Sally Malay closes in on nickel project backers

SALLY Malay Mining Limited directors are expecting to narrow the number of potential financiers for the company’s $54 million nickel project to two banks within the next week.

It’s expected the financing deal will be finalised within weeks, while construction is likely to start in March for commissioning in December 2003.

This week Roche Mining (JR) Pty Ltd, formerly JR Engineering Services Pty Ltd, was appointed as engineering, procurement and construction management (EPCM) engineer on the project.

Its first task will be to carry out an optimisation study.

The company’s buoyancy comes on the back of a positive bankable feasibility study undertaken by Clough Engineering and released on August 20.

Just days after the release and the company was showing off the nickel-copper-cobalt project, located 240 kilometres south of Kununurra in the East Kimberley, to a group of bankers and brokers.

Impressed by what they found, Macquarie Financial Services, which funded the feasibility study to an amount of $3 million, put a net present value of 62 cents a share – almost double its current share price – giving the company a market capitalisation of $41.7 million.

Little wonder, with the bankable feasibility study predicting a 78 per cent nominal internal rate of return.

Sally Malay Mining Limited managing director Peter Harold said banks were keen to back projects that promised a three-year return on debt.

“There is an awful lot of re-source capacity in Australia at the moment,” he said.

“There is an enormous amount of money around.”

Providing the fuel for the project go-ahead was the successful signing of the $420 million head of agreement with Jinchuan Group Ltd and Sino Mining International, a Chinese resource investment company.

The agreement is for the 100 per cent uptake up of the annual project concentrate production.

The cost of the project is likely to be revised down to less than $50 million once the optimisation model has been completed.

Jinchuan reportedly expects its nickel output to reach 50,000 tonnes in 2002, and full capacity of 60,000 in 2003.

Sally Malay will provide concentrate containing 6,600 tonnes of nickel, 3,000 tonnes of copper and 600 tonnes of cobalt.

Jinchuan is expected to complete its copper expansion by 50,000 tonnes to 120,000 tonnes per annum by March next year.

The current nickel price is also giving room for optimism. Non-executive chairman and Mineral Securities chairman Keith Liddell said the current nickel price made it a good time to enter the market.

Margins are such that the company expects to have an average cash operating cost during the life of the mine of $US1.87 a pound, including mining, processing, marketing and State royalties, while nickel prices are calculated at $US3.25 per pound.

However, Mr Harold believes there is every indication the nickel price could head toward $US4 per pound within the next 12 months.

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