Mincor approves $23m McMahon nickel mine

Kambalda nickel producer Mincor Resources NL is set to increase its production by 18 per cent after today announcing approval for the $23 million development of its 100 per cent owned McMahon Nickel project near Kambalda.

The new project will lift the group's production to 20,000 tonnes nickel per annum

Full announcement pasted below:

Kambalda nickel producer Mincor Resources NL (ASX: MCR) is set to increase production by up to 18%, and to achieve its long-term target of 20,000 tonnes of nickel a year from 2008/09, after today announcing approval for the $23 million* development of its 100%-owned McMahon Nickel Project in Western Australia.

The McMahon Project - Mincor's seventh new mine in the Kambalda region since 2001 - will add up to 3,000 tonnes per annum (tpa) of nickel to the Company's production profile from next financial year.

The development decision follows the successful completion of final feasibility studies on the McMahon Project and comes just four months after Mincor acquired the project as part of its $68.5 million acquisition of GMM Pty Ltd, which also included the operating Otter Juan and Coronet mines.

Development work at McMahon will commence immediately with first production (from ore development) expected towards the end of the 2007/08 financial year. From the 2008/09 financial year onwards, the Company expects the McMahon Project to generate between 2,500 and 3,000 tpa of nickel-in-concentrate.

Together with new production currently under development at the Company's 70% owned Carnilya Hill Project - which is on schedule to commence production in January 2008 - the McMahon Project will lift Mincor's production to its long-term target of 20,000 tpa of nickel metal in ore.

McMahon will be developed by Mincor's team at Otter Juan and run on an owner-operator basis as a subsidiary operation to the Otter Juan mine. This structure will maximise the synergies between the operations, which lie in close proximity to each other.

"We are delighted to announce the development of this new mining project, which is set to become our seventh operating mine in the Kambalda Nickel District," said Mincor's Managing Director, Mr David Moore.

"The development of McMahon will substantially enhance the value of the GMM acquisition, which has already been highlighted by the excellent production performance from Otter Juan and Coronet over the past quarter. It will also maximise the synergies of that acquisition and generate a very substantial financial return for our shareholders.

"There is also tremendous exploration upside at McMahon. Our drilling to date has shown that the ore channel remains open down plunge, and we are confident that the existing mineral resource will grow substantially over time.

"In addition, the development will provide us with the drilling positions to target completely new discoveries at depth in this phenomenally well-endowed part of the Kambalda Nickel District," Mr Moore said.

The McMahon Project contains a currently delineated Mineral Resource of 373,650 tonnes at a grade of 4.1% nickel, for 15,180 tonnes of contained nickel metal. Approximately half this Resource has been placed into the initial Ore Reserve (see below). The remainder of the Mineral Resource requires further drilling, and this will be carried out from underground as development progresses.

The development of the McMahon Project requires the extension of the existing McMahon Decline and associated ventilation system. This will provide access to the McMahon and Ken Far North ore bodies and, importantly, will also open up additional areas for underground exploration. Mining will take place via mechanised slot stoping methods as well as traditional Kambalda-style airleg slot-and-rill stoping, with an expected production rate of approximately 10,000 tonnes of ore per month at full production.

Ore from McMahon will be toll treated at BHP Billiton's Nickel West Concentrator at Kambalda, with the concentrate sold to BHP Billiton under existing off-take agreements.

Mincor's feasibility study indicates an average life-of-mine cash cost for the McMahon Project of approximately A$5.50 per pound payable nickel. Based on current price forecasts from Royal Bank of Canada, UBS, Merrill Lynch, Société Générale and BNP Paribas, Mincor expects the project to generate an Internal Rate of Return (IRR) on capital employed of well over 80%. The estimated capital cost of $23 million will be funded from Mincor's internal cash resources.

Recent extensional drilling by Mincor has demonstrated that the ore channel that hosts the McMahon ore bodies continues well beyond the end of the current Ore Reserve. A step-out hole (KMD009) and wedge (KMD009W1) were completed by Mincor targeting a position some 140 metres down-plunge beyond the known Resources. Ore grade intersections were achieved in both holes. Significantly, both intersections were developed on a sediment-free basal contact, and down-hole EM surveys indicate anomalies in the up-plunge direction.