Western Areas, Jinchuan in nickel deal

Nickel miner Western Areas has locked in a two-year offtake agreement with China's Jinchuan Group, which will buy up to 25,000 tonnes of nickel from the Forrestania operation in Western Australia.

The contract follows a deal executed between Western Areas and BHP Billiton earlier this year, with the mining giant taking over Norilsk Nickel's offtake contract until the end of 2009 after the Russian company placed its WA nickel operations on care and maintenance.

Under another agreement, BHP agreed to take up to 40 per cent or 10,000t annually from Cosmic Boy, up to a total of 75,000t.

Western Areas had been on the hunt for other offtake partners for the rest of its nickel in concentrate as it prepares to ramp up production at the operation to 20,000t a year in 2010 and then 25,000t per annum in 2011.

The latest contract with Jinchuan will see the balance of nickel not sold to BHP in 2010 and 2011 sold to the Chinese group.

"The two year contract with Jinchuan is consistent with Western Areas' plan to sell concentrate to major smelters within and outside Australia," managing director Julian Hanna said.

"We expect the agreement with China's largest nickel company will also provide Western Areas with exposure to one of the world's fastest growing markets."

Shares in Western Areas were down 17 cents to $5.41 at 10:56 AEST.

The announcement is below:

The Board of Western Areas is pleased to announce that the Company has executed an agreement with Jinchuan Group Ltd for a contract to sell up to 25,000 tonnes of nickel in concentrate over a two year period from the Forrestania Nickel Project. The contract commences in early 2010 and is expected to terminate in December 2011.

Western Areas Managing Director, Mr Julian Hanna said, "The two year contract with Jinchuan is consistent with Western Areas' plan to sell concentrate to major smelters within and outside Australia. We expect the agreement with China's largest nickel company will also provide Western Areas with exposure to one of the world's fastest growing markets."

The first 10,000 tpa of nickel in concentrate from Forrestania up to a limit of 75,000 tonnes nickel is currently being sold to BHP Billiton under an existing offtake agreement announced on 12 March 2009. High grade nickel concentrate from Flying Fox mine is processed at BHP Billiton's smelter at Kalgoorlie, 300km from Forrestania.

Western Areas expects to double production from an estimated 10,000 tpa nickel in 2009 to reach a target of 20,000 tpa nickel in 2010 and 25,000 tpa nickel from 2011. The balance of nickel not sold to BHP Billiton during 2010 and 2011 will be sold to Jinchuan under the new contract. Concentrate is planned to be exported to Jinchuan from Esperance port.

Western Areas is on track to reach the target 10,000 tpa of nickel in CY 2009 at an estimated average cash cost of between US$2.00 to US$2.50/lb nickel. The Flying Fox mine and Cosmic Boy concentrate plant are meeting all expectations in terms of tonnes and grade mined, concentrate specifications and metallurgical recoveries. In addition to concentrate sold to BHP Billiton since May 2009, current stockpiles of ore and concentrate at Forrestania contain approximately 3,430 tonnes of nickel with an in situ nickel value of around US$55M.

Final permitting is also underway for the high grade Spotted Quoll open pit mine. First production from Spotted Quoll should overlap production from the high grade Lewinsky Lode at the top of the Flying Fox T5 orebody, starting in early 2010. Recently announced drill hole intersections in this area of the mine include 13.2m @ 10.0% nickel and 12.4m @ 8.3% nickel.

Mr Hanna added, "Western Areas remains very positive about the medium term nickel price. The Board has a clear strategy to build on the success at Forrestania and become a globally recognised company to explore, acquire and develop low cost, long life nickel mines. As part of this strategy, Western Areas has already established a growing, supportive institutional shareholder base, not only in Australia but also in Asia and North America."