The last presentation at Diggers & Dealers 2005 was by Nickel West, focusing on the activities of what is now their WMR Concentrator at Kambalda. Nickel West’s presentation showed how its 34ktpa Ni matte sales and 66ktpa of Ni metal and intermediate product sales from the Kwinana refinery are based on 105ktpa Ni that are treated at the Kalgoorlie Nickel Smelter.

The 105ktpa in the 2004/05 June year having been derived in the form of 41ktpa from the Northern Operations (Mt Keith), 46ktpa from Leinster and 32ktpa from 3rd party producers through the WMR Concentrator at Kambalda. Production at the WMR Concentrator had risen from 15kt Ni in FY00 to 32kt Ni in FY05 and was expected to increase to about 33.5kt Ni in FY06.

In response to questions, Nickel West stated that in its current configuration, the Concentrator was treating at a rate of about 1mtpa out of its capacity of 1.5mtpa. Also that while there would be no immediate change to the costs and specifications, in the longer term, time would tell – which could be interpreted as a “maybe”.

Most of the nickel producers (shown as possible clients of Nickel West by their locations in Figure 1), commented at the conference that BHPB appears to have a far friendlier, approachable attitude than the regime that they had previously encountered with WMR. Also that the grade and deleterious restrictions may be relaxed such that TIR’s (Titan Resources’) Armstrong orebody can in fact be blended in and treated at the WMR Concentrator.

Part of the change in attitude may be attributable to the entry of Consolidated Minerals (CSM, with an extremely strong balance sheet and increasing significant cashflow [NPAT for the Year to June 2005 was A$70m]). CSM have stated that they aim to increase their nickel production up to 20,000tpa to 25,000tpa Ni in concentrates, through re-opening the old nickel mines such as East Cooee (not mined), Foster and then later Jan and Silver Lake (and possibly Fisher too), besides East Alpha and Beta (at Beta-Hunt).

The nickel rights to these old nickel mines were bought by CSM’s wholly owned Reliance Nickel (was called Reliance Mining) from Gold Fields and hence are not part of the WMC agreements applicable to the WMR Concentrator. REM did enter into a WMR agreement for the treatment of the western half of the Beta-Hunt lease (being the Beta mineralisation) until August 2009 under similar terms to other agreements (by Independence, Mincor etc). REM’s East Alpha ore may initially be treated at WMR until the CSM concentrator has been commissioned.

CSM stated at the DnD conference that if they were able to buy second hand equipment then they could install their own 300,000tpa concentrator at a cost of A$15m in less than 12 months (by June 2006), whereas if they took the route to a new concentrator, it could take them up to 2 years. In our ERA (Eagle Research Advisory) report on CSM dated 5 August 2005 (and based on a 2-day visit to the Beta-Hunt operations) we stated that a logical place to site their concentrator is the old St Ives mill adjacent to Jan and Foster.

It is no secret that WMR appears to charges from A$30 up to A$33/t of ore delivered to the concentrator (as the nickel producers in fact pay for treating WMR’s ore too). The ~$30/t was based on the initial production rate at the concentrator, namely 600,000tpa and appears to have included a toll treating charge of about $8 to $10 per tonne, so the underlying cost may have been ~A$22/t. Assuming a 70/30 fixed variable cost ratio, that cost could have fallen to ~A$16/t at 1mtpa, and potentially could fall to as low as ~A$13/t at 1.5mtpa.

In addition to the probably lower costs, the WMR Concentrator scores on the by-product credits. As far as we know, only Mincor receives credits for copper and cobalt (based on its quarterly reports), probably because it was one of the first contracts or agreements to have been made. The Beta-Hunt orebody was renowned for its gold content and apparently the gold in concentrate at the Concentrator increased as the Beta-Hunt ore started being processed. There are also PGE’s (mainly palladium) in the orebodies. So the WMR Concentrator appears to receive most of the by-product credits in the form of PGE’s, gold, and part of the copper and cobalt.

Then there is the subject of recoveries. The agreements (though apparently fairly widely known) do appear to vary between WMR’s clients. The highest recovery that can be attained by the Concentrator is supposed to be about 93% to 94%. The range that the agreements pay in terms of recovery appears to be that shown in Table 1 (for example for ore delivered that has a content of 4.0%Ni, one company may receive 90%, another 92% and yet another 93%, depending on their original agreement).

Table 1. Recoveries for Different Grades

WMR then pays their clients (the nickel miners) 64% to 65% of the recovered nickel on the basis of an initial payment and the nickel price prevailing when the ore is delivered. An adjustment is then made since the ore delivered is in fact only allocated the nickel price that is trading 3 months after the ore was delivered.

Considering that typically customers receive at least 80% of what is contained in the concentrate, it is understandable why CSM plans to install its own concentrator. And CSM expects to be able to treat Armstrong ore.

The individual nickel producers do try and blend their batches to result in higher grades delivered to the Concentrator, which does carry risk in that the sampling by WMR may inadvertently pick the lowest grades in the blend. MIncor uses split-firing (where possible) in its development, especially when the orebody is clear cut such as at Redross This results in a slower development rate (basically the waste in the face is blasted and mucked first, followed by the ore / mineralisation), but appears capable of increasing overall face grades by 10% to 20%.or so.

CSM’s Reliance Nickel is in the process of installing their own 150,000tpa Ultrasort electromag ore sorter for about A$1.5m which is expected to be fully operational by March 2006 (Reliance has an exclusive agreement with Ultrasort over a radius of 100km from Beta-Hunt). Testwork has shown that a 30% upgrade in the product while reducing the tonnage by 25% to 30% appears to be achievable at an estimated cost of up to A$10/t.

The underlying costs are still about the same especially with Beta-Hunt so close to the WMR Concentrator (100% of ore @ $10/t + 70% of ore @ $30/t = 100% of ore @ $31/t). However, higher recoveries do have a material impact and CSM currently plans to have its own concentrator too (which could receive its own upgraded feed).

It can be seen that the WMR Concentrator is more than simply a cash cow since it receives at least 35% of the contained nickel in concentrate that it produces (because a variable lower recovery is given to its clients, compared to what it actually achieves) That 35% or at least 11,200t in FY05 should have been at a negative cost due to the gap between toll charges and treatment costs, price movement benefits, and by-product credits, so there should be “room” to lower costs and reduce specifications.

The entrance of Consolidated Minerals with its significant annual cashflows (based mainly on Manganese) into the Kambalda field and capability to finance its own ore sorter and own concentrator could cause BHPB’s Nickel West to review WMR’s costs and specifications to the benefit of ALL the nickel mining producers at Kambalda.

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.