Canico gets Ona-Puma feasibility (August 08, 2005)

Vancouver – Canico Resource (CNI-T) has received results of the long awaited feasibility study on its Ona-Puma nickel laterite project in Par State, north-central Brazil.

The study, by engineering firm Hatch, reviewed an expected open pit scenario and rotary kiln electric furnace pyrometallurgical smelting process. Total capital expenditure (capex) costs are estimated at US$1.1 billion for a two-line plant to be constructed in stages.

The initial line is to be built over 37 months at an estimated capex of US$762 million, reaching full throughput of 1.28 million tonnes of ore per year over its two-year ramp-up period.

Subsequently, a second line would be built over the following two years at an additional capex of US$352 million. With both lines in full operation, the smelter complex would have processing capacity of 2.56 million tonnes of ferronickel laterite ore per year.

The two main laterite deposits, Ona and Puma, host proven and probable reserves of 77.7 million tonnes grading 1.8% nickel and 18% iron, using a 1.1% nickel cut-off grade.

The envisioned operation will produce a refined ferronickel product (about 25% nickel and 75% iron) for direct sale to stainless steel mills. Initial mining is expected to exploit higher-grade ore zones, with nickel output of about 67 million pounds in year 3, once the initial line is at full capacity.

Site operating costs of US$1.60 per pound of nickel are anticipated during the initial phase, falling to US$1.54 with the second line reaching full capacity around year 7. Life-of-mine annual production is projected at 82 million pounds of nickel at total cash operating costs of US$1.93 per pound.

Hatch’s study assumed a constant US$3.75 per pound nickel price and shows a 12.2% internal rate of return (IRR) over a 34 year mine life, giving a 7.2-year payback for the US$1.1 billion capex. At US$5.00 per pound nickel, the IRR comes in at 19.4% with a capex payback in 5.3 years.

Canico continues its infill drilling program at Ona-Puma, with an eye at upgrading portions of the 91.2 million tonnes of inferred resource grading 1.67% nickel (at a 1.25% nickel cut-off) to reserve classification.

Anticipating a production decision, the company is continuing to advance construction of the local road network and is finalizing the contract for a 400 km power line from Marab to the project.

The aspiring mid-tier nickel producer is also finalizing its project loan facility and expects to raise the necessary development capital by late-2005. Canico is optimistic that it can beat the second-half 2008 start-up estimate in the feasibility study, forecasting initial production in early-2008.

Investors underwent sticker shock at the project cost estimates, prompting the stock to shed $2.70, or over 18%, to $12.10 per share in the two days following the news.