Canico proves up Brazilian target

Vancouver — Initial results from an ongoing 11,000-metre drill program have enhanced the economic potential of the Ona-Puma nickel laterite project in northern Brazil.

Canico Resource (CNI-V) tabled the values for the first 39 holes, which were collared at the western end of the Puma deposit. The holes covered a 1.5-km strike-length section of the Puma ridge and were drilled along 200-metre line intervals collared some 100 metres apart. All the mineralization occurs at or near the surface. Highlights are as follows:

o Hole 1005 — 7.9 metres grading 2.89% nickel from surface.

o Hole 1008 — 7.8 metres grading 2.65% nickel from surface.

o Hole 1011 — 11.8 metres grading 1.72% nickel from surface.

o Hole 1014 — 13.9 metres grading 3.22% nickel from surface.

o Hole 1018 — 31.8 metres grading 2.34% nickel at a down-hole depth of 1 metre.

o Hole 1020 — 31.1 metres grading 2.46% nickel from surface.

o Hole 1032 — 17.7 metres grading 1.94% nickel at 4 metres down-hole.

o Hole 1034 — 31.2 metres grading 4.02% nickel at 1 metre down-hole.

o Hole 1038 — 36.7 metres grading 2.09% nickel from 3.4 metres down-hole.

These early results indicate a wider mineralized zone than expected, which leads Canico to believe there is good potential for increasing the tonnage at Puma West.

Situated in Para state, the Puma deposit lies on the 400-sq.-km Ona-Puma property, which hosts a near-surface inferred resource of 50 million tonnes grading 2.3% nickel and 0.09% cobalt using a 1.5% nickel cutoff grade.

“The mineralization marks a long, linear and thin blanket of laterite sitting on a ridge of weathered ultramafic rocks,” says Canico President Michael Kenyon. “There are only 1.7 metres of overburden and about 4.5 metres of mineralized saprolite underneath.”

The resource consists of three separate targets. The Ona target covers an 18-by-1-km area, the average thickness of the mineralized laterite being 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 here 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, known as Puma East, which measures 7 km long by 500 metres wide.

Half of Puma West and all of Puma East lie within an indigenous reserve and are not available for development. Even when the 10-11 million tonnes of ore-grade material that occur on the native lands are excluded, the project economics appear robust.

The junior aims to drill 265 holes into Puma before moving on to Ona. More than 400 drill holes are planned for the latter, and, overall, the company intends to complete 11,000 metres by year-end.

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.

$6.2-million financing

Earlier this month, the company completed a $6.2-million financing consisting of 4.1 million units. A unit holds one share and one warrant, which is exercisable at $1.70 for a year. In addition, the exercising of options pocketed the company $523,390. At Oct. 11, the junior had 13.5 million outstanding shares.

Canico can acquire the Ona-Puma property 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.

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

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 per year 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%. The estimated capital cost is US$450 million; the operating cost, US$49 per tonne.

Preliminary review

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.

“This project is starting to live up to its considerable promise,” says Kenyon. “If the potential production scenario recognized by Watts, Griffis and McOuat is realized, Canico will rank within the top ten nickel-producing companies in the Western World.”