Australia enjoying new nickel boom

Perth, Western Australia — Australia’s new nickel boom is a lot like the one that put the country on the world nickel map in the 1970s.

However, compared with the frenetic first time around, which produced more pain than joy, today’s boom is more fruitful in terms of both production and discovery.

By 1980, the Australian nickel mining scene was left predominantly to Western Mining (WMC), but the multi-metal company was taken over last year by BHP Billiton (BHP-N). With the acquisition of WMC, the mining giant gained a nickel legacy of two operating mines, a smelter and refinery in Western Australia (WA) and a concentrator at the WMC flagship of Kambalda, near Kalgoorlie. The latter asset is being kept alive by juniors, which have rejuvenated the past-producing Kambalda and Widgiemooltha mines.

The result has been something of a renaissance in Kambalda: Taking up mothballed WMC operations has allowed many juniors to graduate from explorers to profitable miners in the past six years, including Mincor Resources (MCRZF-O, MCR-A), Independence Group (IGO-A) and Consolidated Minerals (CSMBF-O, CSM-A).

Earlier this year, Canadian company Brilliant Mining (BMC-V) bought a 25% interest in the Lanfranchi mine at Kambalda from private company Donegal Resources, after 75%-owner Sally Malay Nickel (SLLYF-O, SMY-A) decided not to exercise its right of first refusal.

One growing nickel producer that hasn’t made its fortune with past-producing assets is LionOre Mining International (LIM-T, LMGGF-O). The Toronto-based company has made its own discoveries, as well as taking over juniors with promising properties. In the process, it has gained control of the Activox hydrometallurgical process, which treats a variety of metal sulphide concentrates and handles impurities more easily than other processing technologies.

LionOre was one of two companies that presented at the February RIU Explorers Conference in the West Australian seaport city of Fremantle. The other was Western Areas (WSA-T, WSA-A), an emerging nickel producer with projects in the Forrestania belt, south of Southern Cross, and west of one of LionOre’s Lake Johnston operations. The company was dual-listed on the Toronto Stock Exchange late last year.

LionOre’s Australian exploration manager, Mark Bennett, told delegates that the company plans to increase global nickel production to over 100,000 tonnes per year by 2012, from less than 30,000 tonnes currently.

Activox process

The engine for this growth is Activox, which treats metal sulphide concentrates through the combination of ultra-fine grinding and mild-pressure oxidation. The first full-scale Activox plant is being built at the company’s Tati nickel operations in Botswana. The second will be at Nkomati — the equal partnership with African Rainbow Minerals in South Africa — and the large undeveloped Honeymoon Well in Western Australia’s northeastern gold fields is slated to be the third site.

The introduction of Activox at both Tati and Nkomati is linked to planned production expansion.

Bennett said at Tati the Activox refinery, to be commissioned in 2008, should have the capacity to produce 20,000 tonnes per year until at least 2024. Introduction of the process should see the mine cutoff grade lowered to 0.2% nickel from 0.25% nickel.

Bennett said Nkomati has potential for large-scale, open-pit mining and underground operations to produce 20,000 tonnes nickel per year; production using Activox is expected by 2010.

LionOre’s 80%-owned Honeymoon Well is at the northern end of the nickel belt, which extends south from the BHP-acquired (from WMC) Leinster operation, BHP’s big Mount Keith mine and the Jericho deposit, where LionOre has a 40% interest.

Honeymoon Well, for years in the Rio Tinto (RTP-N) camp — now 20% owned by OM Group (OMG-N, OMH-A), which operates the Cawse nickel-cobalt operation just north of Kalgoorlie — is one of the world’s largest undeveloped sulphide deposits with a resource of 1 million tonnes nickel. Test work has shown that Activox may resolve a problem with impurities at the project, which has deterred its development for years.

Bennett said the company plans to mine 11 million tonnes of ore annually from Honeymoon Well to produce 40,000-45,000 tonnes nickel per year using LionOre’s Avalon processing complex at Bulong, near Kalgoorlie.

The Bulong facility was one of the big three WA nickel-laterite high-pressure acid-leach refining projects, but it bombed early, and the intact plant is being converted to Activox for sulphide ore.

LionOre is WA’s second biggest nickel producer after BHP Billiton, through the Emily Ann and Maggie Hays operation at Lake Johnston, the 80%-owned Silver Swan and Black Swan operations north of Kalgoorlie.

The company is halfway through construction of a decline, which will allow mining at the rich-grade Waterloo nickel shoot, close to its Thunderbox gold mine.

Western Areas

The proximity of LionOre’s Mount Johnston operations has been a boon for Western Areas, bringing it closer to production at its Forrestania-area nickel projects. Western Area’s managing director, Julian Hanna, says the company’s offtake agreement with LionOre for the first 75,000 tonnes of contained metal also includes a first-right option for LionOre to extend the deal.

Hanna says that when Western Areas first picked up the old Outokumpu operations at Forrestania, the focus was on Diggers South as the likely first redevelopment. However, drilling under the Flying Fox pit was the first to demonstrate the grade the company was looking for.

Flying Fox’s T1 deposit has 314,500 tonnes grading 4.8% nickel but the deep-seated T5 has a probable 843,000 tonnes at 5.9% nickel for 109.6 million lbs. contained nickel, and has a growing inferred resource of 115,800 tonnes at 6.5% nickel. Diggers South has an indicated 1.5 million tonnes at 1.6% nickel and an inferred 530,000 tonnes at 1.5% nickel, and there are significant resources at the New Morning and Daybreak deposits.

The excavation of a twin portal decline at Flying Fox is well under way. A concentrate plant is being installed with operation expected early in 2007 and anticipated production of 250,000 tonnes per year of concentrates.

Hanna provided one of the conference’s talking points when he showed a graph illustrating that the Australian Stock Exchange — despite the large number of new floats and fresh financings for its mining board — was dwarfed in 2004 by the performance of the joint Toronto Stock Exchange and its Venture Exchange. The London Stock Exchange and its linked AIM board were also left in Canada’s wake.

In 2004, Canada raised US$4.2 billion, the ASX US$1.3 billion, London (after a buoyant 2003) only US$988 million and the Johannesburg Stock Exchange US$933 million.

When Hanna was asked about the possibility of a stampede to Canada, his response was coy, pointing to the complexity of TSX regulations and paperwork — a legacy of the Bre-X Minerals scandal.

— The author is a freelance writer in Perth, Western Australia.