Western Areas keeps core focus

THE recent completion of a nickel concentrator plant and a proposed expansion to service a new mine makes Western Areas' Forrestania project a rare good story in the nickel world.

The expansion contrasts with mostly gloomy news in the sector during the past six months, with BHP Billiton, Norilsk, Consolidated Minerals and Mincor Resources closing nickel mines in Western Australia, and Xstrata, Minara Resources and Panoramic Resources deferring planned expansion projects.

Western Areas has been one of the few companies employing extra workers of late. Construction of the concentrator, officially opened on March 24, increased the workforce by 80, and development of the company's Spotted Quoll deposit and the expanded plant will employ an additional 150 workers, bringing the entire onsite workforce to more than 400.

One of the keys to Western Areas' success is the high nickel grade at its Flying Fox underground mine and at Spotted Quoll, both located 400 kilometres east of Perth.

Managing director Julian Hanna says the Spotted Quoll deposit is expected to yield the same grade nickel as the company's flagship Flying Fox deposit, considered some of the highest-grade nickel in the world.

"Flying Fox is between $2 and $2.50 US per pound in cash costs, and that makes it one of the lowest cost nickel mines in Australia," Mr Hanna told WA Business News.

"Spotted Quoll, we believe, will be the same sort of costs and that's simply because of its high grade, which means you can treat the same amount of ore with all its associated costs but you recover more nickel."

Having a high-grade deposit is good in an economic downturn, but not complete insurance against the low cost of nickel.

Although enjoying a mark-up in the past month to about $US10,755 per tonne, the nickel price is by no means reaching the heady highs of $US30,000 one year ago.

Mr Hanna said the new concentrator, designed and constructed by GR Engineering Services, would enable the company to gain maximum value from its mines by controlling the downstream processing of its ore.

The official opening of the concentrator followed major changes to Western Areas' off-take arrangements. It originally sold its nickel to Norilsk, but recently announced an off-take contract deal with BHP Billiton.

BHP has agreed to purchase up to 10,000t of nickel concentrate a year and Western Areas is seeking an additional short-term off-take agreement for the balance of its output.

Western Areas is targeting between 20,000t and 25,000t of nickel from Flying Fox and Spotted Quoll mines from 2010.

The BHP deal included a $45 million loan to help with the expansion of the Cosmic Boy concentrator and the development of Spotted Quoll.

"Because of the quality of the concentrate, we've been able to survive where other nickel producers haven't. The high grade nickel can be used not only by BHP but by other smelters, to blend with products from their own mines," Mr Hanna said.

Despite the quality of the product and forward expansion, he said the company was working on a "keep it lean" approach.

"We are now really focused on our core business, which is production from our mines at Flying Fox and Spotted Quoll," Mr Hanna said.

"We've also targeted a cost-cutting of about 10 per cent across the board, because of the economic downturn."

The company has halved exploration expenditure from $24 million last year to $12 million this year, and is focused on identifying a third large deposit to support its long-term expansion.

The company also has renegotiated contracts across its workforce.

"The workforce realises this is a long-term project, and they all enjoy the experience of working on it," Mr Hanna said.