Australia’s Western Areas backs Mustang at Maskwa (November 17, 2006)

Perth, Australia-based nickel miner Western Areas (WSA-T, WSA-A) is investing up to $5 million in Mustang Minerals (MUM-V), enough money to allow the Toronto-based junior to complete a feasibility study at its promising Maskwa open-pit nickel project situated just west of the Manitoba-Ontario border.

Western Areas is paying $3 million for 8.6 million Mustang shares valued at 35 apiece, plus 4.56 million warrants that are exercisable into shares at a price of 45. If all the warrants are exercised, that would bring another $2 million into Mustang’s coffers and boost Western Areas’ interest in Mustang to 19.9%.

While Western Areas has been having success at its 100%-owned Forrestania nickel project in Western Australia, this is its first significant step outside Australia. It’s not a wholly unexpected move, though, with Mustang president Robin Dunbar having been a non-executive Western Areas director since December.

Julian Hanna, Western Areas’ managing director, comments that his company has reviewed “many nickel opportunities outside Australia and (we) believe that the Maskwa deposit has strong potential to be the next nickel mine developed in Canada in an area with well-established infrastructure and excellent exploration upside.”

Western Areas will also be nominating a member — most likely Hanna — to sit on Mustang’s board.

Commenting on the deal, Dunbar says it “helps Mustang tap into some actual mining expertise. There’s a lot more to this announcement than the money; they’re very keen on moving the project forward, and there was also a good fit in terms of the philosophies of the companies.”

Maskwa is situated in the Bird River greenstone belt, some 150 km northeast of Winnipeg near the town of Lac du Bonnet. Mustang acquired a 100% interest in the Maskwa property from a private company in June 2004, though there is a 1% underlying royalty. The private company had bought the asset out of a bankruptcy by Canmine Resources in 2001.

Maskwa was mined by Falconbridge subsidiary Maskwa Nickel Chrome Mines between 1974 and 1976, with concentrate trucked 8 hours away to Inco’s smelter in Thompson in northern Manitoba. In that short period, Maskwa Nickel mined 332,000 tonnes of ore grading 1.2% nickel and 0.2% copper.

Just to the east, also during the 1970s, Falconbridge mined another 1.54 million tonnes of 0.8% nickel and 0.3% copper at the Dumbarton underground mine, which today is on Mustang’s property.

In February 2005 at Maskwa, Roscoe Postle Associates calculated a National Instrument 43-101-compliant, indicated open-pit resource of 5.2 million tonnes grading 0.68% nickel and 0.15% copper, or a contained 78.5 million lbs. nickel and 17 million lbs. copper.

The orebody is a sheet and is fairly consistent, so it should be relatively simple for Mustang to prove up a reserve within the next year. And while most of the ore is disseminated, there are also some massive-sulphide veins present that will be explored further.

Mustang hired Micon earlier this fall to carry out a scoping study which should be completed before year-end.

Dunbar expects a follow-up $1.5-million feasibility study to be tabled later next year with an eye to beginning mine construction in 2008.

“We’ll need to figure out where the concentrate’s going to go, and produce a high-quality concentrate,” says Dunbar, noting that that was an issue in the past at Maskwa: the concentrate had fairly high magnesium oxide content and relatively low recoveries.

However, recent metallurgical work by Mustang has shown substantially better recoveries.

“Right now the world seems to want nickel concentrate, so that’s a good dynamic for us,” Dunbar says. “The best way to increase the value of the company is to move towards production. We have about a hundred million pounds of nickel in the pit, so we’re looking at a seven- or eight-year mine life.”

Some 35 km north of Maskwa but still within the Bird River greenstone belt, Mustang is also exploring the large but low-grade M2 nickel-copper zone at its Mayville property, which could potentially provide feed to any concentrator built by Mustang at Maskwa.

Mustang has a resource estimate pending at Mayville.

“It’s low grade but there’s a lot of metal there,” comments Dunbar. “The whole Bird River belt is prospective for additional discovery.”

Mustang shares spent much of the autumn in the 25-30 range, but have shot up in November to trade around the 38 mark.

Apart from this Western Areas deal, Mustang is benefiting from owning 1.8 million shares in junior explorer Aquila Resources (AQA-V), which was spun off from Mustang and has been making strong gains of late on the back of some excellent drill results in Michigan.

Meanwhile in Western Australia, Western Areas celebrated in late October the commencement of underground mining from its Flying Fox deposit on its Forrestania property, situated 400 km east of Perth.

Though small, Flying Fox is one of the highest-grading nickel deposits in the world, boasting an indicated resource of 1.2 million tonnes of 6.6% nickel.

Western Areas is also carrying out a prefeasibility study at its lower-grade Digger South nickel-copper deposit, 40 km south of Flying Fox.

Western Areas is ramping up production to 12,000 tonnes of nickel in concentrate annually from Flying Fox, and hopes that Digger South could add another 5,000 tonnes to that figure annually.