Vancouver —
Analysts estimate the project will have a capital cost of US$750 million.
Hatch Associates began the feasibility study in mid-2004, and it’s expected to be completed next month. The firm was selected because of its expertise in mineral processing and blast furnaces.
In a 2003 scoping study, Hatch pegged the total cost of the project at US$600 million. The cash cost was projected to be US$1.35 per lb., though this will likely be higher because of the recent rise in coal and fuel costs. Construction is expected to last 33 months.
Infill drilling is currently testing the extensions of both deposits. Canico hopes to outline 10-12 years’ worth of proven and probable reserves, which would reduce project risk considerably. The company has so far spent US$50 million on the drilling of 5,300 holes (of a planned 6,000), resulting in a total inferred resource (for both deposits) of about 104 million tonnes grading 2.15% nickel and 0.105% cobalt. The estimate is based on a cutoff grade of 1.5% nickel.
The project received its environmental licence in August 2004, and the state government and Canico are co-operating on highway construction. The Brazilian power company Eletronorte is building a 400-km-long, 230-kV transmission line.
Julio Carvalho was recently hired to head Canico’s Brazilian subsidiary. He previously worked for 33 years with Rio Tinto in Brazil.
Canico Resource is presided over by Michael Kenyon, a geologist who used to work for Sutton Resources, before it was taken over by Barrick Gold. At Sutton, Kenyon helped explore the Kabanga nickel sulphide deposit and the Bulyanhulu gold project, both of which are in Tanzania.
In late 1999, on the heels of Sutton’s takeover, Inco called Kenyon and his colleagues saying they needed to offload some of their projects as they were preoccupied with Goro, in New Caledonia, and Voisey’s Bay, in Newfoundland. Chief among these was Ona-Puma.
Sixty per cent of the world’s nickel production comes from sulphide ores, whereas 40% comes from laterites. By 2010, laterites will account for an estimated 70% of the world’s nickel production.
“Mining laterites is dirt-cheap,” says Kenyon. “You’re just moving dirt. The big costs are in the processing.”
Laterite is defined as residual soil developed in tropical countries, out of which the silica has been leached. It may form deposits of iron, nickel, bauxite and manganese. Laterites are formed by the weathering of ultramafic rocks containing olivine; nickel results from the breakdown of the olivine. In order for mining to occur, the nickel and iron must be separable.
“The kind of laterite makes a huge difference in the economics of mining and recovering nickel,” says Kenyon. “The recipe for a good nickel laterite is a hot tropical environment with water in it.”
A few years back, several nickel laterite deposits in Australia attracted the attention of investors. However, most of these proved prohibitively expensive: the cost of freeing the nickel was deemed too high. Moreover, these deposits were formed in a dry environment and hosted in limonite, which contains high iron and low nickel, magnesium and silica.
Ona-Puma is unusual among nickel laterites in that it is hosted by saprolite and thus contains a relatively low amount of iron and higher nickel. As a result, ore may be treated using simple pyrometallurgical methods (the same that are used to recover nickel from sulphide deposits), as opposed to the pressure-acid-leach (PAL) technology used on the limonitic material in Australia.
In pyrometallurgical treatment, furnace smelting yields an iron-nickel melt from which an iron-silica slag is skimmed off. What’s left is ferronickel, which contains 20-40% nickel. A high-grade nickel matte (up to 78% nickel) can be produced by further treatment. By comparison, PAL entails dissolving limonite ores in strong acid under high pressures and temperatures to free the nickel and other elements into solution. PAL is used on limonitic material with a high-iron content.
The Ona-Puma nickel laterite deposits were discovered in the late 1970s but sat idle until a scoping study affirmed they could be exploited using conventional smelting technology.
Canico began exploring the property in September 2002, and by January 2003, drilling had outlined an inferred nickel resource, at the Puma West zone, of 33 million tonnes at 2.2% nickel. Canico acquired a 100% interest in the project from Inco in early 2003 in consideration of shares and warrants equivalent to 18% of its issued capital (4.7 million shares and 1 million warrants).
When it completed the deal with Inco, Canico had 30 million tonnes grading 2% nickel. Since then the size of the resource has tripled, while the grade has remained the same.
By August 2003, drilling at the Ona deposit had outlined an inferred resource of 69.8 million tonnes grading 2.12% nickel and 0.123% cobalt, and at Puma West, the resource was revised to 34.5 million tonnes grading 2.21% nickel and 0.07% cobalt.
The scoping study suggested that, on a yearly basis, 1.2 million tonnes could be processed at a cost of US$560 million, using a single-line rotary-kiln electric furnace. The mine life was pegged at 90 years, and in each of the first 20 years, about 59 million lbs. of nickel would be produced.
What makes these deposits so attractive, from a mining standpoint, is their proximity to surface. They exist beneath shallow hilltops partly used for cattle grazing. The ridge, 20 km long, contains a layered ultramafic complex, which pokes through the Precambrian basement.
Although nickel and cobalt grades in laterite deposits are fairly consistent, some areas of higher grades occur where the company is tightening up the drill spacing.
Highlights from drilling include hole 1034, in the main zone at Puma, which returned 31 metres (from surface) grading 4.02% nickel and 0.108% cobalt. The East Plateau zone yielded up to 2.18% nickel and 0.129% cobalt over 19 metres, from surface.
At the Ona deposit, hole 3051 cut 23.4 metres (starting at a depth of 4 metres) grading 2.45% nickel and 0.069% cobalt, while hole 3318 intersected 21.6 metres (starting at 16 metres down-hole) grading 1.79% nickel and 0.383% cobalt.
Off-take agreements will secure debt financing for the project. Canico is getting advice from CIBC World Markets and Barclays Bank, which, in turn, have appointed AMEC to conduct due diligence on Hatch’s engineering work.
In the 1990s, Brazil’s constitution was amended to allow foreign companies to hold majority ownership in projects. Foreign investment increased as a result, and Ona-Puma one of the results.
Brazil is also a leading manufacturer of mining equipment, and so is able to supply 90% of domestic demand for such equipment.
The Ona-Puma project is exempt from value-added tax for 15 years, and a 75% income-tax reduction will apply for the first eight years of production.
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