LionOre’s bottom line bolstered

Vancouver — A stellar performance by the Australian operations LionOre Mining International (LIM-T) catapulted the nickel and gold miner to a profitable first quarter.

The company earned US$9.1 million (or 6 per share) in the three months ended March 31, compared with a profit of US$100,000 (nil per share) in the corresponding period of 2002.

Although the increase is partly due to a US$2.9-million gain from the sale of the Australian-listed shares of Jubilee Mines, it was LionOre’s production levels Down Under that provided the most strength to the bottom line.

The Australian operations contributed US$8.7 million to quarterly earnings, compared with a US$200,000 profit a year earlier.

In the Lake Johnston greenstone belt of Western Australia, the Emily Ann underground mine contributed 1,551 tonnes of nickel in the first quarter at a cash cost of US$2.12 per lb. The mine produced 63,281 tonnes of material at an average grade of 3.06% nickel, compared with 44,213 tonnes at 2.94% nickel in the first quarter of 2002. Recoveries increased to 87.4% from 78.5%.

The company began developing the nearby Maggie Hays nickel deposit, which is expected to boost LionOre’s Australian nickel production to 10,000-12,000 tonnes per year by the end of 2004.

A US$13-million development program is planned for Maggie Hays. The work will focus on the main massive sulphide zone, which contains an indicated resource of 633,000 tonnes grading 3.55% nickel.

The company envisions mining the lower massive sulphide zone (probable reserve: 475,000 tonnes, also grading 3.55% nickel), while drill-testing a small high-grade section at the upper part of the zone. LionOre believes incremental production from the high-grade section could be achieved by the second half of 2003, with production from the lower zone coming in the third quarter of 2004.

Based on a nickel price of US$3.25 per lb., average cash operating costs are expected to approach US$1.70 per lb., which translates into US$15 million in cash flow. Underground development costs, pegged at US$13 million, will be covered with existing cash. Nickel concentrates will be sold to Inco (n-t) under the life-of-mine off-take agreement covering the Emily Ann concentrates.

Meanwhile, underground development at Emily Ann has been ramped up, with annual production expected to rise to 350,000 from 250,000 tonnes.

The Emily Ann process plant will be upgraded in incremental stages to accommodate the Maggie Hays ore. By the third quarter of 2004, capacity is slated to hit 500,000 tonnes per year. The capital cost of the upgrade is expected to be US$4 million. Combined with the Emily Ann mine, nickel production from the Lake Johnston region is likely to increase to 7,000-8,000 tonnes per year in 2003, or 50% more than in 2002.

The high-grade section of the Maggie Hays deposit was discovered in 1993, and despite hosting an overall resource of 11 million tonnes grading 1.5% nickel, development has been delayed by a complex ownership structure. In May 2002, LionOre Mining secured a 9-month exclusive option agreement with BHP Billiton (bhp-n) to acquire the latter’s 69% interest in Maggie Hays and its 67% interest in the surrounding exploration tenements. The price for securing 100% ownership of Maggie Hays is A$16.7 million; of this amount, A$6 million was paid in April, with the remainder due over the next five years.

Overall, the deposit is 1.4 km long and has a maximum downdip extension of 500 metres. Mineralization comprises mainly pyrrhotite and pentlandite, with lesser amounts of pyrite and chalcopyrite. The Main zone hosts disseminated mineralization up to 40 metres thick, stratigraphically underlain by a massive sulphide zone up to 7 metres wide. The disseminated mineralization contains 15-20% sulphides, whereas the basal massive sulphide contains 80% sulphides.

The Maggie Hays North zone is a complex tabular structure of stringer and massive sulphides hosted by felsic volcanics. Mineralization ranges from 3 to 8 metres wide and is controlled by a shear zone that dips 60 to the east.

The combined indicated resource of the two zones is 3 million tonnes grading 2.4% nickel.

Meanwhile, in the Northeastern gold fields of Western Australia, the company’s 60%-owned Thunderbox mine completed its first full quarter of production. Output totalled 62,878 oz. gold at a cash cost of US$106 per oz., and sales of gold hit US$13.2 million. The operation mined 636,198 tonnes of material grading 3.14 grams gold per tonne with a recovery rate of 96.8%.

In Botswana, LionOre’s 85%-held Tati Nickel operation produced 1,577 tonnes nickel in the first quarter at a cash cost of US$2.67 per lb., compared with 1,485 tonnes at US$2.15 per lb. a year earlier. The operation consists chiefly of the Phoenix open-pit mine, 80 km east of Francistown in the northeastern part of the country. Total sales from Tati Nickel were US$19.1 million, with US$16.1 million attributable to nickel, US$1.9 million to copper, and US$700,000 to platinum group metals. The remaining US$500,000 resulted from the sale of other byproduct metals.

Production in the quarter was hampered by the 5-week shutdown of the BCL smelter, which treats the nickel concentrate. However, Tati continued to produce and stockpile concentrate, except for two weeks when mining was stopped to allow for engineering work.

In the recent first quarter (before non-controlling interests), Tati Nickel earned US$1.8 million, compared with US$1.7 million a year earlier.