Positive economics for Mindoro’s Agata nickel laterite project

Mindoro Resources (TSXV: MIO; ASX: MDO) and TVI Pacific (TSX: TVI; US-OTC: TVIPF) have something to smile about, as a feasibility study on their Agata nickel laterite project in the Philippines has returned encouraging results for a high-iron laterite direct-shipping ore (DSO) operation.

The project, located in the mining district of Surigao in northern Mindanao, is estimated to cost US$10.1 million to build, with payback expected within the first year of operation. The low capital-intensive venture has an after-tax net present value (NPV) of US$37.9 million and an after-tax internal rate of return (IRR) of 187%, using a 10% discount rate.

The project’s infrastructure should be developed by later this year, with the first DSO shipment to China anticipated to start in early 2014. Shipping rates are set to accelerate to 2.5 million wet tonnes per year in 2015. The project is expected to produce laterite, grading 48% iron and 0.9% nickel, which can be used as an iron-ore substitute.

While the operation has a 10-year mine life, with most of the resource set to be mined during the first five years, a technical report shows that Agata’s NPV could improve by US$10.2 million to US$48.1 million, if mining and shipping rates are increased to deplete resources in four years.

But the DSO operation is only the start, designed to fuel the companies’ larger ambitions at Agata. Mindoro — which owns 75% of Agata, and has an option to acquire the remaining 25% from a private Philippine firm — signed joint-venture agreements with TVI last year to develop Agata in two stages, starting with the DSO operation, followed by a nickel processing plant.

Under the options, TVI could earn 60% of the DSO joint venture by funding 100% of the capital costs and bringing the project into production by the end of September 2015. It could also earn a 60% interest in the second-stage processing plant by funding a feasibility study by September 2016. The feasibility is due in early 2014 and is estimated to reduce the atmospheric leach approach. 

A 2011 prefeasibility study showed a nickel processing plant could generate 17,200 tonnes of nickel a year in mixed hydroxide product for 20 years. Initial capital costs were pegged at US$940 million, including a 14% contingency. Cash operating costs were estimated at US$2.60 per lb. nickel, including cobalt and power-generation credits. However, the economics of the plant could be optimized. The project had a post-tax NPV of US$380 million and an IRR of 14%, using an 8% discount rate and a nickel price of US$10 per lb.

The plant is expected to start production within the DSO operation’s  first five years.

At presstime Mindoro shares sold for 2¢ apiece, within a 52-week range of 1¢ to 6¢. The company has a $6 million market cap and 296.8 million shares outstanding.