Ourilandia, Brazil — With eight drill rigs on site and four more on the way,
Engineering work is ongoing and a full feasibility study is expected by the second half of 2004. Environmental base-line studies and social studies are also in progress, and some preliminary metallurgical tests have been completed. Canico is in discussions to start pilot plant tests later this year.
A scoping study will evaluate the capital and operating costs for a conventional nickel smelter. This review will compare the costs associated with a single-line (1.25-million-tonne-per-year) and, alternatively, a double-line (2.5-million-tonne-per-year) ferronickel and nickel matte operation.
The junior recently tabled more results from a 500-hole first phase of infill drilling. So far, about 17 km of the prospective 20 km strike length of the Ona ridge has been tested by widely spaced holes (400-metre centres). Results indicate that the mineralization at Ona is thicker, more continuous and considerably more extensive than previously estimated.
“We are extremely pleased with the results to date,” Canico President Michael Kenyon told The Northern Miner during a site visit. “The project has grown beyond anyone’s expectation. There was no way anyone could have foreseen just how big it was going to get. It’s big and high grade, and [nickel] is very much in demand. It’s not often those three things come together at the same time on the same project.”
Highlights from recent drilling are as follows:
— Hole 3362 intersected 6.15 metres averaging 2.62% nickel and 0.037% cobalt starting at a down-hole depth of 1 metre.
— Hole 3370 intersected 18.35 metres of 2.27% nickel and 0.057% cobalt starting at 2.65 metres down-hole.
— Hole 3376 cut 12.75 metres of 2.42% nickel and 0.151% cobalt starting at 35.7 metres down-hole. This was followed by several intervals, including a 4.1-metre section grading 2.08% nickel and 0.043% cobalt, a 3.6-metre interval of 1.74% nickel and 1.065% cobalt, and 3 metres of 1.89% nickel and 0.109% cobalt.
— Hole 3378 intersected 5 metres of 2.73% nickel and 0.063% cobalt starting at 2.9 metres down-hole.
The company is now engaged in a second phase of infill drilling, which is expected to span 35,000 metres.
The 400 sq. km Ona-Puma property consists of two 200-sq.-km claim blocks about 500 km southwest of Belem, the capital city of Para state. A series of dirt roads connects the deposits to each other and to nearby towns.
The Ona deposit lies 21 km north of the town of Tucuma while the Puma deposit is 31 km north of the town of Ourilandia. These towns have a combined population of about 35,000 and an airport with daily service to Maraba. Dirt roads also provide access to the Brazilian highway network at Xinguara, 145 km to the east. Xinguara also represents a link to the national power grid. A railway terminal that services the Carajas iron ore mine is 120 km northeast of Ona-Puma.
Resources
Based on a cutoff grade of 1.5% nickel over a minimum width of 2 metres, Ona Puma is estimated to have a resource of 53.22 million dry tonnes averaging 2.2% nickel and 0.08% cobalt. The average thickness of the laterite is estimated at 6.5 metres.
The resource consists of two separate lenticular ridges. Ona, the more southerly body, strikes east-west, whereas Puma strikes to the northeast. Another ridge, representing an iron formation, lies between the two deposits. The Ona target comprises an area measuring about 20 by 1 km, and the mineralized laterite has an average thickness of 4.1 metres. A resource estimate performed by Watts Griffis & McOuat (WGM) indicates that Ona hosts an inferred resource of 22.6 million tonnes grading 2.1% nickel at a cutoff grade of 1.5% nickel. Canico has been expanding this resource through drilling.
Ten kilometres to the northeast lies the Puma West target, which extends for 12 km, is 1 km wide, and has an average thickness of 7.8 metres. Resources at Puma West stand at 33.7 million dry tonnes averaging 2.21% nickel and 0.071% cobalt.
Three kilometres to the northeast is the Puma East target, which measures 7 km long by 500 metres wide. Half of Puma West and all of Puma East are in an indigenous reserve and therefore unavailable for development.
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
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. Canico began trading in early February with 9 million outstanding shares.
The company currently has 27 million shares outstanding and 33.2 million on a fully diluted basis.
In late February, Canico completed its acquisition of the Inco subsidiary that held the rights of the Ona-Puma project. Through a series of financings, Canico was able to raise the US$22.5 million necessary to close the deal. The agreement stipulated that the principal condition for the acquisition was that Canico raise US$22.5 million. Inco will receive no cash payments but instead hold an 18% stake in Canico, as well as several warrants. The warrants are designed so that Inco can buy shares to maintain its 18% stake in the junior. Inco also holds a right of first refusal to buy Canico’s interest in the project should the junior decide to sell it.
