Western Areas to mine underground at Spotted Quoll

After starting nickel production last April at the Tim King open-pit mine, part of Western Areas’ (wsa-t, wsa-a) Spotted Quoll deposit about 400 km east of Perth, the company has decided to mine underground, too.
The nickel sulphide explorer and producer will begin decline development this April, and forecasts first production in February 2012. The target start-up date should allow for “a relatively smooth transition” from open pit to underground, the company said in its announcement.
The board decided to move ahead after completing a feasibility study for stage one of an underground operation.
The estimated mine life for stage one is eight years. The decline will extend from the mine portal in the Tim King pit to a vertical depth of 525 metres.
The feasibility study for the first stage outlined robust returns at a base case of US$6 per lb. nickel. Pretax net present value would come in at A$90 million, the pretax internal rate of return would reach 41% and C1 cash costs would be US$2.29 per lb. nickel.
The ore reserves used in the feasibility study were 1.73 million tonnes at an average grade of 4% for contained nickel of about 70,000 tonnes.
The company believes more resources lie below the current ore reserve and this year will begin infill drilling to extend resources and possibly upgrade these into reserves.
A 24-metre crown pillar, which will be partially retrieved at the end of the mine life, will be left below the Tim King pit.
Mining will involve top down, long-hole open stoping using paste fill to remove the requirement for pillars. Levels will be spaced 15 metres apart.
Total capital costs for the first stage are estimated to be A$98 million, with the major component of A$62.2 million for mine development spread over the life of the project.
Spotted Quoll was discovered in October 2007, 6 km south of the company’s Flying Fox open-pit mine, one of the highest-grade nickel mines in the world.
The Spotted Quoll open-pit mine was named the Tim King pit after Timothy King, one of the founders and an early director of Western Areas.
At presstime in Toronto, Western Areas was trading at $6.10 per share. The company has a 52-week range of $3.14-$6.79 and 179.7 million shares outstanding.