Dynatec introduces new partners

After impressing the market the day previous by announcing a partnership that gets it considerably closer to mining one of the world’s largest nickel deposits, Dynatec (DY-T) introduced its new partners to a crowd gathered at the TSX in Toronto on Oct. 31.

The Richmond Hill-based company — who until now has been known primarily as a mining contractor — added a key component to its partnership mix for the Ambatovy nickel project in Madagascar by joining up with The Korean Resources Corporation (KORES) a crown corporation that leads a consortium of Korean corporations.

KORES will take a 27.5% stake in the company, while Japanese giant Sumitomo will increase its stake to 27.5% from 25%. Also coming into the fray is Montreal-based SNC-Lavalin, who will take 5% of the project.

The arrangement leaves Dynatec with a 40% share and means it has achieved its goal of being the operator of the massive project — whose capital costs are projected to come in at roughly $2.5 billion.

Ambatovy ranks favorably with other world class nickel projects. Its 60,000 tonne per year production capacity is equal to both Inco‘s (N-T, N-N) Goro and Xstrata Nickel‘s (XTA-L) Koniambo in New Caledonia. By comparison, Inco’s Voisey’s Bay is targeting production of roughly 50,000 tonnes of nickel per year.

Since making the announcement on Oct. 30, Dynatec shares have gained roughly 9%, or 15, moving up to $1.86 on a remarkable 67.5 million shares traded in just two days.

As part of the new partnership arrangement, Dynatec gets US$852 million of financial support from its partners to put towards its equity requirements for the project and its obligations for debt financing.

Further necessary financing could be on its way from the Export-Import Bank of Korea. On the heels of the partnership came news that the bank intends to provide US$650 million of project debt.

Dynatec says discussions are ongoing with other lenders including the Japan Bank for International Cooperation, Export Development Canada, the European Investment Bank and the African Development Bank. The plan, Dynatec says, is to finance between 50 and 60% of Ambatovy’s total funding requirements through debt financing.

While the project still awaits its Environmental Assessment approval, and Madagascar’s Large Mining Investment Act (LGIM) approval, Dynatec’s president and chief executive Bruce Walter says he expects to have the approvals by the first quarter of 2007 — which would allow construction of the project to begin in mid- 2007. The company is targeting to have the facility completed by the first quarter of 2010.

In addition to the 60,000 tonnes of nickel per year, Ambatovy is projected to produce 5,600 tonnes of cobalt. That cobalt is the key to driving down cash costs by way of byproduct credits. Dynatec estimates costs of US 77 per lb. of nickel, using a cobalt price of US$10 per lb.

Reserves at the project are taken from two adjacent deposits, and total 125 million tonnes at roughly 1.04% nickel and 0.099% cobalt using a 0.8% nickel cutoff grade.

The project currently has a 27 year project life, but Walter says that exploration will continue to add to that.

The mine is situated roughly 80 km east of Madagascar’s capital city, Antananarivo, and is within a few kilometers of the main road and rail system which connects the capital to the main port city of Toamasina, which is on the east coast of the island.

After being mined in an open pit — with a strip ratio of 1.33 to 1 — the laterite will be slurried and sent down a 220 km. pipeline to the refinery plant to be build near the Port of Toamasina.

And with KORES on board Dynatec won’t have to fret about finding a buyer for its product. KORES will purchase half of Ambatovy’s quarterly nickel production — to a maximum of 7,500 tonnes per quarter, for the first 15 years of production.

Sumitomo will buy any portion of nickel production not sold to end-consumers — up to a maximum of 30,000 tonnes per year, also for the first 15 years.

The partnership also stipulates that Dynatec is to get a cash payment of roughly US$17.6 million for the re-imbursement of 35% of total project cost from June 1, 2005 until Oct. 18 of this year. As operator, Dynatec will also receive a US$2 million a year fee from its partners.

Dynatec will issue 13.3 million common shares to its partners in four annual installments of 3.3 million shares with the first issue coming on Dec. 31, 2007.

SNC-Lavalin will handle the engineering and construction of the project. It has already been involved with Ambatovy for two years.