Strong economics for the Agata DSO project

Mindoro Resources (TSXV: MIO; ASX: MDO) and TVI Pacific (TSX: TVI) have something to be happy about after a feasibility study on their Agata nickel-laterite project in the Philippines 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 construct 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.

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

While the operation has a 10-year life, with the majority 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 the mining and shipping rates are increased to deplete resources in four years instead of ten.

But the DSO operation is only the beginning 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 Sept. 2015. It could also earn a 60% interest in the second stage processing plant by funding a feasibility study by late Sept. 2016. The feasibility is due in early 2014 and is estimated to reduce the atmospheric leach approach.  

A 2011 prefeasibility study indicated a nickel processing plant could generate 17,200 tonnes of nickel a year in mixed hydroxide product for roughly 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 were a bit weak. The project had a post-tax NPV of US$380 million and IRR of 14%, using an 8% discount and a nickel price of US$10 per lb.

The plant is expected to start production before the end of the first five years of the DSO operation.