News – 27-SEP-04

Using the successful liaison between FNX Mining (FNX-T) and Inco (N-T) as a model, First Nickel (FNI-T) has brokered a deal that could lead to the rapid development of a nickel deposit discovered by Falconbridge (FL-T) more than 40 years ago.

FNX added a new dimension to junior-senior mining partnerships in 2001 when it won the bid for five of Inco’s former copper-nickel-PGE producing properties in the Sudbury Basin. In exchange for the properties, Inco received an equity stake in FNX, seats on its board, $30 million in exploration expenditures and back-in rights should FNX find a deposit big enough to interest the nickel giant. Just over a year after the deal was signed, FNX was in production.

First Nickel’s deal with Falconbridge is a mini version of the FNX-Inco partnership, but the strategy is the same: buy into base metal deposits too small to be mined by their owners, then take the deposits to production at low capital cost using contract mining, existing infrastructure and third-party mills.

This way, the junior gets a relatively low-risk means of growth, while the senior can profit from deposits in its portfolio that would otherwise have lain dormant. The relatively short timeline for development allows the junior to exploit the top of the commodity cycle.

“The FNX-Inco deal is certainly more advanced and a little more complicated, but that was the model that we had in mind,” says Elizabeth Kirkwood, president and CEO of First Nickel, about the creation of the new junior. “We felt really lucky that FNX had broken the ground in terms of market acceptance of a transaction of this nature.”

Under the First Nickel agreement, Falconbridge vended a 100% interest in the Dundonald property, a 946-hectare claim group near Timmins, Ont., to the junior in exchange for an 18.4% interest in First Nickel, exploration commitments totalling $1.75 million by the end of 2005 and the right to participate in future financings.

The deal also allows First Nickel to earn a 50% interest in Falconbridge’s Kamiskotia claims northwest of Timmins by spending $550,000 on exploration by the end of 2005 and includes a strategic alliance with the major to explore for nickel-PGE deposits in certain portions of the Abitibi greenstone belt.

After forging the agreement with Falconbridge, First Nickel completed an initial public offering this summer by issuing 17.35 million flow-through common shares and 5.65 million units consisting of one share and half a warrant. Kirkwood credits lead agent McFarlane Gordon with the success of the IPO, which was oversubscribed and raised $11.5 million for exploration and development on the Falconbridge properties.

Dundonald South

The company is now in the midst of a 15,000-metre drill program on the Dundonald South nickel zone discovered by Falconbridge in 1960. The major ceased work on the property in the early 1990s after determining that the tonnages it required to make a profit just weren’t there. Defunct Hucamp Mines completed further testing in 2001, including investigating the property’s platinum-palladium potential.

There are two sectors of the Dundonald South zone. Both strike east-west, dip steeply to the south and are hosted by an Archean komatiitic volcanic package. The North sector is thought to consist of five sub-parallel nickel-bearing zones extending over an area of 350 metres by 100 metres. The South sector, 125 metres away, consists of three nickel-bearing zones over an area measuring 750 metres by 100 metres. Nickel mineralization occurs as disseminated to massive sulphides consisting mainly of pentlandite with pyrite, pyrrhotite and minor chalcopyrite.

The targets are similar to those being mined in the Kambalda region of Western Australia. They tend to be small but high-grade (with PGE credits), often occurring in clusters.

Initial results are encouraging. A particularly high-grade zone is shaping up in the north sector with one intersection of 4.42% nickel over 4.28 metres followed by another intersection, 25 metres down-dip from the first, grading 11.84% nickel over 1.7 metres.

“This particular zone is completely unexplored down-dip to the southwest of these intersections and there may be considerable potential in this direction for more high-grade nickel mineralization,” the company said in a recent release.

First Nickel hopes to move underground as soon as possible to prove up reserves and complete metallurgical testing. “Once we get a couple of good intersections from surface, we can ramp down and follow the zone along,” says Kirkwood, adding that underground exploration is the most efficient way to investigate the potential of these elusive nickel-sulphide targets.

Kirkwood used the Cosmos nickel deposit in Western Australia as an example of how small high-grade nickel deposits such as Dundonald South can take the fast track from discovery to production. Jubilee Mines discovered Cosmos in 1997 and made a decision to mine the deposit after outlining just 270,000 tonnes of reserves. The company built a mill to produce its first concentrate in 2000 and is now mining an underground reserve of half-a-million tonnes grading 7.2% nickel. The operation had a gross profit margin of 62% in 2003.

Closer to home, Canadian Arrow Mines (CRO-V) is extracting high-grade bulk samples from the Alexo nickel project near the Dundonald property. The company has received an advanced-exploration permit for an additional 10,000-tonne bulk sample of ore from the Kelex zone at Alexo and will process the ore at Falconbridge’s Strathcona mill in Sudbury, Ont. Canadian Arrow acquired the Alexo project and three others from Legendary Ore Mining, a company controlled by David Larche, by issuing 5.25 million shares.

Kirkwood is counting on a minimum reserve of 250,000 tonnes of ore at Dundonald and will use the proceeds of 10,000-tonne bulk samples to fund ramp development. The company expects to ship ore to a new nickel processing facility being added to the Falconbridge Metallurgical site east of Timmins and just 25 km from the Dundonald property.