Nickel upside boosts Forrestania outlook

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 02 Oct 2012   Posted by admin

WA nickel producer Western Areas is set to achieve strong sales levels at its flagship Forrestania nickel project this year, confirming its status as a world-class nickel miner.
While nickel prices dropped earlier this year, affecting production at many nickel mines throughout Australia, Western Areas maintained exceptional operational performance and exceeded company guidance targets.
In addition to its wholly-owned Forrestania project, the third-largest nickel producer in Australia holds interests in a range of exploration projects throughout WA, Canada and Finland.
The Forrestania project, 400km south east of Perth, contains two of the highest-grade nickel mines in the world: Flying Fox and Spotted Quoll. The company’s recent acquisition of Kagara Nickel, which includes the high-grade Lounge Lizard nickel mine adjacent to Flying Fox, will add further value to Forrestania.
Western Areas’ total mineral resources at Flying Fox now stand at 1.93 million tonnes grading 5.7 per cent nickel for about 100,200t of nickel.
Strong operational performance was recorded during the June quarter, with total mine production reaching 7270t of nickel in ore grading 5.2 per cent nickel.
Total sales for the quarter were 43,053t of concentrate containing 6888t of nickel and Western Areas reported that it expected sales would increase throughout the remainder of the year.
Lounge Lizard
In March, Western Areas finalised the $68 million acquisition of Kagara Nickel’s assets, which not only include the Lounge Lizard deposit but also a further 300 square kilometres of exploration tenements in the Forrestania project region.
Lounge Lizard contains a high-grade indicated mineral resource of 710,800t grading 5.8 per cent nickel for a total of 41,000t of contained nickel.
The deposit also contains a lower-grade disseminated indicated mineral resource of 4.42mt grading 0.8 per cent nickel for 36,000t of contained nickel.
Before the acquisition, Western Areas already had an agreement with Kagara Nickel to mine, mill and sell Lounge Lizard nickel concentrate utilising its existing Cosmic Boy concentrator, within the Forrestania project area.
“[The acquisition] was a strategic play for us – we have been under an agreement with Kagara for several years already, and we just wanted to clean up the backyard,” Western Areas managing director and CEO Dan Lougher said.
“We thought the purchase price of $68 million was a good price for the asset and we wanted to make sure nobody else got their hands on it. “We knew that deposit extremely well because we had been mining it on behalf of Kagara under the agreement anyway.
“We wanted to add the mine life to
Flying Fox and we are drilling down plunge as we speak.”
Flying Fox
Flying Fox, which was the first mine to be developed at Forrestania. It and the nearby Spotted Quoll operation are two of the lowest-cost nickel mines in the world, producing a combined 25,000tpa of nickel in ore. Flying Fox consists of a number of zones of mineralisation, extending vertically down from T Zero to the recently discovered T7 zone.
Mining is in progress at Flying Fox’s T4 and T5 ore bodies, where significant mine development is already in place.
In the June quarter, 96,289t of ore grading 5.3 per cent nickel for a record 5097t of contained nickel was mined at Flying Fox: a 19 per cent increase on ore mined in the March quarter that was attributed to strong production from the wider longhole stope at the T5 ore body.
Western Areas treats Flying Fox ore at its Cosmic Boy concentrator plant, which was officially opened in March 2009.
Spotted Quoll
Western Areas’ most significant high-grade nickel discovery was the Spotted Quoll deposit, 6km south of Flying Fox.Finishing production in February, six weeks ahead of schedule, the Tim King open pit operation has exceeded expected performance to produce 28,502t of nickel in ore: well above its initial ore reserve estimate of 19,000t.
The Spotted Quoll mine also contains an underground deposit that began production last year; it has a current resource of 177,000t of nickel in ore.
In June, the company announced that underground reserves at Spotted Quoll had increased by 94 per cent, confirming the potential of the world-class deposit.
Its reserves now stand at 3.09mt averaging 4.2 per cent nickel for about 131,400t of nickel in ore.
Underground mine production for the June quarter was 42,574t of ore grading 5.1 per cent for 2173t of contained nickel.
Spotted Quoll’s life of mine plan proposes a staged increase in annual nickel tonnes in ore from about 9500t in the 2013 financial year to 11,400t in FY2014 and increasing to 15,000t in FY2015.
Cosmic Boy
The Cosmic Boy concentrator continued strong operation in the June quarter, producing 43,053t of concentrate grading 14.7 per cent nickel for 6320t of nickel. Western Areas reported that the approval of the new LOM plan at Spotted Quoll could trigger a high-grade expansion at its concentrator, from its current capacity of 550,000tpa of ore up to 750,000tpa.
The company reported that capital cost for the expansion was expected to cost between $10 million and $12 million and an announcement on the proposed expansion is expected in the September quarter.
Exploration during the June quarter included evaluating potential extensions to the Flying Fox and Spotted Quoll deposits as well as testing for extensions to mineralisation recently discovered next to the New Morning deposit(which lies between Spotted Quoll and Flying Fox).
