Canico confirms Ona-Puma potential

Vancouver – An independent review tabled by Canico Resources (CNI-V) has confirmed the inferred resource for the promising Ona-Puma nickel laterite property in Brazil’s Para state.

Following a full review of all the available data, engineering firm Watts Griffis and McOuat pegged the resource at 39.2 million dry tonnes grading 2.2% nickel. Of this, 6.7 million tonnes grading 2.13% nickel lie in an indigenous area and is not currently available for development.

The findings line up well with the historical inferred resource of 42 million tonnes grading 2.26% nickel and 0.09% cobalt, with 30.8 million tonnes grading 2.32% nickel and 0.08% cobalt lying outside the indigenous area.

“The deposits available for development at Ona-Puma are among the world’s highest grade undeveloped nickel laterites,” says Canico’s President, Michael Kenyon. “They give us a unique opportunity to become a mid-tier nickel producer.”

Canico was formed in late 2001 through the merger of Oliver Gold and privately held Hastings Resources. Both companies were run by strong management groups that found success exploring for gold in Africa. Hastings is led by the former team of Sutton Resources, which delineated the gigantic Bulyanhulu gold deposit in Tanzania and was subsequently acquired by Barrick Gold (ABX-T) for $490 million in March 1999, whereas Oliver pocketed $5.5 million from the sale of its Segala project in Mali in January 2000. Under the merger, Oliver acquired all the outstanding securities of Hastings and consolidated its shares on a 9.3-for-1 basis. The junior then issued one new share for each Hastings share. Hastings’ principals received 5 million consolidated shares, 90% of which are held in escrow pending completion of the acquisition of Ona-Puma. Canico began trading in early February with 9 million outstanding shares.

Canico can acquire Ona-Puma from Inco (N-T) in return for raising at least US$22.5 million by Jan.31, 2003. At the end of the day, Inco will receive no cash payments but hold an 18% stake in the junior. To date, the company has $4 million in cash.

Canico and Inco have also agreed to an offtake deal that allows Inco to buy all nickel matte produced from the property, and a technical service agreement allows Canico to use the major’s reduction smelting process.

The resource consists of three separate targets. The Ona target covers an 18-by-1-km area, with the mineralized laterite having an average thickness of 4.1 metres. Moving 10 km northeast, the Puma West target extends for 10 km along strike and is also about 1 km wide. The mineralization is slightly lower grade but has an average thickness of 5.1 metres. Between the two deposits lies an iron formation. Another 3 km to the northeast is the smallest zone, called the Puma East area, which measures 7 km long by 500 metres wide. Half of the Puma West and all of the Puma East deposits lie within an indigenous reserve.

A 1997 scoping study by Watts, Griffis & McOuat indicates that the deposit could be exploited using conventional smelting technology. A single-line pyrometallurgical process similar to that used by Inco in Indonesia, would generate throughput of 1.1 million tonnes of laterite annually, yielding 50 million lbs. nickel matte yearly over a mine life of 20 years. The stripping ratio is a respectable 0.4-to-1 and the recovery rate is set at 91.6%. Capital costs are pegged at US$450 million; operating costs, at US$49 per tonne.

Late last year, Canaccord Capital conducted a preliminary review of the financial merits of the project and came up with a net present value exceeding US$100 million. The estimate is based on a nickel price of US$3.25 per lb., a 10% discount and 100% equity financing. Assuming higher-grade material would be processed in the early years of production, the project is expected to generate more than US$100 million in cash flow per year at a cash cost of under US$1.30 per lb. of nickel (after refining charges). Research Capital concurs with the analysis, giving the project a net present value of US$114 million for the resources outside of indigenous land, at a nickel price of US$3 per lb. and a 10% discount rate.

Ona-Puma is accessible by road from the town of Maraba and is only 150 km from rail facilities. A major source of hydroelectric power is 100 km away.