MCR is adding about 400,000tpa by 2008/09 (less Otter Juan’s 100,000tpa because it is already included), so another 300,000tpa. SMY’s Lanfranchi is expected to add another 320,000tpa by 2008/09 mainly due to Deacon and suddenly the Kambalda concentrator expansion is full, with no allowance for extra from Consmins’ operations, MCR’s studies on McMahon and Durkin Deeps, etc.

Currently it is expected that BHPB should reduce the ore toll treating costs that they charge the small nickel miners to produce a concentrate. All the contracts come up for renewal in 2009 and can be extended at BHPB’s discretion for a further 10 years. IGO has already extended its contract to 2019 without changes to treatment costs because it is so close to the concentrator. However, SMY, CSM and MCR are expected to justifiably push for lower treatment costs.

The treatment costs started from ~A$30/t to A$33/t of ore delivered to the concentrator (with the small nickel producer paying to treat BHPB’s share of the ore too) and increase with cpi per year. The cost of A$30/t was based on a production rate of 600,000tpa for the concentrator at A$22/t to A$23/t plus ~A$8/t as a toll treating charge. If a 70/30 fixed/variable cost ratio is used then at 1.5mtpa, operating costs may only be ~$18/t or BHPB makes at least A$15/t just from toll treating.

The small nickel producers then receive about 64% or 65% of the nickel value of their concentrate based on recoveries according to the grade of nickel ore delivered (and usually blended at the concentrator). The range of recoveries is from 72% at <1.50%Ni, to 89% at <3.00%Ni, with 90% to 93% for >3.51%Ni. Lanfranchi and Long/Victor receive the same at the high end of the scale probably because of the high Fe:MgO ratios of their ore, while MCR receives the lowest (possibly because it was one of the first).

The Fe content is significant because concentrates from Kambalda, Leinster and Mt Keith are blended together at the Kalgoorlie Nickel Smelter (KNS, due for upgrade/replacement in 2009) to achieve an Fe:MgO ratio of >4.7:1 with a target ratio of 5.3:1, because at lower Fe:MgO ratios, the magnesia content of the furnace slag increases and that requires a higher melting point for the slag.

That in turn requires the furnace to run at higher temperatures in order to maintain slag fluidity, and if the furnace operating temperatures are too high, then the furnace can be damaged. The blend in 2005 (per the Xstrata takeover documentation was based on Fe:MgO ratios of ~11:1 from Kambalda [with concentrate grades of 13% to 14%Ni based on average head grades of ~2.9%Ni], ~7:1 from Leinster [at head grades of 1.8% to 2.2%Ni], and ~2.5 to 3.5 :1 from Mt Keith [at head grades of ~0.56%Ni]).

When the by-product credits are factored in (Cu & Co for MCR, Cu for SMY and none for anyone else [that we know – not sure on Otter Juan]). It can be seen why there is a case for building a new nickel concentrator at Widgie. CSM have already undertaken studies for capex ~A$100m or A$200m taking it via a leach circuit & SXEW for nickel cathode. If CSM & SMY entered into a JV, it may only cost them each ~A$25m with perhaps Jinchuan adding the rest for an offtake agreement. The plant could easily be filled especially with all those potential low-grade open-cuts at Lanfranchi.

While the driving force behind a new concentrator at Widgie has been ConsMin, logically if Consmin’s Nickel division comes up for sale (depending on who is able to takeover CSM), then BHPB should buy it and install a new concentrator at Widgie themselves for complete control of nickel ores from the Kambalda and Widgie nickel fields.

Some comments have been made that BHPB seems unlikely to re-enter the Kambalda nickel field as a miner/producer. However, when we visited Otter Juan after Diggers in August 2007, it was stated that BHPB had bought the northern tenements (adjoining Otter Juan’s) from Harmony and there were known nickel orebodies and apparently some old workings too. BHPB was understood to be waiting for approvals so as to start drilling for nickel there.

Whether ConsMin is going to be taken over or not is open to debate. At the current rate of progress, it is possible that our ideal scenario of no one successfully taking CSM over can occur. It could be that CSM will simply have a number of significant shareholders, and if that occurred CSM could finance a new Widgie concentrator by themselves using the windfall revenues from its manganese division.

As for supply, ConsMin has many choices : starting with Armstrong’s violarite percentage dropping from 20% to 7% in the south end (which was one of the rejection issues), CSM was pre-stripping 132N’s indicated 2.8%Ni resource in early August 2007 at Widgiemooltha. Then there is the new Gillet discovery that could contain ~13,000tNi in-situ (at 1.5%Ni), located almost due north of Widgie 3, besides Widgie 3 itself and Widgie Townsite.

At CSM’s Beta Hunt, East Alpha now has 9 headings in contact ore with a number of faces running at 2% to 3%Ni and some containing massive up to 18%Ni. With the completion of the new ventilation shaft, production can focus on Beta South and Beta West, as exploration targets the Lunnon “gap” north of East Alpha towards Lunnon by drilling from surface. ConsMin actually has a number of old nickel mines that it may be able to re-open in the Kambalda / Widgiemooltha area, besides the potential exploration discoveries.

There is also yet another variation on the new Widgie concentrator and that would be by Sally Malay (possibly in JV with Jinchuan), if it discovers (logically) nickel channels on the underside or overturned side of the Lanfranchi Dome.

With so many possible scenarios, it appears to be almost a certainty for a new nickel concentrator to be built at Widgiemooltha, probably within the next 2 to 3 years.

Disclosure and Disclaimer: This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (ERA, an independent research company) who is an Authorised Representative with Taylor Collison Ltd, and with his associates, may hold 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.

Figure 1. BHPB’s Nickel Concentrator at Kambalda (Source : Sally Malay June 2007 Presentation)