Shares in Western Areas fell sharply today after the nickel miner said it expected lower production volumes and higher costs this financial year.
Shares in Western Areas fell sharply today after the nickel miner said it expected lower production volumes and higher costs this financial year.
The revised guidance was attributed to seismic activity at its Flying Fox mine, which is approaching its final years in production.
The company expects to produce between 17,000 and 19,000 ounces in the year to June 2021.
Its previous guidance was 19,000 to 21,000oz.
Its cash cost of production is expected to increase to between $3.50 and $4.00 per pound of nickel in concentrate.
Previous guidance was $3.25 to $3.75/lb.
The company said the revised guidance was due to the inclusion of increased lower grade ore, following some isolated seismic activity in the lower T6 zone of the Flying Fox mine.
The issues have already impacted nickel production and costs and require the remaining life of mine for Flying Fox to be rescheduled.
This has resulted in the deferral of some of the higher grade material until later in FY21 and into FY22.
The inclusion of increased lower grade material into the schedule lowers the average recovery from the concentrator, further impacting the total nickel recovered for FY21.
The revised schedule has also resulted in a lower total tonnage of ore mined during the first half of the financial year which increases the overall mining cost per tonne, as the fixed costs of maintaining the mine (power, dewatering, ventilation, etc) are incurred over a smaller production base.
Managing director Dan Lougher said Flying Fox had been an exceptional mine over its 15-year life, but as it entered its final years there was limited flexibility in the mine plan when unexpected issues occurred.
“While it is disappointing to lower our guidance expectations for FY21, we are continuing to work with our mining contractor to reduce operating costs and maximise cash flow generation over Flying Fox’s remaining life,” he said.
The company said production guidance had also been affected by lower grade material being mined from the Spotted Quoll mine in the September quarter due to an “intrusive pegmatite unit” encountered in the stage two zone of the mine that increased waste dilution in the scheduled mining areas.
The revised guidance overshadowed further progress at its long-life Cosmos-Odysseus nickel project, with construction and development reaching a number of important milestones during the quarter.
“Mining at the Odysseus project continues to gain momentum as we fired the first development cut to commence the twin declines towards the Odysseus orebody," Mr Lougher said.
"Refurbishment of the hoist shaft infrastructure has been completed with shipping from South Africa expected in November, and the majority of the equipment delivered to the Cosmos site in December.”
Western Areas’ share price fell 17.7 per cent today to $1.925.
