Weda Bay develops nickel laterite project

Having delineated a sizable nickel-laterite resource on the Indonesian island of Halmahera, junior Weda Bay Minerals (WDA-T) is now studying the feasibility of developing an open-pit nickel-cobalt mine and high-pressure acid-leach (HPAL) processing facility.

Situated within a 900-sq.-km central portion of Halmahera, between the towns of Kobe and Sepo, the project is held 90% by Weda Bay. State-owned mining company Aneka Tambang (Antam) has a 10% free carried interest until positive cash flow from production is achieved. Upon completion of a bankable feasibility study, Antam may boost its stake to 25% by contributing 22.5% of all costs incurred up to that time.

Since the collaring of discovery holes by a private, predecessor company in mid-1996, Weda Bay has drilled more than 16,000 metres in 1,500 holes and delineated inferred and indicated resources of 202 million tonnes grading 1.37% nickel and 0.12% cobalt, including 60 million tonnes in the indicated category grading 1.51% nickel and 0.09% cobalt.

“It’s up there with the best nickel laterites, and it has a large upside potential,” says John Lynch, Weda Bay’s vice-president of exploration. “This is a big project, but it is robust.”

While the resources are contained in 11 areas (named SM, Big Kahuna, Area 2, Uni-Uni Hill, Tarzan Hill, Sake River, Sake River West, Lipe River, Jira River, Casuarina and Orchid), the heart of the project is the SM deposit. It is situated at an elevation of 750 metres, about 8 km inland from Weda Bay proper.

SM’s inferred resources stand at 75.8 million tonnes containing 1.38% nickel and 0.12% cobalt. Included in that resource is an upper, 47.5-million-tonne limonitic portion grading 1.22% nickel and 0.17% cobalt with a low magnesia (MgO) content of 4.8%.

The Big Kahuna deposit, farther inland than SM, contains an inferred resource of 40.4 million tonnes of 1.32% nickel and 0.17% cobalt. In contrast, the coastal deposits contain up to 1.7% nickel and 0.08% cobalt but have a higher MgO content of about 14%. Weda Bay is therefore considering blending higher-grade material from the coastal deposits with low-MgO ore from the SM deposit.

Preliminary metallurgical testing at Hydrometallurgy Research Laboratories in Brisbane, Australia, and at Dynatec’s facility in Fort Saskatchewan, Alta., showed that the entire laterite profile is highly amenable to the HPAL process. Recoveries of 94-98% for both nickel and cobalt were obtained in less than 30 minutes at 250 C. Acid consumption averaged 530 kg per tonne.

Since May, Weda Bay has been working on an US$18-million bankable feasibility study, scheduled to be completed by December 2001.

Weda will move the SM limonite into the measured category and try to prove up 10 years of measured resources, half of which will come from the SM limonites, and the other half, from the coastal deposits.

Other work will include drilling of the Pintu prospect, metallurgical tests, bulk-sampling, trial mining, and environmental monitoring and impact statements.

Weda Bay has yet to hire a lead engineering company.

The company is broadly proposing that the Weda Bay project be developed in a manner and scale similar to Anaconda Nickel‘s Murrin Murrin project in Western Australia (T.N.M. Oct. 9-15/00). That is, Weda Bay could potentially be developed in two phases: the first, costing US$555 million, would produce an intermediate product containing 45,000 tonnes nickel and 4,000 tonnes cobalt annually; the second, costing another US$645 million, would double production and yield pure nickel and cobalt.

Comments Lynch: “We won’t make all the mistakes that were made at Murrin Murrin and the others [Cawse and Bulong in Western Australia], because we’re going to be able to use their experiences.”

Despite its remote jungle setting, the Weda Bay project has several logistical advantages: abundant fresh water; a wide, flat area near shore available as a plant site; a large limestone resource nearby that can be used to neutralize acid; a sheltered, deep-water marine access to the proposed plant area; and, some 3 km offshore, an 800-metre-deep submarine trench that could be used for tailings disposal.

