LionOre to go ahead with Maggie Hays expansion (February 06, 2006)

The suits at LionOre Mining International (LIM-T, LIM-A, LOR-L) have given final approval for the Maggie Hays Upgrade project at the company’s Lake Johnston nickel operations in Western Australia.

The project, which is budgeted at A$91.5 million (US$69 million) will expand annual capacity at the Lake Johnston mill to 1.5 million tonnes of ore from 500,000 tonnes. The expansion comes with a 20% increase in nickel production, to 14,000 tonnes per year. The new mill capacity will allow LionOre to process low-grade disseminated nickel ore from the Maggie Hays deposit.

About three-quarters of the budget for the expansion has already been contracted for.

LionOre’s consultants put the project’s internal rate of return at 47%, based on a nickel price of US$10,760 per tonne (US$4.88 per lb.) and a production cost of US$6,440 per tonne (US$2.92 per lb.). Inco (N-T, N-N) currently has an offtake agreement for concentrates from Lake Johnston.

Lake Johnston’s current feed source, the Emily Ann underground mine, will be depleted by the end of 2006 and Maggie Hays is scheduled to start feeding the mill in July 2006. Maggie Hays will be an underground mine, but will exploit both higher-grade massive ore and lower-grade disseminated ore. The disseminated ore will be mined by sub-level caving.

Feasibility work last August calculated a probable reserve of 3.3 million tonnes grading 1.64% nickel at Maggie Hays. The reserve was part of a measured and indicated resource of 3.1 million tonnes grading 1.35% nickel in disseminated ore and 494,000 tonnes of massive ore averaging 4.23% nickel.

Both resource and reserve have a cutoff grade of 1% nickel, and the reserve is based on a price assumption of US$8,950 per tonne (US$4.06 pr lb.) and an Australian dollar worth US71.

The mill expansion will be fed by the Maggie Hays reserve for only two years, after which LionOre expects to have further disseminated reserves on Maggie Hays’ Main Zone and on another resource called the North Shoot. The company also plans to offer milling to other nickel producers in the area, specifically Western Areas (wsa-t, wsa-a), whose Flying Fox nickel deposit near Forrestania in Western Australia, is scheduled to start mining in August.

Western Areas is already planning to use the LionOre plant for custom milling in the first months following the Flying Fox startup, but this month announced plans to build its own 250,000-tonne-per-year flotation mill.