Western Areas will mine underground at Spotted Quoll

After starting nickel production in April at the Tim King open-pit mine, part of Western Areas‘ (WSA-T, WSA-A) Spotted Knoll deposit about 400 km east of Perth, the company  has decided to proceed with an underground mine too.

The nickel sulphide explorer and producer will embark on decline development in April 2011 and forecasts first production in February 2012. The target start-up date two years from now 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. Net present value before tax would come in at A$90 million, the internal rate of return before tax 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 additional resources lie below the current ore reserve and next 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 (US$96.77 million), with the major component of A$62.2 million (US$61.4 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 press-time in Toronto Western Areas was trading at $6.10 per share. Over the last year the company has traded in a range of $3.14 and $6.79 per share and has about 179.7 million shares outstanding.