LionOre loosens the belt

Armed with a new US$116 million credit facility, Lionore Mining International (LIM-T, LIM-A) has launched an aggressive growth campaign aimed at tripling nickel production to 80,000 tonnes per year by the end of 2008.

Near Kalgoorlie in Western Australia, the company plans to boost open-pit mine production at its 80%-owned Black Swan nickel operations by 50% to 13,000 tonnes of payable nickel per year by the end of 2006.

The pit expansion will be accompanied by a more than tripling of the processing plant’s capacity to 2.15 million tonnes per year. The expanded pit would feed lower-grade ore to the expanded plant capacity at a rate of 2 million tonnes per year, thus reducing feed from the higher-grade but costlier Silver Swan underground mine.

The scheme is expected to extend the life of the project to 2010 while generating a pre-tax internal rate of return of 37%, based on an average nickel price of US$4.56/lb. The increased tonnage from the open pit is expected to trim operating cost to US$3.24 per lb. at a nickel price of US$5 per lb. Operating costs come in US4 per lb. cheaper at a nickel price of US$4 per lb. LionOre says the difference reflects price participation in the off-take agreement with 20% owner OM Group (OMG-N) and increased royalties at the higher nickel price.

OM Group receives all of Black Swan’s production at its nickel refinery in Harjavalta, Finland.

The US$52 million estimated price tag will be funded via operating cash flow. The company has already secured US$27 million worth of contracts and key equipment for the upgrade.

The plant upgrade is slated for commissioning in the third quarter of 2006; ramp up to full production would follow in the fourth quarter.

The expanded pit will target updated probable reserves totalling 8.7 million tonnes grading 0.72% nickel. The resource is contained within indicated resources of 9.7 million tonnes of 0.72% nickel. The estimates are based on a cutoff grade of 0.4% nickel, an average nickel price of US$5 per lb., and an exchange rate of A$1.35 to the U.S. dollar.

LionOre acquired its stake in Black Swan via its takeover of MPI Mines in late 2004. The operation comprises the high-grade Silver Swan underground mine, the Black Swan disseminated open pit and a conventional nickel sulfide flotation plant.

The MPI acquisition also saw LionOre inherit an 80% stake in the Honeymoon Well project, near Mt. Keith. Indicated resources there tip the scales at 131 million tonnes running 0.8% nickel, for around 1 million tonnes of contained nickel, enough to rank it among the world’s largest undeveloped nickel sulphide deposits. The project is currently the subject of a feasibility study considering a 36,000-to-42,000-tonne-per-year operation.

Meanwhile at the Tati nickel operation, 40 km east of Francistown in northeastern Botswana, LionOre plans to spend around US$20 million to boost production capacity by 16% to 14,500 tonnes of payable nickel per year.

The plan calls for throughput at the Phoenix plant to be boosted by nearly 40% to 5 million tonnes per year while the mining rate remains unchanged. The mine plan has been optimized to incorporate a lower cut off grade of 0.2% nickel, down from 0.25% to offset the increased production and maintain the same mine life. LionOre says it will release an updated reserve and resource statement once it has been independently verified.

The ongoing 9-month expansion will include modifications and upgrades to the existing crushing and concentrator circuit to remove bottlenecks. Commissioning is scheduled for the second quarter of 2006, with production ramped up to 14,500 tonnes per year by the end of the third quarter. Production for 2006 is pegged at 14,100 tonnes of payable nickel. Cash cost are projected below US$2.65 per lb. of payable nickel, based on conservative market assumptions.

LionOre owns 85% of the Tati nickel operations, with the government of Botswana holding the remaining 15%.

In South Africa, the company and equal partner African Rainbow Minerals (ARM) are considering the development of an open-pit mine and plant expansion to target a lower-grade disseminated orebody at Nkomati.

The expansion would aim to triple annual production to 16,500 tonnes nickel, 7,900 tonnes copper, 55,000 oz. palladium and 19,500 oz. platinum, with an estimated mine life of 16 years. Indicated mineral resource at Nkomati total 139 million tonnes grading 0.5% nickel at a cutoff grade of 0.3%.

If the expansion gets the go-ahead, LionOre would pay ARM US$20 million in cash, which ARM would have to use to cover its portion of expansion expenditures. Previous estimates put the cost of the expansion at US$310 million.

A decision at Nkomati is expected early next year.