BHP backs nickel search

First Australia and Indonesia, then New Caledonia, and now China. The list of countries vying to lure North American companies to explore and develop nickel deposits continues to grow, adding to fears that the window of opportunity might be creeping down on the moribund Voisey’s Bay deposit in Labrador.

A little known junior, McVicar Minerals (MVR-A), announced an “affiliation agreement” with mining giant BHP to explore for nickel and associated platinum group metals (PGMs) in China.

The junior’s board includes nickel expert Anthony Naldrett, a geologist known for his consulting work at Voisey’s Bay and his knowledge of the world’s major nickel camps. It is headed by Gang Chai, an economic geologist who, for the past five years, has been consulting for numerous majors interested in his native country’s mineral potential. Other directors include Donald Empy and Robert Wong.

BHP agreed to invest up to US$10 million in McVicar, as a multi-stage series of investments aimed at acquiring projects in China. The major will have the option to participate jointly in any nickel-PGM projects generated there by McVicar.

To get the ball rolling, BHP will take down 200,000 shares of McVicar at $1.25 per share, subject to regulatory approval. These proceeds, plus a $500,000-contribution from McVicar, will be used to investigate and acquire nickel and PGM properties in China. The junior has other projects in the Asian nation, as well as a gold project in Sudan.

Gang Chai tells The Northern Miner that McVicar will focus its efforts on a 200-km-long belt in Gansu province, which hosts the China Nickel mine, the third-largest nickel deposit in the world.

The area is one Chai knows well. Under the tuteledge of Naldrett, he wrote his doctoral thesis on the deposit, which has been producing for three decades. In a Canadian context, the belt has some geological similarities to Manitoba’s Thompson camp, or the Voisey’s Bay region in Labrador. With the known resource largely concentrated in one deposit, it has little in common with Ontario’s Sudbury camp.

Chai says some exploration has been carried out on the belt, “but with little success,” owing, in part, to limited geophysical work using modern methodolgies. Even so, considerable mapping and other work have been carried out by the Chinese. Since coming to Canada from China in 1987, Chai has kept close ties with government geologists familiar with the belt.

“I’ve kept in touch with the province for 15 years and would like to do a joint-venture with them,” Chai says, adding that he “more or less” has a letter-of-intent covering the belt. “The help of the government geologists and the historical data will make the work easier. BHP doesn’t mind, so long as it has a 51% interest in whatever develops.”

To earn a 51% interest, BHP will pay McVicar three times what was spent on the property and then carry the project to feasibility by spending at least US$5 million a year on exploration and feasibility studies.

McVicar will carry out early-stage exploration. Once it has spent at least US$1 million of its own money, BHP will be obligated to subscribe for US$500,000 worh of McVicar stock at 125% of the market price. BHP’s ongoing investments will be committed in stages, depending on McVicar’s success in raising funds at twice the amount of BHP’s contribution.

Chai says he has talked with other major nickel producers but that the tough market for nickel made them hesitate. For a while it appeared the project would go nowhere, until BHP bit the bullet and made the deal after eight months of discussion. “I didn’t want to do anything [in China] without having a big guy following me,” Chai explains.

While not dismissing the challenges of operating in China, Chai believes base metal projects will have an easier time getting developed than gold projects, because domestic production falls well short of demand.

“I know the system there; it will be challenging, but not impossible,” Chai adds. “Don’t forget, China imports one-third of its nickel.”