First Point and Cliffs envision a nickel mine at Decar

VANCOUVER — A preliminary economic assessment (PEA) for the Decar project in central B.C. estimates an open-pit mine at the site could produce nickel commercially for joint-venture owners First Point Minerals (FPX-T) and Cliffs Natural Resources (CLF-N).

Decar is no ordinary nickel project. The Baptiste deposit at Decar is neither sulphide nor laterite, the deposit types that have generally provided the world with nickel. Instead, Baptiste hosts a naturally occurring nickel-iron alloy called awaruite. Awaruite has been known academically for well over 100 years, but First Point and Cliffs are the first to assess the mineral’s economic and technical viability as a commercial source of nickel.

The new PEA supports that concept. The study envisions an open-pit mine feeding 114,000 tonnes of ore into a processing facility each day to produce 82.4 million lb. nickel annually. In the processing facility ore would be ground to 600 microns, with the nickel-iron alloy magnetically separated. The concentrate would then be reground to 70 microns and upgraded via gravity concentration, to produce a concentrate grading 13.5% nickel, 45–50% iron and 2% chromium.

A simple processing flow sheet like this enables inexpensive nickel production. The PEA expects Decar could produce a pound of nickel for just US$3.23.

Processing is not the only simple aspect of a Decar mine: The Baptiste deposit is well suited to open-pit mining, with the strip ratio expected to average just 0.17 tonne of waste for each tonne of ore.

Infrastructure is also straightforward: the property, which sits 90 km northwest of Fort St. James, is accessible by road; a rail line passes 5 km to the east; and the B.C. power grid is within 110 km.

One hard part of Decar is figuring out how to market the product. There is no analogous product being processed at nickel smelters or fed into steel furnaces. To answer the question of who would buy an awaruite product, Cliffs is hiring a consulting group to assess the marketability of various Decar concentrates, starting with a concentrate containing just 5% nickel and going up to one containing 15% nickel.

The study found that several potential buyers would find a Decar product suitable, or even desirable. A Decar concentrate of any nickel grade could be fed directly into a ferronickel plant. Concentrates containing 15% nickel would be suitable feed for a sulphide smelter — especially one using roast reduction. And concentrates containing 5% nickel would be suitable for nickel pig-iron plants in China, though this avenue would probably produce the lowest realized price.

Based on these options, the Decar PEA assumed that First Point and Cliffs could sell a Decar 13.5% nickel concentrate for 75% of the nickel price on the London Metal Exchange (LME). The three-year trailing LME nickel price is US$9.39 per lb., so the Decar study used a nickel price of US$7.04 per lb.

This price gives Decar a pre-tax net present value of $1.1 billion using an 8% discount rate, and predicts the project would generate a 15.7% pre-tax internal rate of return. This way the partners could pay back the $1.4-billion capital cost in 6.4 years.

The study sees Decar operating for 24 years. However, the lifespan is not limited by a lack of resources. Resources at the site stand at 1.2 billion indicated tonnes grading 0.124% nickel, plus 870 million inferred tonnes averaging 0.125% nickel.

However, the PEA is based on the 925 million tonnes of resource that fit within an economically constrained pit. If nickel prices climb, or if the Decar partners can find a buyer willing to pay more than 75% of the LME price for their nickel, the pit would grow to incorporate more of the resource and the mine’s lifespan would lengthen.

The Baptiste deposit remains open along strike in both directions, and the partners have drill-tested two other nearby awaruite targets.

First Point discovered Decar and began advancing awaruite as an economic option for nickel production. In late 2009 Cliffs endorsed the effort, signing on to earn a 51% stake in Decar by spending US$4.5 million over four years. In less than two years the major had earned its majority stake.

Since the PEA Cliffs has increased its ownership to 60%. Now the major has 120 days to increase its stake to 65% by completing a prefeasibility study within the next two years. If Cliffs decides against this choice, Decar will remain a 60–40 joint venture.

On news of the Decar PEA, First Point’s share price fell 6.5¢ to close at 33.5¢. The company has a 52-week trading range of 31.5¢ to 69¢ and 96 million shares outstanding. Cliffs’ share price barely budged on the news, dropping 15¢ to US$20.76. Cliffs has seen its share price fall from US$70 a year ago. The company has 143 million shares outstanding.