Nickel price won’t sway Que. Raglan

If the shareholders of New Quebec Raglan Mines (TSE) were hoping that a sudden upsurge in nickel prices would encourage the company to harness its huge nickel deposit at Ungava, Que., they came away from the recent annual meeting disappointed.

President T. F. Pugsley failed to provide any assurances that one of the world’s finest high grade nickel reserves will be developed in the near future, if at all.

After two false starts in the past 20 years, the 73.8%-owned Falconbridge Ltd. (TSE) affiliate is reluctant to make any hard and fast decisions before the long-term outlook for nickel becomes clear.

If current prices ($8.48 per lb on April 20) persist, the project would be a real winner and a windfall for shareholders over a number of years,” said Pugsley.

With diluted proven/probable reserves of 12 million tons grading 3.11% nickel per ton and 0.79% copper, the initial capital costs of developing a 33-million-lb-per-year operation are estimated at $235 million. Capital costs would include construction of a 2,000-ton-per-day milling facility and seasonal shipping of concentrates by sea to a smelter.

But the return on the project doesn’t look attractive unless nickel prices average $4 per lb, in 1988 terms, for the eight years it would take to build the mine and recoup the capital investment.

Historically, the nickel market doesn’t support such a scenario. Even though prices soared to a record high of $10.84 during March and April, Pugsley doesn’t expect it to remain at that level much longer.

At $2.50 per lb, a price that Pugsley considers more realistic, the rate of return on the project is minimal and inadequate in view of the size of the investment, he said.

However, even though the outlook at Ungava looks bleak, Falconbridge will continue to retain first call on any profits that are earned from a successful mining operation.

So far, Falconbridge has spent $43.1 million on the project, including cumulative dividends on preferred shares taken down by the copper/nickel giant.

“This amount remains on the Falconbridge books as an asset and an indication of the company’s commitment to preserving its ownership in this potentially valuable resources,” said Chairman Brian Ferguson.

Meanwhile, Raglan must spend $3.5 million on the project by 1992 just to keep it in good standing. While assessment work at Ungava may entail some drilling, Pugsley couldn’t say what else his company will do at the project over the next five years. No work was carried out on the property during 1987.

On Dec 31, the company had reduced its cash position to $347,485, from $406,890 in 1986. The Raglan issue was trading recently on the Toronto Stock Exchange at $3.95 in a 52-week range of $4.35 and $1.50.