Canico and Inco have also agreed to an offtake deal that allows the latter to buy all the nickel matte produced on the property, and a technical service agreement allows Canico to use the major’s reduction smelting process.
Geology
Regionally, the Ona Puma area is dominated by poorly exposed, intensely deformed Archean-aged crystalline basement rocks. The Ona Puma deposits represent younger, layered, ultramafic intrusions. Ona strikes east-west and dips gently to the south, and is composed of serpentinized dunite, peroxinite, anorthosite and gabbro.
Puma strikes to the northeast and dips more steeply to the south. It consists dominantly of serpentinized peridotite with lesser dunite and gabbro. Two types of laterite profiles have been identified at Ona and Puma: a limonite-saprolite profile and a silica cap. The silica cap consists of quartz, minor goethite and hematite. At each complex the silica cap lies toward the eastern margin of the intrusion. The limonite and saprolite profile consists mainly of serpentine and lesser goethite. Nickel mineralization takes the form of garnierite, a nickeliferous serpentine.
History
Exploration in the Ona Puma area increased during the mid 1960s, following the discovery of iron and manganese deposits near Carajas, 120 km to the northeast.
Inco used air photos and side-looking imagery to identify potential laterite deposits and then sent in geologists to investigate. In 1973, Inco discovered nickel mineralization in the soils at Ona. A camp and an airstrip were subsequently set up, and more detailed exploration began. Puma was found shortly thereafter. Inco continued exploration until 1977, by which time it had sunk 370 widely spaced, augured holes and dug 311 test pits. The sample density was estimated at 20 holes or pits per square kilometre at Ona and 18 holes or pits per square kilometre at Puma. Unfortunately, owing to depth restrictions of the auger equipment, many of the holes failed to reach the mineralization.
In 1983, a technical-economic prefeasibility report was submitted to the Brazilian Department of Mines with
an application for a nickel mining concession. At that time, the creation of the Xikrin Indigenous Land Reserve, which covered half the Puma West mineralization and all of the Puma East mineralization, raised questions about the status of Inco’s mineral rights within the reserve. Owing to the lack of regulations regarding mining operations on these reserves, Inco delayed its mining concession request and subsequently preserved its mineral rights. No regulations have been created to permit mining on the Reserve.
When Canico entered the scene, it contracted WGM to verify Inco’s previous resource estimate at Ona Puma. Based on Inco’s data, WGM tabled an inferred resource of 39.2 million tonnes grading 2.2% nickel, using a cutoff grade of 1.5% nickel. About 32 million tonnes averaging 2.22% nickel lay outside of the indigenous reserve, and of this, 6.7 million tonnes averaging 2.13% nickel were attributed to the Puma West deposit.
Nickel is produced from two distinct ore types: nickel sulphide deposits and nickel laterite deposits. Most nickel laterites come from tropical or sub-tropical countries, and the mining of laterite deposits accounts for 40% of the world’s output.
Nickel laterites typically evolve from mafic and ultramafic rocks, where the nickel is largely derived from olivine, the dominant mineral in ultamafic rocks. Olivine on average contains 0.3% nickel in its chemical formula.
In the laterization process, the most soluble portions of the host rock are washed away, thereby increasing the relative concentration of the remaining components. In this process, magnesium oxide migrates downward while the less mobile iron oxides become more dominant nearer the surface. The contained nickel and cobalt also remain, and over time increase in concentration. The nickel tends to drift lower, and as a result, its grade tends to increase with depth.
Each laterite deposit’s chemistry is a function of its weathering history and the composition of the parent rock. In most cases, nickel laterites are composed of two zones: an upper, limonite zone, which is high in iron and low in nickel, magnesium and silica; and a lower, saprolite zone, which is higher in nickel, magnesium and silica but lower in iron. These two structures must be treated differently in order to recover the contained nickel.
Ona Puma is dominantly a saprolite type of deposit with a low iron content (about 22.4% iron at Puma West and 17.6% iron at Ona). The average silica-to-magnesium ratio over the entire deposit is 1.63.
Many of the Australian laterite deposits have a high iron content and a low nickel content, which is reflective of limonite dominant deposits.
Treatment processes
In the recovery of nickel from laterite deposits, three treatment processes are used: conventional smelting (pyrometallurgical), reduction roast/ammonia leach processing (better known as the Caron process), and pressure acid leaching (PAL).