In mid-July, Western Areas discovered a new high-grade nickel sulphide deposit at Forrestania, the Sunrise deposit, 300m southeast of the New Morning deposit.
At the deposit, 11 of 15 diamond core holes drilled have intersected nickel sulphide, with mineralisation extending 400m north-south and to a depth of at least 400m below the surface.
Best intersections from the program included 2.6m grading 3.5 per cent nickel and 4.6m grading 3.7 per cent nickel.
Drilling during the September quarter will further test the continuity of the mineralisation at the new deposit.
“Although drilling is at an early stage, our geologists are very excited about the results,” Mr Lougher said. “The close proximity of Sunrise to the New Morning deposit enhances the potential viability of this area to become an additional production source at Forrestania.”
Western Areas reported that exploration had progressed at a number of other Forrestania prospects including South Ironcap (12km south of Cosmic Boy) where
eight holes were drilled; Cross Roads (5km south east of Flying Fox); EJ Moore (35km north of Flying Fox); and Hatters Hill (34km southeast of Cosmic Boy).
Exploration for the September quarter will continue to focus on the Forrestania project area, particularly at New Morning, Sunrise and Mt Gibb (35km southeast of Cosmic Boy).
“Up until June 30, two thirds of the $32 million we spent on exploration was spent at Forrestania,” Mr Lougher said.
“We’ve got a large resource base at Forrestania which we want to convert into reserve, and that’s where our organic growth will come from.
“The drilling at Lounge Lizard is an extension of the T5 deposit so that will add significant tonnage and longevity to Flying Fox.”
Other exploration projects Western Areas also has a range of regional exploration projects outside the Forrestania area, which extend more than 500km in the Central Yilgarn Nickel Province.
Exploration activities during the June quarter included the completion of a reverse circulation drilling program at the Sandstone project, a joint venture between Western Areas (70 per cent) and Troy Resources.
A stratigraphic drill hole at Sandstone, funded by the State Government, was also completed to a depth of 1171m.
Costing $150,000, the drill hole was designed to test for nickel at depths below the central zone of the Sandstone belt.
Initial observations indicated that the hole intersected generally shallow lithological contacts and ultimately the potential for nickel sulphide in this area was downgraded.
Meanwhile, exploration at the Southern Cross Goldfields nickel project (in which Western Areas holds a 70 per cent interest) included the completion of a field program around the Trough Well and Scorpio prospects.
Drilling also progressed at the Lake King joint venture project (in which Western Areas holds a 75 per cent interest) and the company’s wholly-owned Koolyanobbing nickel project.
“We are spending about $5 million on exploration at significant regionalprojects, so that’s another area of organic growth,” Mr Lougher said.
Exploration is also progressing at Western Areas’ tenements in Canada and Finland.
The nickel market
Western Areas sells about 40 per cent of its nickel concentrate to Nickel West in Kalgoorlie, with the remainder sold to Chinese nickel company Jinchuan. Nickel concentrate is exported through the Esperance port.
Despite low nickel prices earlier this year, Western Areas remains positive that prices will rebound later this year, backed by strong demand from Chinese stainless steel producers.
“Nickel is having a bit of a negative spin at the moment but we believe that there will be a recovery in prices, probably towards the end of the year, driven by some of the market demands,” Mr Lougher said. “The stainless steel industry is a big indicator for us because that’s the bulk usage of nickel in China. “We have a very good company, and a very strong exploration program and a good balance sheet, so we believe we will see our way through the downturn.” Indonesia is China’s biggest supplier of nickel laterite but Mr Lougher said that recent changes to Indonesian laws, which have banned the export of laterite, would boost demand for Australian nickel.
“Laterite is used quite extensively by the Chinese for nickel pig iron production,” he said.
“The biggest driver of prices is the nickel pig iron market in China and that’s what’s driving the prices at about $7.50 a pound.
“So we expect [the ban] will have an impact on the production volumes and hence we should be seeing some upside on the nickel price going into late 2012 and early 2013.
“We are fortunate that we have two of the highest-grade mines in the world.
“We produce at cash costs of less than $3 a pound so our margins are still quite healthy, but unfortunately for a lot of the laterite producers and some of the sulfide producers, their margins would be negative at the moment.”
The future
Mr Lougher said that for the remainder of the year, Western Areas was focussed on increasing production at Forrestania before exploring the possibility of acquiring
more tenements.
“In terms of exploration outside of Forrestania, we are looking at any junior areas in WA where we believe that there is some good nickel potential,” he said. “But our strategic goal at the moment is to establish a very strong 10-year plus mine life at Forrestania to underpin our company going forward.”

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