an acceptable recovery (higher than WMR would allocate for its grade) and produces a saleable concentrate with a number of expressions of interest for an offtake agreement.

Consolidated Minerals (CSM) have already announced that they are examining installing their own concentrator and have the right to 50% of the Armstrong orebody, plus can process nickel ore from their properties without selling the ore to WMR (because they (or their subsidiary : Reliance Nickel) bought the nickel rights from Gold Fields).

CSM have since been examining installing a flotation circuit and concentrator to the back end of one of a number of nearby mothballed gold plants, which could enable them to have a >1mtpa concentrator literally overnight. The treatment cost (even allowing for paying a toll treatment charge to the relevant gold company’s owners) and transport cost can easily be less than what WMR would charge for treatment (and transport to their plant). To which higher recoveries, and possibly higher by-product credits would need to be offset too.

As for ore sources – there are many, that may not fit WMR’s current specifications especially the lower grade ones that could be mined by open-cut, and WMR specifies a maximum allowable amount of supergene contamination (effectively oxidation or violarite) of the nickel sulphide mineral pentlandite, which means that WMR effectively applies a metallurgical cut-off depth to open-cut ore that can be deeper than the usual transition to sulphide boundary.

Based on what we heard at the recent “Paydirt Nickel Conference” in Perth, the relatively low grade (~1.5%Ni) nickel sulphide orebodies appear to have a far greater chance of being mined and treated than some of the planned 50ktpa Australian nickel laterite deposits that are expected to attain full production in up to 18 years’ time (2022/2023) at possibly 2005 capex terms of ~US$2bn plus annual costs of ~US$100mpa in maintenance and sustaining capex.

Titan, Mincor and SMY’s Lanfranchi all have a number of these relatively lower grade nickel sulphide orebodies that it appears are likely to become mineable given the projections of nickel supply being unable to satisfy China’s (and other countries) increasing demand for nickel.

Another of the surprising outcomes was that Titan appears to be well advanced towards becoming Australia’s next junior nickel producer based on a number of its properties capable of producing nickel. Aside from Armstrong capable of being treated and within a feasibility study, a scoping study was in progress on Widgie Townsite, closely followed by scoping studies on Munda, 132N and Widgie 3. All the studies are scheduled to have been completed by the end of March 2006.

In addition to which Titan has a significant land holding around the Widgiemooltha Dome which has now become very prospective to being tested based on a recent successful trial by Titan using the new SQUID EM technology, over a 1km length of contact north of Munda in identifying an unknown zone of sulphide. Although the zone was alas uneconomic, it was a major tick in favour of the new technology, in discovery, time and cost.

The Munda orebody appears to be shaping up as an open-cut of the predominantly gold ore, followed by am underground operation for the nickel ore, especially where the gold and nickel mineralisation intersect with bonanza grades such as 6m @ 27g/t. There is also a hangingwall gold lode with intersections of 11m and 17m both @ ~17g/t.

Titan’s properties also include the old Mt Edwards nickel mine, which looks just like MCR's Wannaway in section except that it was mined by sub-level open-stoping and goes deeper. Mt Edwards contained some impressive widths and grades too such as 5% to 8.5%Ni and had a peak production level of 3.2%Ni, averaging the more common 2.7%Ni - though that could have partly been due to dilution from the mechanised stoping method.

Nothing has yet been ascribed to the old Mt Edwards mine in terms of ore resources despite the existence of remnant pillars shown on sections, possibly because the decline collapsed. Examining the old records and reports show that the collapse of the decline appears to have occurred after it was increased to a 5 x 5 to accommodate larger mechanised equipment which placed it closer to some older stopes and resulted in a geotech failure.

Given the track record of these old WMC nickel mines that have been re-opened by junior nickel companies, and examining the old level plans it does appear that more could be mined, either from remnants and/or from virgin orebodies. Reviewing the old records, infers that there could be ~400,000t of ore at ~2%Ni in remnant pillars (though there could be more given the number of lodes and surfaces).

Whether Mt Edwards falls under the agreement with WMR or not could be a case of by default but it appears to have basically been thrown in for free in the original agreement.

Add a new concentrator to the Kambalda region being operated probably by CSM and perhaps CSM is going to rattle WMR/BHPB’s cage and the variable costs and recoveries that WMR makes to the junior nickel producers.

Disclosure and Disclaimer : This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (an independent research company) who is an Authorised Representative with Taylor Collison Ltd, and with his associates, holds interests in some of the stocks mentioned in this article. The opinions expressed in this article should not be taken as investment advice, but are based on observations by the author. The author does not warrant the accuracy or completeness of any information and is not liable for any loss or damage suffered through any reliance on its contents.

  • Written by: Keith Goode
  • Tuesday, 01 November 2005

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