Pyrometallurgical treatment is used for the high-nickel, low-iron, saprolite ores and involves furnace smelting to yield an iron-nickel melt. From this melt, an iron-silica slag is skimmed off, leaving an iron-nickel product known as ferronickel, which contains 20-50% nickel. Further treatment during the smelting process can produce a high-grade nickel matte, which may contain up to 78% nickel. The pyrometallurgical process is used at the PT Inco mine in Indonesia, the Falcondo mine in Dominican Republic, and the Cerro Matoso mine in Colombia.
The Caron process is used for limonite ores with high iron and high magnesium contents. The ore is first roasted and then cooled in a non-oxidizing environment. The resulting material is leached with an ammonia solution and further treated to produce a nickel-rich product (containing up to 75% nickel). Nickel recoveries with the Caron process are usually low in comparison with other types of laterite ore processing.
The PAL process is applied to limonitic ores that are high in iron and low in magnesium, such as many of the deposits in Australia. PAL involves the dissolution of limonite ores in strong acid under high pressures and temperatures. This treatment liberates nickel and other elements into solution. The metals can then be further concentrated and processed to produce either an intermediate nickel-bearing product or nickel metal itself, as well as associated metals. Owing to the technical and financial challenges of the process, PAL has not yet proved to be economically viable on a large scale.
After reviewing Inco’s 1997 internal scoping study, WGM concluded the Ona Puma deposits could be exploited using conventional pyrometallurgical smelting technology.
The study proposed a single-line pyrometallurgical process, similar to that used by Inco in Indonesia. Such a process 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 was estimated at a respectable 0.4-to-1, and the recovery rate was pegged at 91.6%. The estimated capital cost is US$450 million; the operating cost, US$49 per tonne. However, WGM says the optimum process and processing rate have yet to be established.
“I expect that the biggest challenge for us will be raising the capital to put the project into production,” said Kenyon. “Robust projects will get developed; it’s simply a matter of the format and the cost of the development money. I expect that given the quality of the deposit and assuming a good feasibility study, Canico will be able to raise the required capital to build the project. We’ll certainly be looking at all our options.”
Brazil is Latin America’s largest country, with a surface area of 8.5 million sq. km and a population of 170 million. Most of the population live in the south, in Rio de Janeiro and Sao Paolo. About 60% of the population is under 30 years of age.
Brazil’s gross domestic product exceeds US$800 billion.
In 2000, mineral production in the country reached US$17.8 billion, or 2.2% of the country’s GDP. There are more than 1,700 active mines in Brazil. It is the world’s largest exporter of iron ore, niobium, lithium, tantalum and tin, and the fourth-largest producer of steel. Brazil also supplies 2.1% of the world’s annual gold demand.
“Over the last couple of decades, the mining industry has been relegated to a place of secondary importance,” said Miguel Nery, director-general of the Ministry of Mines and Energy. “But in my tenure, I hope to fulfil the industry’s original objective, which is to help develop the country. It is the raw materials which supply industry, and which then generate wealth for the country.”
In 1995 the government legislated constitutional amendments that allowed foreign companies to hold majority ownership in Brazilian mining projects and granted them fiscal and economic equality regardless of the origin of the capital.
“Brazil itself does not present any special or unusual operational difficulties,” said Kenyon. “It’s a country with a long mining history. They have very good geologists, engineers and technical people, and their fiscal and mining codes are conducive to promoting long-term investments in mining projects. It’s nice to see a country that recognizes the large financial risks of the mining business and is prepared to present an opportunity for commensurate reward for taking such risks. It’s a good place to be doing business.”
Taxation for mining ventures is rated the best in South America with an effective tax rate of under 40%. Government royalties range from 0.2% to 3% on net sales, and tax deductions can be made against the royalties. A total of 65% of the royalty goes to the local municipality near the mine site. The remaining 35% is divided between the state (23%) and the National Department of Mineral Production (12%).
Mineral rights can be obtained through applications for prospecting or exploration permits, and these applications are filed with the National Department of Mineral Production.
An exploration permit is granted for three years and is renewable on request. It is subject to a small annual charge per hectare. Ex
ploration should be performed according to an exploration plan which is submitted with the exploration application. Any changes to the plan must be made known to the National Department of Mineral Production.
Once exploration has been completed, the company must file a report with the department, outlining the geological findings and, if applicable, providing an economic assessment of any proposed development.
Mining concessions are only granted to corporations. After an exploration report is approved, a company has a year in which to present a mining plan and request a mining concession. This plan must include a feasibility study, and the company must demonstrate it can provide the necessary financing. Also, an independently prepared environmental plan must accompany the application. Once the mining concession is granted, the company has the right to extract, process and sell the minerals derived from the deposit.
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