Nkomati Nickel Reserves Jump by 50%
By Nathan Becker and Jon A. Nones
11 Jan 2007 at 06:47 PM EST
resourceinvestor.com
St. LOUIS (ResourceInvestor.com) -- International nickel producer LionOre [TSX:LIM; AIM:LOR] and JV partner African Rainbow Minerals [JSE:ARM] announced today a 50% reserve increase and a 40% resource increase at their co-owned Nkomati nickel mine in Mpumalanga, South Africa.
The recalculation resulted after pit optimization at the mine determined that some lower-grade mineral resource originally thought to be waste was economically extractable at present market conditions, according to a press release today.
Colin Steyn, President and CEO of LionOre, said Nkomati is a vital piece of LionOre’s long-term growth production profile.
“The increase in Nkomati’s reserves, combined with the revised resource statement makes this mine a significant nickel sulphide deposit,” Steyn said.
Breaking down the figures, nickel reserves jumped from 324,627 tonnes to 485,377 tonnes, and nickel resources stand at 942,254 tonnes instead of the previously stated 674,735 tonnes.
By-product reserves also increased, with copper jumping 43% to 193,783 tonnes. Platinum Group Metals (PGMs) plus gold reserves made the biggest leap, improving by 70% to 4.18 million ounces. PGM plus gold resources now stand at 7.62 million ounces.
Steyn said the by-product potential of the chromitite as well as the dramatic increase in PGMs is “very exciting and will enhance the economics of the Nkomati expansion.”
In July 2006, LionOre and ARM approved a 60,000 tonne per month chrome ore mining and processing operation, following completion of a feasibility study in June 2006. The capital cost will be about $2.2 million.
The existing Nkomati mine currently produces 4,500 to 5,000 tonnes of nickel annually, with by-products including copper (2,800 tonnes), palladium (22,000 ounces) and platinum (7,000 ounces), at an average negative cash cost of $0.24 per pound of nickel.
In Q3, the mine produced 1,319 tonnes of nickel, 551 tonnes of copper, 1,653 ounces of platinum and 4,846 of palladium at a negative cash cost of $1.11 per pound of nickel. The operation is expected to continue at current production levels until early 2008.
The current expansion project is estimated to cost about $62 million, but increase production from 4,800 tonnes this year to 5,000 tonnes in 2007 at a cash cost of $2.65-$2.75 per pound. The expansion projects are targeting approximately 20,000 tonnes per annum of nickel with a life of mine to beyond 2020.
LionOre acquired a 50% interest in the Nkomati mine from ARM in June 2005. Under South African law, ARM is recognized as a Black Empowerment (BEE) entity, which complies with South African legislation under the Mineral and Petroleum Resources Development Act of 2003.
In addition to the Nkomati nickel mine, the company has additional nickel operations in Western Australia, South Africa and Botswana, along with a gold mine in Western Australia.
Nickel Price Analysis
Nickel was 2006’s top-performing commodity. It began the year at $6/lb and ended at $15.71 - a staggering gain of 161%. Nickel now sits at $15.72/lb or $32,875/tonne.
In an e-mail note on Tuesday, William Adams of BaseMetals.com, said nickel had broken another up trend line at $31,150, which had held since July last year. He said at the time “it will be interesting to see whether this is a break or a breach.”
Today, Adams noted that nickel hit $33,600 per tonne on Wednesday, perhaps revealing a turning point.
“Wednesday saw prices accelerate higher in the late afternoon and this strength has continued overnight in relatively good volume,” he said. “These strong rebounds suggest yesterday was the turning point.”
Adams said that things could continue looking tight in the base metals sector, but investors should be wary of calling an end to the bull market quite yet.
“Indeed our own view of the fundamentals even for the less bullish metals is that there will be further tightness in the rest of Q1 and into Q2,” Adams said. “In the more bullish metals, notably copper, nickel, tin and zinc, the situation could get quite tight again, especially given the level of stocks and the potential deficits.”
But he added, “All in all such percentage drops are to be expected in terms of technical analysis of a bull market.”
Analyst Ratings
In a research note today, R. Profiti, analyst for Credit Suisse, maintained his “neutral” rating on LionOre today, but raised his estimates for the company with a target price of C$11.
Profiti said that the company is expected to benefit from the settlement of payable nickel that was produced but not considered in sales in 3Q06. This timing difference is expected to have a positive impact on the company’s earnings per share (EPS) in 4Q06.
The EPS estimates for 4Q06 and 2006 have been raised from $0.56 to $0.65 and from $1.46 to $1.56, respectively.
Yesterday, Canaccord Adams analyst Orest Wowkodaw maintained his “buy” rating on LionOre, raising the target price from C$12.50 to C$17.50.
According to Wowkodaw, the estimates for LionOre’s operating cash flows per share for 2007, 2008 and 2009 have been raised by 30% to $3.16, by 58% to $2.82 and by 100% to $2.25, respectively, to reflect significantly higher nickel prices.
“Nickel remains the preferred exposure among base metals and LionOre Mining International continues to be the top pick in this segment,” he added.
LionOre produced a projected 41,000 tonnes of nickel in 2006.
Share Price Info
LionOre shares closed today up 18 cents at C$12.57 on TSX. The company’s stock is down 5% from starting the new year at $13.25.
However, shares have jumped by an impressive 131% from the start of last year, trading at C$5.45.
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