Update: Western Areas announces significant upgrade in mineral resource

Drilling at Western Areass (WSA-T, WSA-A) Flying Fox mine in western Australia has revealed a 25% increase in previous mineral resources, the company reports.

Mineral resources for its T1 deposit contain about 21,000 tonnes nickel indicated and 2,100 tonnes nickel inferred, a significant upgrade.

The more we drill at Flying Fox, the bigger it gets, says Julian Hanna, managing director of Western Areas. We are starting to look at Flying Fox in a whole new way.

The resource upgrade at T1 bodes well for the projects other sulphide zones. Hanna says the high-grade T1 ore body now has far more drilling than the underlying T4 and T5 deposits. If we extrapolate that trend downwards then we can see real potential to increase the mine life at Flying Fox beyond our original 10-year target.

The companys other recent breakthrough was the discovery of high grade nickel associated with five electromagnetic anomalies in the deeper T6 and T7 sulphide zones.

I dont think the market has realized the significance of this yet, Hanna says. We already have one of the highest grade nickel mines in the world down to T5, which even our peers say is the best new nickel discovery in Australia in the last 20 or 30 years.

On top of that, Hanna says, his geologists are saying that T7 may turn out to be another T5. We are already thinking about developing a shaft in addition to the existing mine, he says. This could provide access to more ore at lower cost and at a faster rate. Systematic drilling at T6 and T7 will begin in September.

Flying Fox is one of the worlds highest-grade nickel deposits. The largest section of the deposit has a reserve grade of 5.9%, according to UBS Investment Research. Reported intersections range from 6 metres to 22 metres.

UBS notes that the high-grade nature of the Flying Fox deposit means cash costs are very low. The bank estimates that once at full production, average life of mine cash costs would come in at US$2.20 per lb., making it the lowest cost Australian producer and at the bottom end of the cost curve globally.

Initial production from the northern reaches of the ore reserve will start in the December quarter. Drilling in the area has returned high-grade intersections, including 17.2 metres of 6.7% nickel; 11.7 metres of 7.3%; 6.6 metres of 7.9% and 8.2 metres of 6.3%.

The Flying Fox mine is part of the companys Forrestania nickel project, in which Western Areas holds a 100% interest. Maiden production at the mine400 km east of Perthbegan in December 2006.

Mineralization remains open at depth and a drilling program is aimed at extending the resource depth to below 1,000 metres.

The outlook for nickel remains strong. Macquarie Research Equity stated in a research note to clients in May that the recent bull market in the commodity is the result of a combination of an amazing surge in global nickel consumption, driven mainly by a rapid rise in Chinese stainless steel production, and ongoing problems for nickel producers in delivering supply to the market.

Macquarie analysts forecast average nickel prices of US$14.75 per lb. in 2007 and US$13 per lb. in 2008, the highest nominal average prices ever. But they emphasize that the forecasts assume a sharp correction in LME nickel price (from its current level of over US$24 per lb.) as the nickel market rebalances over the next six months.”

Western Areas listed on the Toronto Stock Exchange in December 2005. The group has two interests in Canada: a 13% stake in Mustang Minerals, which is in the early stages of developing its Maskwa deposit in Manitoba, and an option over claims at Lynn Lake where it intends to conduct exploration.