Royal Nickel to build ‘monster’ nickel project

On paper, Royal Nickel (RNX-T) looks like a winning combination: A management and advisory team stacked with former Inco guys and seven billion pounds of nickel in the ground in Quebec’s Abitibi region, one of the friendliest mining jurisdictions on earth.

“It will be one of the largest nickel sulphide operations in the world when it’s up and running,” Tyler Mitchelson, Royal Nickel’s president and chief executive, said of the company’s 100%-owned Dumont nickel project. “It is turning out to be the monster nickel project that has not been developed yet.”

The proposed open-pit nickel sulphide mine would be about four times larger than Mirabela Nickel‘s (MNB-T, MBN-A) Santa Rita nickel sulphide mine in Brazil and larger than Vale‘s (VALE-N) Voisey’s Bay on an annual production basis, he says.

According to a scoping study completed in September, Dumont could produce about 65,000 tonnes of nickel a year for at least 25 years. That works out to 140 million lbs. nickel per year or about 4% of today’s global nickel production. By contrast Voisey’s Bay produces about 55,000 tonnes of nickel annually.

But for Mitchelson, who left his job as vice president for strategy, business planning and brownfield exploration at Vale to head up Royal Nickel, it’s not just the size of the deposit that is attractive – it’s the local infrastructure nearby and the ease of mining in Quebec, which remains in the top-five mining jurisdictions in the world.

The project, 60 km northeast of Rouyn-Noranda and 25 km northwest of Amos, a town of about 13,000 people, has all the infrastructure it needs. There is a rail line and highway that runs right next to the southern edge of the property, and abundant sources of power, including natural gas that is available in Amos. (Osisko Mining‘s (OSK-T) Malartic gold project is 45 km to the south.)

“After fifteen years working in places like Indonesia, New Caledonia and even Newfoundland to some extent, the location of this property is just a huge advantage,” says Mitchelson, who has spent 15 years in the nickel business at both Inco and Vale Inco.

“From my experience at Voisey’s Bay, where you had to build an airport, ports, all sorts of handling facilities and manage around a fly-in, fly-out operation, we have the advantage of not having to worry about that sort of stuff,” he explains. “I don’t have to build a road or a rail in – it’s a significant time savings.”

So far Royal Nickel has completed 96,000 metres of drilling and the deposit remains open at depth.

Dumont contains 156 million tonnes of measured resources grading 0.29% nickel and 1 billion tonnes of indicated resources at 0.27% nickel for 7 billion lbs. of contained nickel in the measured and indicated category. In addition Dumont holds 581 million tonnes of inferred resources at 0.25% nickel.

According to the scoping study, which considered a 100,000 tonne-per-day operation at US$7.50 per lb. nickel, Dumont would have a pretax net present value at a 10% discount rate of US$1.43 billion and an internal rate of return of 19.1%. Payback would come in about four and a half years. 

Currently the company is doing testwork at a pilot plant facility in Thetford Mines, which it says supports the robust project economics outlined in the scoping study. Metallurgical work has pinpointed several optimization opportunities to consolidate crushing and fines removal into a single stage, as well as reduce reagent use and cut back on the number of unit operations in the grinding circuit, the company reported last month.

The optimization studies offer the potential to reduce capital and operating costs and will be incorporated into the final design of the concentrator flowsheet in the prefeasibility study, which is expected to be completed at the end of the third quarter or early in the fourth quarter of this year.

“We’ve been really focused on doing the exploration work and metallurgical testwork to turn this into what we think is going to be a great mine,” Mitchelson says. “It’s going to be an open-pit sulphide mine and you don’t see a whole lot of them out there. It’s going to have a very low strip ratio due to the ore, it’s going to be a mine/mill operation, and we’ll use proven technology wherever we can.”

Mitchelson likens the low-grade Dumont deposit to BHP Billiton‘s (BHP-N) Mt. Keith mine in Western Australia, which runs at about 35,000 tonnes of nickel per year.

The key to ultramafic deposits, he adds, is to “de-slime” them. “There are elements that cause sliming and you have to get them out of the flow sheet so you use a conventional process similar to that used at Mt. Keith and the metallurgy works very well.”

Mitchelson says Royal Nickel will update the resource estimate in the middle of this year and start getting permits at the end of 2011 – an effort he thinks should take no more than about two years.

“It’s a very transparent permitting process,” he says. “It’s not an easy one but it’s a very well-defined process. We’ve estimated 24 months to get our permits and that’s a significant advantage over other places I’ve worked where it could take anywhere from two to five years and in some places up to ten.”

He predicts a feasibility study will be finished at the end of 2012, permits will be received by the end of 2013, construction completed by 2015, with full-year production in 2016.

“These milestones are very, very important to us for generating a lot of value,” he explains. “Each milestone will significantly de-risk the project and we see reaching those milestones this year will add significant value to our share price.”

Royal Nickel listed in mid-
December and is currently trading at about $1.74 per share.

“It’s a large, strategic, monster of an ore body so our focus is de-risking it and value-adding through the processing facilities.”

And Mitchelson has the team he says to do it. Royal Nickel’s chairman, Scott Hand, is the former chairman and chief executive of Inco (2002 to 2007). Other board members include Peter Goudie and Peter Jones. Goudie was executive vice president of marketing at Vale Inco until 2008, and prior to that worked as vice president marketing at Inco from 1997 until 2007, while Jones served as president and chief operating officer of Inco from 2001 until 2006.