Sally boosted by Lanfranchi
After months of speculation, WMC has entered into a conditional agreement to sell its last remaining Kambalda nickel mine, Lanfranchi, for $26 million to a joint venture between Sally Malay and Ian and Leigh Junk’s private company Donegal Resources.
The deal, announced last week, was welcomed by most analysts, even if the price paid was said to be at the higher end of value for money.
The long-awaited deal not only marks the end of WMC’s nickel mining in the Kambalda region – four years ago it began selling its Kambalda nickel mines to smaller, lower cost producers – but could also turn the relatively young Sally Malay into a leading nickel producer.
Sally Malay’s share price jumped four cents to 70 cents on the back of the announcement.
The company will make up 75 per cent of the Lanfranchi joint venture with Donegal Resources (25 per cent) to manage the mine.
The joint venture will fund the acquisition from a mix of debt, equity and project cashflow and plans to commence mining late this year for four years. However, there is potential to extend the mining term.
The deal is expected to be finalised in September subject to the Western Australian Government approving the Lanfranchi sublease which is to be extracted from the soon to be terminated State Agreement WMC currently holds over the Kambalda region.
Sally Malay managing director Peter Harold said the price was to be expected given the highly competitive tender process and the current buoyant state of the nickel market.
He said Lanfranchi was a quality asset that would give the company cash flow within six months and there was significant potential to increase its resources.
Mr Harold said with the company’s Sally Malay mine in the Kimberley, due to come online in August, was expected to be producing 15,000 tonnes of nickel in 2006 – putting the company in the top three Australian nickel producers behind WMC and LionOre.
He could not give the costs associated with mining the Lanfranchi resource because a Joint Ore Reserves Committee (JORC) compliant reserve was yet to be calculated.
Analysts agree the purchase has plenty of upside. Also, the price is not as high as the $38 million Mincor paid WMC for the Miitel mine in 2001.
Hartleys analyst Jonathon Battershill said although the price paid was high, it correlated with current high nickel prices.
Patersons Securities analyst Alex Passmore said having mining engineers Ian and Leigh Junk involved through Donegal, added a lot of credibility.
