Australia’s nickel boom

Perth, Western Australia — In mid-February, nickel miner Mincor Resources had a sharp share price spike that was a day’s best on the Australian Stock Exchange.

The rise came from a better production quarter and the release of some high-grade nickel hits on a targeted mine extension.

Australia is in a commodities boom where nickel is a key player — in sulphide terms purely out of Western Australia. The zest for nickel is not just because the commodity is in good shape but because a series of junior companies and the odd mid-tier company are giving great performances, and investors are loving it.

Mincor is not only an example but a pace-setter of the change that took place at the turn of the new millennium. No longer is the market totally dominated by WMC Resources (WMC-N), because there is now a whole raft of nickel producers in Australia, and a lot more to come.

There was the rocky start to pioneering lateritic nickel-cobalt production that saw one of the 3-billion-dollar developments basically disappear.

WMC had a poor industrial accord and industrial relations discord in the past at its Kambalda operations, where it launched sulphide nickel production in Australia at the beginning of the 1970s. However, it created a win-win situation in 2000 at its maturing and cost-inefficient operations that had become unloved in the Melbourne head office.

WMC sold the Miitel, Redross, Wannaway and other targets out on the Widgiemooltha Dome to Mincor, which had come through as a then-Iscor-group-supported junior company headed by David Moore.

Miitel was a ready-made target that allowed Moore to get the junior into rapid production, originally as a joint venture with the parties that it bought out in 2004.

The WMC deal involved Mincor mining and then delivering ore to WMC’s Kambalda concentrator — on WMC’s side providing new feed to then be channelled through the South Kalgoorlie smelter and/or to the coastal refinery at Kwinana.

Mincor became a role model, for other Kambalda region mines that WMC had mothballed were sold to juniors — again providing the win-win scenario where the junior just mined and delivered ore to WMC.

Mincor’s operations manager, Jim Reeves, one of those who had worked at WMC’s Kambalda operations, said Mincor was cranking up production as fast as it could. The Miitel mine is at 20,000 tonnes per month, and production was moving into the North Miitel zone, where high-grade hits indicate the tenor of ore grade could increase. Wannaway, in the southern leases, is running down and into remnant mining at between 3,000 and 5,000 tonnes per month, but Reeve pointed out that this operation began with reserves of 290,000 tonnes, and 430,000 tonnes have been mined to date.

The Redross mine is ramping up to 15,000 tonnes per month by mid-year while Mariners is being opened up to 18,000 tonnes per month.

Mincor’s half-year profit for the December half was up 143% to an after-tax A$10.12 million, with Miitel the performer by providing 131,231 tonnes at 3.07% nickel to Kambalda.

In the heart of Kambalda is the Long shaft, purchased by Independence Group for A$15 million 2.5 years ago. It has yielded a cash return to date of about A$60 million.

Heading Independence is geologist Chris Bonwick, who worked on Long in his formative days, and running the mine is Tim Moran, who spent several years as WMC’s resident manager at Kambalda.

Bonwick says the success in finding new shoots and ore positions has been aided by the Fluxgate TEM sensor system, which has proved ideal in the saline environment. Anglo American‘s (AAUK-Q) Squid TEM sensor has also been accurate in pinpointing targets.

“There’s so many opportunities out there for nickel,” Bonwick said. “It’s like the 1980s (Australian) gold boom.”

WMC put Australia on the nickel map at the start of the 1970s and is still the biggest player in the business and, in fact, in a large part of the 1980s and 1990s, was often the sole sulphide nickel operator. The only other durable operation is the Yabulu lateritic nickel-cobalt refinery, near Townsville in Queensland, now owned by BHP Billiton (BHP-N). For decades now it has been running on imported ores from New Caledonia, Indonesia and the Philippines, but BHP is now gearing the big Ravensthorpe laterites near the south-central coast of Western Australia.

