Skye exercises final option on Fenix

Vancouver — Skye Resources (SKR-T, SKRZF-O) has exercised the final terms in its option to acquire Companhia Vale do Rio Doce’s (rio-n) interest in the Fenix nickel project in Guatemala.

The company issued more than 1.7 million shares and paid US$3.5 million to the major’s new subsidiary CVRD Inco to formalize the acquisition of its 92.4% holding in the Guatemalan company that owns Fenix.

CVRD Inco also notified Skye it has exercised 250,000 Skye warrants at $5.75 apiece. The nickel major now holds just over 5.6 million shares of Skye, representing a 13% position.

In late 2006, Skye completed a feasibility study on Fenix reviewing a proposed ferronickel smelting operation. The study indicates a 13.4% internal rate of return (IRR) at US$5-per-lb. nickel. With an 8% discount rate, a net present value (NPV) of US$374 million was forecast along with construction costs of US$754 million.

Cash operating costs of roughly US$1.87 per lb. nickel (after iron credits and before royalties) are estimated for the first 20 years, once ramp-up is complete, on annual production of about 48.5 million lbs. nickel. Over its 30-year mine life, cash operating costs are expected to come in at about US$2.01 per lb.

The ferronickel smelting operation is expected to produce about 1.3 billion lbs. nickel over its life. An average of 1.37 million tonnes of saprolite ore grading 1.63% nickel would be processed annually.

A preliminary assessment of a hydrometallurgical (hydromet) operation as a later-stage expansion at Fenix was also conducted. It projected an IRR of 14.2% with nickel at US$5 per lb. and cobalt at US$15 per lb.

The hydromet expansion would add about US$858 million in construction costs, but yield about 1 billion lbs. nickel and 84 million lbs. cobalt over its 20-year mine life. The operation would process an annual average of 1.76 million tonnes of limonite ore grading 1.33% nickel and 0.12% cobalt with cash operating costs (before royalties) of about $1.38 per lb. of nickel, net of refining costs and cobalt byproduct credits.

In the mid-1970s, Inco built a mine and smelting complex at the project — then called Exmibal — to process the saprolite material in the weathered nickel deposit. However, operations were shut down and placed on care and maintenance in 1980 due to high oil prices and a weak nickel market.