16/02/2009 - 10:17

Western Areas seeks offtake deal

16/02/2009 - 10:17

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Nickel miner Western Areas is seeking to finalise a new offtake arrangement after announcing a major restructure of its old offtake agreement with Norilsk Nickel, which is closing its Australian mining operations.

Western Areas seeks offtake deal

Nickel miner Western Areas is seeking to finalise a new offtake arrangement after announcing a major restructure of its old offtake agreement with Norilsk Nickel, which is closing its Australian mining operations.

Western Areas said today its revised Norilsk agreement would deliver greater flexibility, and soon after making that annoucnement requested a new trading halt "pending an announcement to be made by the company regarding offtake arrangements".

The changes come at a time when many nickel miners have either closed mines or scaled back production in response to the sharp fall in global nickel prices.

Hartleys resources analyst Andrew Muir said in a research note today that the revised agreement gives Western Areas (WSA) significantly more flexibility to achieve better terms for its concentrate, whilst initially keeping the base case of selling concentrate to Norilsk.

The changes to the agreement also enables the blending of more from WSA's Spotted Quoll and Flying Fox mines, giving significant flexibility on the feed for the concentrate plant,

"We understand that Norilsk was keen not to have to treat WSA ore at Norilsk's Lake Johnson plant, and was willing to trade this off by agreeing to reduce the amount of nickel purchased from WSA's Forrestania project," Mr Muir said.

"As WSA now has its Cosmic Boy concentrator, the Company is able to treat its own ore and does not need the Norilsk concentrator."

 

The Western Areas announcement is pasted below:

 

MAJOR RESTRUCTURE OF NORILSK NICKEL OFFTAKE AGREEMENT

The Board of Western Areas is pleased to announce that it has executed an agreement with Norilsk Nickel Australia Pty Ltd ("NNAu") to restructure the existing Ore Tolling and Concentrate Purchase Agreement ("OTCPA") relating to Western Areas' 100% owned Forrestania Nickel Project. The Board considers that this restructure will have a significant and positive impact on Western Areas' future activities and provide additional flexibility to enable the Company to achieve its growth plans.

Western Areas has agreed to terminate its right to toll treat ore at NNAu's Lake Johnston concentrate plant from 1 March 2009 in exchange for an option for Western Areas to remove up to 100% of the Flying Fox concentrate product from the OTCPA. If Western Areas does not elect to remove Flying Fox product from the OTCPA then the Company will continue to sell nickel concentrate to NNAu under the existing terms of the OTCPA. In this event NNAu will continue to buy nickel concentrate produced from Western Areas' Cosmic Boy nickel concentrator. The new agreement with NNAu has been approved by Western Areas' main financiers, ANZ Bank.

Western Areas Managing Director Mr Julian Hanna said, "The new agreement will provide significant benefits to Western Areas with minimal risk. These benefits include the ability to blend nickel ores from a range of deposits at Forrestania which will allow Western Areas to optimise recoveries through the Cosmic Boy concentrate plant. It will also provide the opportunity to negotiate improved offtake terms with other parties, increase revenue from production and provide potential funding for future expansion of the Forrestania Project by securing finance linked to new offtake agreements."

Mr Hanna added, "Western Areas is already advanced in negotiations with a number of potential offtake partners for the high grade Spotted Quoll mine. Negotiations will now be expanded to include the high quality Flying Fox concentrate. We have set a target date to announce an outcome to these negotiations in early March. In the unlikely event that improved terms can not be negotiated, the sale of Flying Fox concentrates to NNAu will continue on the existing terms of the OTCPA."

Commissioning of Western Areas' Cosmic Boy nickel concentrator is proceeding successfully with no significant problems encountered. The plant is on target to reach design capacity and performance by the end of February to coincide with termination of Western Areas' right to toll treat ore at NNAu's Lake Johnston concentrator from 1st March. Higher metallurgical recoveries are also expected to be achieved through the purpose built Cosmic Boy plant. A separate release on progress of commissioning the Cosmic Boy concentrator will follow.


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