Two $100 million decisions highlight the gulf separating WA’s once-buoyant laterite nickel sector and the latest market darlings, the copper hunters of Doolgunna.
IT has been a week of mixed messages for Western Australia’s once-buoyant laterite nickel sector.
Ten years ago, new high-pressure acid leaching technology promised to make WA the world’s leading producer of nickel from difficult low-grade laterite ores.
But the process of cooking acid-saturated ore under extreme pressure was plagued by technical problems, which forced up costs and effectively killed investor interest in laterite projects.
Last week, the state’s sole surviving laterite nickel miner, Minara Resources, chose to return $111 million of ‘surplus’ capital to shareholders rather than invest in growth options.
The cash was left over from an emergency $230 million rights issue completed in late 2008, which was not needed following a sustained rebound in nickel prices.
At the same time, Canada’s First Quantum Minerals has launched an advertising blitz to recruit 600 workers needed to restart the closed Ravensthorpe nickel mine next year, having bought the $2.8 billion asset from BHP Billiton for just $370 million in December.
Minara chief Peter Johnston denied the capital return suggested Minara had given up on growth, despite ruling out reviving a stalled $300 million heap-leaching expansion at its Murrin Murrin mine until nickel prices stabilised.
“It (the return) still leaves us with $250 million in the bank and zero debt, so we are still in a very strong position,” Mr Johnston said. “We are open for business for growth but we are not going to throw silly money at it. If the right opportunity comes along, we still have good capacity to fund it.”
But he conceded Minara was not actively pursuing laterite growth options, and was instead focusing on conventional nickel sulphide mining and other base metals opportunities.
“That just suits our unique set of assets,” he said. “We are trying to find balance to not be so dependent on the capital, or maintenance, intensive areas.”
Mr Johnston said a capital return was clearly the best available option for Minara’s shareholders.
It will certainly benefit controlling shareholder Glencore, which as underwriter to the initial rights issue lifted its Minara stake from 50 per cent to 70 per cent. It will pocket $78 million from the return, meaning it effectively paid nothing for its increased stake.
But Mr Johnston denied Glencore was behind the move.
“It was nothing to do with Glencore, it was our decision,” he said.
He also pointed to First Quantum’s progress at Ravensthorpe as a sign of confidence in the laterite nickel sector.
First Quantum this week took out full-page newspaper advertisements to attract the workers it will need to restart Ravensthorpe.
The company has also started a $150 million plant modification program to address processing issues that contributed to the mine’s closure early last year, and expects to start commissioning in the second quarter of 2011.
First Quantum plans to produce an average of just 28,000 tonnes of nickel a year at the mine, half of the rate targeted by BHP, but is expecting high margins given its lower capital base and a doubling of nickel prices since the mine closed.
First Quantum’s plans have big implications for WA’s last active laterite proponent, Heron Resources, which has effectively shelved its $2.8 billion Kalgoorlie Nickel Project to focus on securing a near-production gold or base metal operation. It has also farmed out evaluation of its smaller Yerilla project to China’s Shanshan group.
Managing director Mat Longworth said the KNP remained one of the world’s best undeveloped laterite projects, and was confident it would return to the fore as the current dearth of new mine investment underpinned stronger nickel prices.
“As the price comes up, there will be more interest in investment in nickel laterites,” he said.
But success by First Quantum at Ravensthorpe would also be a crucial step in rebuilding confidence in the laterite industry, he said.
Meanwhile, the mothballed Cawse and Bulong nickel projects near Kalgoorlie remain in limbo while owner, Russia’s Norilsk Nickel, reviews its presence in WA.
Bulong closed in 2002, but Cawse closed last year when Norilsk shut all its WA operations during the global downturn. Norilsk had acquired both indirectly via takeovers of North American producers OM Group and LionOre in 2004 and 2007 respectively.
