Hard Creek’s new Turnagain PEA cuts capex by $1.6B

Vancouver – Metallurgical advancements have led Hard Creek Nickel (HNC-T) to release a new preliminary economic assessment (PEA) for its flagship Turnagain nickel project in northwestern British Columbia. Despite the PEA being the company’s fourth such assessment completed in nearly as many years, the results show it to be the most feasible so far with a pretax net present value of US$1.29 billion using an 8% discount rate (US$725 million after tax).

High initial capital costs have been the project’s biggest roadblock over the years and the latest PEA has cut them dramatically, to US$1.32 billion from US$2.95 billion. This is due in no small part to the extensive metallurgical studies completed by Hard Creek in 2010 and early 2011, in which nickel recoveries vastly improved and allowed the project to move forward without the construction of an expensive refinery on site.

Using dispersants instead of suppressants, Hard Creek’s metallurgists were able to find a solution to Hard Creek’s main problem – that nickel mineralization could not be easily separated from the magnesium sulphides in the ore – and were able to boost the concentrate grade from 4% to 18% nickel. The concentrate would also contain nearly 1% cobalt. 

“We now have a long-life project that is able to produce a very desirable, clean concentrate product that the world’s nickel smelters need,” Mark Jarvis, Hard Creek’s president and CEO, said in a prepared statement. “This will be an open-pit mine using SAG mills, ball mills and standard flotation tanks, so technical risk has been reduced dramatically… This makes our financial metrics competitive with every other large greenfield nickel project in the world.”

The study outlines a conventional open-pit mine with a milling rate of 43,200 tonnes per day producing a nickel-cobalt concentrate totalling 52.7 million lbs. nickel and 2.8 million lbs. cobalt each year for the first five years. A US$555-million expansion to the mine after year five would then nearly double mill throughput to 86,000 tonnes per day and increase production to 97.8 million lbs. nickel and 5.3 million lbs. cobalt each year. The staged expansion plan thus accounts for some of the new PEA’s reduced initial capital costs and part of its lacklustre payback period, which remains high at 7.4 years (the previous PEA had a payback period of 7.8 years).

Using base-case prices of US$8.50 per lb. nickel and US$14 per lb. cobalt, cash operating costs for years one to five at Turnagain are estimated at US$4.23 per lb. nickel. This would reduce slightly to US$4.20 per lb. nickel produced over years 6 to 21 and would average US$4.26 over the life of the mine. In the previous PEA, which included building an on-site refinery, operating costs came in slightly lower at US$3.34 per lb. nickel. The after-tax internal rate of return for the project is now 13.6%, compared with 11% under the previous study.

The plan provided in the PEA limits the pit mining to 21 years with milling of the stockpiles for several additional years for a total mine life of 27.2 years. The PEA base-case in-pit mined resource consists of 206 million tonnes of measured resources at 0.231% nickel and 0.014% cobalt, 356 million tonnes of indicated resources at 0.226% nickel and 0.013% cobalt, and 201 million tonnes of inferred resources at 0.235% nickel and 0.013% cobalt.

Shares of Hard Creek gained 1.5¢ on the news to close at 27¢ on Oct. 21 with 87,480 shares traded. The company has 77.3 million shares issued and outstanding, 90.6 million if fully diluted, and a 52-week share price range of 17¢-57¢.