VANCOUVER – A preliminary economic assessment (PEA) for the Decar project in central British Columbia estimates an open pit mine at the site could produce nickel for US$3.23 per lb for joint venture owners First Point Minerals (FPX-T) and Cliffs Natural Resources(CLF-N).
Decar is no ordinary nickel project. The Baptiste deposit at Decar is neither sulphide nor laterite, the deposit types that have generally provided the world with nickel. Instead, Baptiste hosts a naturally occurring nickel-iron alloy called awaruite. Awaruite has been known academically for well over 100 years but First Point and Cliffs are the first to assess the mineral's economic and technical viability as a commercial source of nickel.
The new PEA supports that concept. The study envisioned an open pit mine feeding 114,000 tonnes of ore into a processing facility each day to produce 82.4 million lb nickel annually. In the processing facility ore would be ground to 600 microns and the nickel-iron alloy magnetically separated. The concentrate would then be reground to 70 microns and upgraded via gravity concentration, to produce a concentrate grading 13.5% Ni, 45 to 50% Fe, and approximately 2% Cr.
A simple processing flow sheet like that enables inexpensive nickel production. The PEA expects Decar could produce a pound of nickel for just $3.23.
Processing is not the only simple aspect of a Decar mine. The Baptiste deposit is also very well suited to open pit mining, with the strip ratio expected to average just 0.17 tonne of waste for each tonne of ore. Infrastructure is also straightforward: the property, which sits 90 km northwest of Fort St James, is road accessible and a rail line passes by less than 5 km to the east while the BC power grid is within 110 km.
The hard part of Decar is figuring out how to market the product. There is no analogous product currently being processed at nickel smelters or fed into steel furnaces. To answer the question of who would buy an awaruite product, Cliffs hired a consulting group to assess the marketability of various Decar concentrates, starting with a concentrate containing just 5% Ni and going up to one containing 15% Ni.
The study found that several potential buyers would find a Decar product suitable or even desirable. A Decar concentrate of any nickel grade could be fed directly into a ferronickel plant. Concentrates containing 15% Ni would be suitable feed for a sulphide smelter, in particular sulphide smelter utilizing roast reduction. And concentrates containing 5% Ni would be suitable for nickel pig iron plants in China, though that avenue would probably produce the lowest realized price.
Based on those options, the Decar PEA assumed that First Point and Cliffs would be able to sell a Decar 13.5% Ni concentrate for 75% of the nickel price on the London Metals Exchange (LME). The three-year trailing LME nickel price is US$9.39 per lb, so the Decar study used a nickel price of US$7.04 per lb.
That price gives Decar a pre-tax net present value of $1.13 billion, using an 8% discount rate, and predicts the project would generate a 15.7% pre-tax internal rate of return. That would enable the partners to pay back the $1.38-billion capital cost in 6.4 years.
The study saw Decar operating for 24 years. However, the lifespan is not limited by a lack of resources. Resources at the site currently stand at 1.16 billion indicated tonnes grading 0.124% Ni plus 870 million inferred tonnes averaging 0.125% Ni.
However, the PEA was based on just 925 million tonnes of resource that fit within an economically constrained pit. If nickel prices climb or if the Decar partners can find a buyer willing to pay more than 75% of the LME price for their nickel, the pit would grow to incorporate more of the resource and the mine's lifespan would lengthen. In addition, the Baptiste deposit remains open along strike in both directions and the partners have successfully drill tested two other nearby awaruite targets.
First Point discovered Decar and started the process to advance awaruite as an economic option for nickel production. In late 2009 Cliffs endorsed the effort, signing on to earn a 51% stake in Decar by spending US$4.5 million over four years. In less than two years the major had earned its majority stake.
With the delivery of a PEA, Cliffs has increased its ownership to 60%. Now the major has 120 days to elect to increase its stake to 65% by completing a prefeasibility study within the next two years. If Cliffs decides not to make that choice, Decar will remain a 60-40 joint venture.
On news of the Decar PEA, First Point's share price fell 6.5¢ to close at 33.5¢. The company has a 52-week trading range of 31.5¢ to 69¢ and has 96 million shares outstanding. Cliffs' share price barely budged on the news, dropping 15¢ to US$20.76. Cliffs has seen its share price fall from US$70 a year ago. The company has 143 million shares outstanding.
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