Skye continues to climb on back of Fenix

Skye Resources (SKR-T) continues on the road of share-price recovery after getting government approval for a processing plant at its Fenix ferro-nickel project in Guatemala.

In November of last year the Vancouver-based company had its share price chopped by nearly 50% in just seven days, after announcing that it would finance the project on its own.

That news came after rumours had been swirling that minority shareholders BHP Billiton (BHP-N, BHP-L) and Companhia Vale do Rio Doce (CVRD) (RIO-N), were interested in a takeover.

But when no deal transpired, Skye was left to raise funds by its own devices. It went ahead and arranged a financing for roughly $80 million by issuing units comprised of a company share and a half warrant at just $10.75 per unit.

While the move was criticized by some analysts at the time for not being done at an early date when its share price was higher — the company forged ahead, and as it now moves closer to production, the re-construction of its share price has followed suit.

Skye shares were up nearly 7% or $1.13 to $17.33 on roughly 3.5 million shares traded in Toronto on June 8.

The approval of environmental impact assessment (EIA) study by the Guatemalan Ministry of Environment and Natural Resources keeps the company on track to start construction later this year, which would put production in the second half of 2009.

The company had its EIA for mining approved in January of 2006.

Skye says roughly 50% of the basic engineering at Fenix is finished, and negotiations are nearly complete for its Engineering, Procurement and Construction Management (EPCM) contract.

As for funding the project, it says it will have debt financing in place by the third quarter.

In an effort to lessen the amount of debt it will have to take, the company is considering increasing nickel production by accelerating the commissioning of a second line at the project. To do so though, it will have to source more power.

It is considering bringing in either reciprocating engine generators or tapping into the Guatemalan grid to get the extra power.

Tapping into the power grid is the most cost effective option, as it would bring operating costs to US$800 million from US$1.1 billion. While it wouldnt release figures on the savings associated with generators, it said they would price somewhere between US$800 and US$1.1 billion.

Both options would require additional environmental approvals.

If it can successful adopt either of the power sources it would allow it to delay the construction of the coal-fired power plant called for in the feasibility study until it begins generating cash flows from nickel sales.

In its feasibility study from 2006, the company estimated the project would turn out 1.3 billion lbs. of nickel over its life with an average of 1.37 million tonnes of ore grading 1.63% nickel being processed annually.

The study estimated 13.4% internal rate of return (IRR) at US$5.00 per lb. nickel. With an 8% discount rate, a net present value (NPV) of US$374.

Cash operating costs were estimated at US$1.87 per lb. nickel (after iron credits and before royalties) are estimated for the first 20 years.