Skye exercises final option on Fenix nickel

Vancouver – Skye Resources (SKR-T, SKRZF-O) has exercised the final terms in its option to acquire Companhia Vale do Rio Doces (RIO-N) interest in the Fenix nickel project in Guatemala.

The company issued 1,746,463 shares and paid US$3.5 million to the majors new subsidiary CVRD Inco to formalize acquisition of its 92.4% holding in the Guatemalan company that owns Fenix.

CVRD Inco also notified Skye it has exercised 250,000 Skye warrants at $5.75 apiece. The nickel major now holds just over 5.6 million shares of Skye representing a 13% position.

In late-2006, Skye completed a feasibility study on Fenix reviewing a proposed ferronickel smelting operation. The study indicates a 13.4% internal rate of return (IRR) at US$5.00 per lb. nickel. With an 8% discount rate, a net present value (NPV) of US$374 million was tabled along with construction cost estimates of US$754 million.

Cash operating costs of approximately US$1.87 per lb. nickel (after iron credits and before royalties) are estimated for the first 20 years, once ramp up is complete, on annual output of about 48.5 million lbs. of nickel. Over its 30-year mine life cash operating costs are expected to come in at about US$2.01 per lb.

The ferronickel smelting operation is expected to produce an estimated total of 1.3 billion lbs. of nickel over its life. An average of 1.37 million tonnes of saprolite ore grading 1.63% nickel would be processed annually.

A preliminary assessment of a hydrometallurgical (hydromet) operation as a later-stage expansion at Fenix was also conducted. It projected an IRR of 14.2% at a US$5.00 per lb. nickel price and a US$15.00 per lb, cobalt price.

The hydromet expansion would have estimated construction cost bill of US$858 million but yield about 1 billion lbs. of nickel and 84 million lbs. of cobalt over its 20-year mine life. The operation would process an annual average of 1.76 million tonnes of limonite ore grading 1.33% nickel and 0.12% cobalt with cash operating costs (before royalties) of approximately $1.38 per lb of nickel, net of refining costs and cobalt by-product credits.

In the mid-1970s Inco constructed a mine and smelting complex at the project, then called Exmibal, to process the saprolite material in the weathered nickel deposit. However, operations were shutdown and placed on care and maintenance in 1980 due to high oil prices and a weak nickel market.

Shares of Skye notched up 24 on the March 6th news to close at $11.75 apiece. The stock has a 52-week trading range of $6.29-to-18.20.