The Weda Bay project is in a neighbourhood of large-scale nickel laterite deposits: immediately to the northeast, on Cape Ulie, Antam owns a high-grade nickel-laterite deposit; 150 km to the southeast, Antam is mining nickel-laterite ore on Gebe island; some 235 km to the southeast, Falconbridge (fl-t) recently entered into a nickel-laterite joint venture with Broken Hill Proprietary (bhp-n) on Gag Island; and to the west, at Soroako on Sulawasi, Inco (n-t) subsidiary P.T. Inco has been mining nickel laterite for decades.

The biggest downside to the project is its location in Indonesia’s Moluccas Province — the original Spice Islands that were once highly prized and fought over by the colonial Dutch and Portuguese empires.

Over the past year, the Moluccas have been beset by sporadic inter-ethnic warfare between Muslims and Christians, particularly in northern Halmahera and the city of Ambon in the southern Moluccas.

In January, during a week of violence that left some 400 people dead in the Moluccas, Australia’s Newcrest Mining temporarily suspended operations at its Gosowong gold mine in northern Halmahera and evacuated some staff to Manado on Sulawesi.

Relatively uninhabited by Indonesian standards, Halmahera has a population of about 100,000 people, mostly residing in fishing villages scattered around the perimeter of the island. The two villages nearest the Weda Bay project area each contain only about 3,500 people.

“Right now, our biggest issue is Indonesia,” says Lynch. “The country is going from an autocracy to a democracy, and there’s some indigestion in that process. We believe it’s settling down and gradually being controlled.”

He adds, “We’ve had absolutely no trouble in Indonesia — we’ve been very careful.”

Behind the scenes, two major developments in the base metal industry are driving activity at Weda Bay: the desire of the OM Group (omg-n), a dealer in specialty metals and chemicals, to become a major player in the nickel industry; and, on the flip side, the exit of Finland’s Outokumpu from nickel refining and, in time, nickel smelting.

Based in Cleveland, Ohio, the OM Group was formed in 1991 through the combination of Outokumpu’s cobalt-chemicals business and Cleveland-based Mooney Chemicals. OM has since become the largest consumer and the second-largest refiner of cobalt in the world.

In February, OM took its first big step into the nickel game by purchasing Outokumpu’s Harjavalta nickel and cobalt refinery (but not its Harjavalta nickel smelter) in Finland for about US$185 million. The 26-year-old refinery has a capacity of about 55,000 tonnes nickel per year and is currently supplied with feed until 2004 by Western Mining‘s (wmc-n) Mt. Keith nickel mine and Outokumpu’s high-grade Silver Swan nickel mine, both of which are in Western Australia.

The parties have agreed that Outokumpu will toll-smelt nickel concentrate to matte at Harjavalta for OM until Outokumpu’s nickel mines are exhausted. The refinery will continue to supply nickel to Outokumpu’s stainless steel meltshop at Tornio, Finland.

Just days after the refinery deal, OM signed a major agreement with Weda Bay to fund its US$18-million feasibility study on Halmahera and buy up to 45,000 tonnes nickel and 4,000 tonnes cobalt annually from the project in the form of an intermediate product, likely to be mixed-sulphide concentrate.

Under the agreement, the OM Group bought a 19.9% interest in Weda Bay for $6.8 million (thereby replenishing the junior’s coffers) and arranged a loan to Weda of $19.6 million. The loan may be converted into Weda Bay shares, at OM’s option, at a price of $1.55 per share upon completion of a positive feasibility study. Weda also agreed to issue 2.5 million share-purchase warrants to OM, exercisable p
rior to May 2002 at a strike price of $2.25.

If fully exercised, the convertible loan and warrants could result in OM’s holding a 40% interest in Weda Bay.

Comments OM Chairman James Mooney in a release: “The favourable composition of [Weda Bay’s] nickel and cobalt laterite deposits, combined with our metallurgical expertise, will . . . [provide us] with a significant long-term nickel raw-material source and additional cobalt raw-material feed. As a result, we have the opportunity to process high-quality, value-added specialty-nickel products for our customers.”