Royal Nickel’s Dumont nickel project has world scale potential
Mark Selby, president and chief executive officer of Toronto-based Royal Nickel Corp., expects to be doing lots of travelling, and even more talking, this fall because he will be knocking on doors at major global trading houses and stainless steel producers in a bid to raise a whopping $1.1 billion.
That’s right, $1.1 billion, because, according to Selby, that’s approximately the amount of money the company needs to finance construction of an open-pit nickel mine at its Dumont property in Quebec’s Abitibi region.
Approximately $600-million of financing is expected to come from a contemplated senior bond financing. The balance of capital is expected to come from other sources, including structures such as metal streams, subordinated debt, offtake financing, equipment financing, sale of minority interest in the project, and equity financing.
“We hope to have the financing in place to start construction in early 2016,” he says, and then quickly adds: “There’s no guarantee we’ll get the money.”
There are rarely any guarantees when attempting to finance a mining project and, to make matters more difficult, Royal Nickel is attempting to raise money at a time when the world’s stock markets are in turmoil and economic uncertainty seems to be lurking around every corner.
But there’s also a good chance that the Dumont project may be an enticing opportunity for investors with deep pockets and long horizons. The deposit holds 1.17 billion tonnes of proven and probable ore, an additional 1.67 billion tonnes (372 million tonnes is measured category) of measured and indicated, and 500 million tonnes of inferred–enough to support the fifth largest nickel sulphide operation in the world.
Furthermore, the project is fully permitted. On June 25, the Quebec Ministry of Sustainable Development, Environment and Fight Against Climate Change issued a certificate of authorization, which is the province’s most significant permit for a mining project.
Royal Nickel may be a penny stock–its shares traded at a high of $.50 in the year ending August 31–but don’t be fooled by that. There’s plenty of bench strength on the board and management team, which are dominated by former senior executives of Inco Ltd., most of whom left after Brazil’s Vale S.A. acquired that pillar of the Canadian mining industry in August, 2006. Scott Hand, who chairs the six-member board, was chairman and chief executive officer of Inco from April, 2002 to January, 2007 and two other directors also held high-level positions with Inco. As for Selby, he was Inco’s head of commodity research and later head of strategy before departing in early 2007.
Previous owners of the Dumont claims drilled part of the property during the nickel boom of the late 1960s and early 1970s but they focussed on a small, high-grade section of the deposit estimated to contain 60 to 80 million tonnes of ore. They also completed pre-feasibility and engineering studies, but abandoned their efforts to develop the property when nickel prices fell.
The claims lapsed in the late 1990s and a Cornwall, Ont.-based investor named Frank Marzoli picked them up. In 2007, Marzoli helped found Royal Nickel and starting in 2008 several former Inco executives joined the management group and the board. Marzoli remains a director, but is no longer involved in day-to-day management. “We’ve taken it from a scoping study project to a final feasibility, shovel-ready, fully-permitted one,” says Selby.
Royal Nickel has drilled a much larger area than the original owners and delineated a low-grade, but very large deposit that is open at depth along the full five-kilometre strike length. “We realized that the real value was the entire mineralized envelope,” he adds. “If you mine it at the right scale you can generate a lot of value.”
The company plans to build an open pit mine and as a first step will have to strip away up to 50 metres of overburden to reach the deposit, which begins at the surface of the rock and descends to depths of 450 to 500 metres. If all goes well this fall and the company raises the required capital, construction will start in early 2016 and Royal Nickel added more bench strength when Christian Brosseau joined management team as project director. He was part of the engineering team that built the Osisko Gold Royalties Canadian Malartic Mine, (featured in the previous article) near the town of the same name in Quebec’s Abitibi region, and he led construction of Detour Gold Corporation’s Detour Lake mine in northeastern Ontario.
Construction of the Dumont mine is expected to take two years. Selby says the company will build a mill capable of processing 50,000 tonnes of ore per day initially, which will yield 34,000 tonnes of nickel annually, but daily output will double to 100,000 tonnes once the mine is fully commissioned. Other than that, Royal Nickel will have to build an eight-kilometre, high-voltage power line to the property, which is ideally located close to a provincial highway and a rail line.
The mill will produce a concentrate that contains 29 per cent nickel, whereas concentrates typically hold nine to 15 per cent nickel, says Selby, and the company plans to contract with smelters in either Sudbury, China or Finland to further process the material in fluid bed roasters that will eliminate the sulphur. He adds that the concentrate can be shipped to Sudbury by road, or offshore via the rail line that runs through Abitibi and all the way to the port in Quebec City.
Selby says, “Roasting concentrate to eliminate sulphur is an upside opportunity that could take advantage of the characteristics of Dumont concentrate; high nickel, low impurities. Roasted Dumont concentrate would effectively be a very high-grade feed that could be used directly by the stainless steel industry. Advantages to RNC are the potential for lower cost due to simpler processing, high playabilities compared to traditional smelting and refining, and greater flexibility for more partners and customers.”
The Dumont mine is expected to be in production for 33 years and would employ over 500 people when it is operating at capacity. “It’ll be one of Canada’s biggest base metal mines once it gets going and you couldn’t ask for a better location,” says Selby. “We’re next to all that infrastructure and you’ve got low-cost power from Hydro-Quebec.”
But everything hinges on arranging the financing and the company has some breathing room there. In July, Orion Mine Finance–a New York-based private equity group–advanced Royal Nickel (U.S.) $10 million (Cdn $12.6 million) in exchange for a 0.75 per cent net smelter royalty and 10 million common shares.
The funds will serve as working capital over the next two years and this fall the company will blast several tonnes of ore from an outcrop on the Dumont property. It will be shipped by truck to SGS Lakefield Research Ltd. in Lakefield, Ont. to be processed into concentrate. The concentrate will then be sent to another facility for roasting in order to produce samples of the final product that could be used in stainless steel and pig iron mills.
But the number one priority will be raising the capital required to build the mine and to that end Royal Nickel has arranged a $600 million senior bond financing from Swedbank Norway, a leading Scandinavian financial institution. This is not money in company treasury, says Selby, but what is known as a mandate. In other words, Royal Nickel will go out to market–with support from Swedbank–and attempt to sell the bonds to a broad range of investors in exchange for cash.
The current economic turmoil and uncertainty means the company will be tilting against some strong headwinds, but Royal Nickel will be selling investors on the long-term prospects. “A bunch of projects were financed in 2007 when nickel was selling for $20 a pound,” says Selby. “Those all came onstream in 2010 through 2013. We firmly believe there will be a shortage of good nickel projects in latter half of this decade.”
And Royal Nickel is ideally positioned to fill the pipeline and take advantage of what could be an uptick in prices.