Western Areas will have the right of first refusal over Kagara's Lounge Lizard nickel project after it struck a multi-million dollar deal to grant the latter company access.
Western Areas can choose to increase production from Lounge Lizard in units of 25,000tpa, which will be subject to Kagara approval and payment of further refunds of capital costs at the rate of $10 million for each increase.
"Kagara is considering financing options for the initial payment as part of its current review of options for reducing indebtedness, which includes a potential IPO of Mungana Goldmines," Western Areas said in a statement.
The announcement is below:
The respective Boards of Western Areas NL ("Western Areas") and Kagara Ltd ("Kagara") are pleased to announce that they have executed a Heads of Agreement ("Agreement") to enable Kagara's Lounge Lizard nickel deposit to be mined using access from Western Areas' Flying Fox mine decline. The Agreement is expected to deliver major benefits for both companies.
The Agreement will result in the consolidation of one of Australia's largest, high grade nickel mines with a combined Mineral Resource of over 2.5 million tonnes at an average grade of 5.5% nickel containing approximately 140,140 tonnes nickel. In addition to the high grade massive sulphide mineralisation there is a large volume of low grade disseminated mineralisation at Lounge Lizard and Flying Fox containing approximately 53,650 tonnes nickel in previously announced Mineral Resources (Table 1, Table 2).
Expected benefits include:
3 Production from Lounge Lizard is not expected to have any significant impact on the rate of production from Flying Fox
4 Flying Fox decline development costs will be shared pro rata based on relative tonnes of ore mined, increasing profitability for both parties
Western Areas' production from Flying Fox alone (assuming the base case of up to 300,000tpa ore only) is targeted to be 9,000 tonnes nickel in 2009, 12,000 tonnes nickel in 2010 and 16,000 tonnes nickel in 2011. The Flying Fox decline is currently at 780m depth and Western Areas is mining the T1 and T4 ore bodies and developing T2. T5, which is the largest and highest grade deposit at Flying Fox, is expected to be accessed in the December Q 2009.
Drilling conducted by Kagara has confirmed that the high grade T4 and T5 ore bodies (and potentially T1 and T2) extend southwards across the Western Areas/Kagara tenement boundary. Kagara will fund an access drive from the decline starting in September quarter 2009 to use as a drilling platform to infill and define ore reserves at Lounge Lizard.
Excellent potential remains to increase mineral resources at Flying Fox and Lounge Lizard and both companies are planning substantial surface and underground drilling programs to test this potential beyond the current limits of drilling. The approximate dimensions of Flying Fox and Lounge Lizard combined (T4/T5) are 600 - 700m in width and 600m in vertical extent.
Main terms of the Agreement are:
- Subject to finance, Kagara will make an initial non refundable $20M payment to Western Areas as part refund of the capital cost of developing the Flying Fox decline and related mine infrastructure. This will enable minimum ore production of 50,000tpa ore from Lounge Lizard. Western Areas can elect to increase production from Lounge Lizard in units of 25,000tpa ore. This is subject to approval by Kagara and payment of further refunds of capital costs at the rate of $10M for each additional unit of 25,000tpa ore mined. Kagara is considering financing options for the initial payment as part of its current review of options for reducing indebtedness, which includes a potential IPO of Mungana Goldmines.
- Western Areas will manage and operate all aspects of the combined Flying Fox/Lounge Lizard mine and will determine the mining schedule and appropriate pro rata production levels from Flying Fox and Lounge Lizard. Kagara will pay all costs relating to developing, mining and treating ore from Lounge Lizard including royalties and Western Areas will charge Kagara a 20% management fee on all invoices.
- Lounge Lizard ore will be treated at Western Areas' Cosmic Boy nickel concentrator and is expected to be blended with ore from other mines at Forrestania. Western Areas will charge an ore tolling fee including a pro rata amortisation fee for the cost of the plant and related infrastructure. The resulting concentrate will be blended with other ores from Forrestania and sold into Western Areas' nickel offtake contracts.