WMC still leads the pack in terms of mining, as well as dominating processing, and in 2004 produced a total of 276,033 tonnes of nickel metal. It has Leinster and the big disseminated sulphide mine at Mount Keith, and gains a healthy ore feed from all the juniors now mining its old operations around Kambalda. WMC, in the news these days through the unsolicited takeover bid by Xstrata (XTA-L), has a series of other projects, including the sleeping giant, Yakabindie, up in the Mt. Keith region.

Moving rapidly into second place is the Canadian-headquartered LionOre Mining International (LIM-T), which has the Emily Ann and Maggie Hays mines in the Lake Johnston-Forrestania belt, the rich-grade Waterloo and associated discoveries on the doorstep of its Thunderbox gold mine, north of Leonora, as well as a package of properties in Western Australia.

It is also mining the Silver Swan project, acquired with the takeover of MPI Mines, whose executives moved out with precious metals assets, including its Stawell gold mine in Victoria.

Importantly, it secured the Bulong lateritic nickel refinery and facilities in the fire sale from this disastrous venture and is putting its controlled Activox process through its paces, with successful testing at its Tati nickel mine in Botswana.

Laterites in Western Australia were a new-wave exercise in the 1990s that proved a big bad dumper for most of the early participants. Surviving today are the Cawse operation, under the OMG Group (OMG-N) since Joseph Gutnick’s Centaur Mining & Exploration was sent to the wall, and the revamped Minara Resources, which, as Anaconda Nickel, developed the largest operation, at Murrin Murrin.

There was a big learning arc for these operations, and one of the observant students sitting on the wall was BHP.

Research group Intierra’s Minmet service lists more than 100 deposits as having resources or are moving into blueprint, and this includes companies that have put a new lease of life into Western Australian operations, including the famous Windarra mine that put a big spark into the 1970s boom for the then Poseidon Ltd. Poseidon in its corporate travels almost capsized a few times but travelled well into Robert de Crespigny’s Normandy Mining group that was absorbed three years ago by Newmont Mining (NEM-N).

Junior Niagara Mining is banking on Windarra to be its company-maker, after having been a callow gold explorer called Wells Gold.

Western Areas is gearing up to mine new reserves and some richer-grade zones in new areas at the old Outokumpu Australia operations in the Forrestania belt, while Austminex Resources has a prefeasibility under way on the old Nepean mine near Coolgardie.

One interesting player is David Burt, who seven years ago was given the Industry Award at the Australian Nickel Conference by this writer for what must be the most impressive discovery work in Australia’s relatively short nickel history. Burt led the teams that found Nepean, Mount Keith and Silver Swan and is now managing director of Yilgarn Mining, which has nickel in its portfolio.

Another interesting player is Consolidated Minerals (ConsMin), which is in the late stages of taking over Reliance Mining, operator of the Hunt-Beta nickel-gold mine in the Kambalda complex — one of WMC’s first mines there.

ConsMin’s Michael Kiernan transformed the company in
to a successful manganese and chromite miner in the Pilbara region and has, in the past two years, been undertaking “basement” investments for nickel and iron ore, including a shareholding in Mithrill Resources, which has a package of essentially grassroots targets in Western and South Australia and an alliance with BHP.

The low-profile presence of Canada’s Inco (N-T) and Falconbridge (FL-T) should not be overlooked, for they have joint ventures and a keen interest in the Australian scene.

Like many of the greenfields nickel explorers, one of the concepts they are using in remote areas of Southern Australia’s Gawler Craton and Western Australia’s northeastern goldfields is the Voisey’s Bay model.

This is shown at the Barton nickel prospect in the western sector of Southern Australia’s Eyre Peninsula, where Inco can earn 60% from Adelaide Resources.

Overlooked by many is the recent financial performance of Metals Exploration, a company that regained its name and has Guinness Peat Group as a significant shareholder and impressive mine and corporate manager Peter Cook as chairman. Metals Exploration has a royalty on some of the old Kambalda mines and Mount Keith and is looking for new opportunities as the royalties in these good times are bringing in about $6 million per annum.

— The author is a contributor to Australia’s Paydirt magazine.