Talon’s Tamarack could become the only high-grade nickel mine in the U.S., the company says

Within the next few years, Talon Metals’(TSX: TLO) Tamarack nickel-copper-cobalt project in Minnesota, 210 km north of Minneapolis and 89 km west of Duluth, could be the only source of high-grade nickel in the U.S., says the company’s president, Sean Werger.

The only operating nickel mine in the U.S. is Lundin Mining’s (TSX: LUN) Eagle mine in Michigan, which is forecast to be mined out by 2025/26.

“Tamarack is the only high-grade development stage nickel project in the U.S. and could soon be the only game in town if someone is looking for a domestic supply of high-grade nickel,” Werger said in an interview.

In February, the company completed an updated preliminary economic assessment (PEA) that compared the economics of three separate production scenarios. In one scenario, Tamarack would produce nickel concentrates and sell them to a third party to develop into refined nickel powder for the electric vehicle (EV) market. In a second scenario, nickel concentrates would be produced onsite and sold to a smelter for use primarily in the stainless steel market. In the third scenario, nickel sulphates would be produced on site for the EV market.

Werger says having three different development options is one of the things that differentiates Tamarack from many other nickel projects. He expects a decision on which scenario will be used by the end of the year, adding that of the three options, producing nickel concentrates offers the most flexibility.

“Initially, we viewed Tamarack as a low-cost producer of nickel for North America’s stainless steel market, which was what first attracted us to the project,” says Werger, but the growing demand for nickel from the EV market in recent years “has changed that dynamic.”

Under the nickel powder production scenario for the EV market, the PEA envisioned a nine-year underground mine producing 1.1 million tonnes of nickel concentrate and 222,000 tonnes of copper concentrate over its lifetime.

All-in sustaining costs are expected to average US$1.07 per lb. of nickel in nickel concentrate over the life of the mine (life of mine operating costs are US$48.15 per tonne milled). The study estimated the after-tax net present value at a 7% discount rate at US$567 million, with a 48.3% internal rate of return. The PEA used metal prices of US$8 per lb. nickel and US$3 per lb. copper. Initial capex of US$316 million could be paid back in 1.5 years.  

The study was based on a resource estimate of 3.9 million indicated tonnes grading 1.91% nickel, 1.02% copper, 0.05% cobalt, 0.26 gram palladium per tonne, 0.41 gram platinum per tonne, and 0.20 gram gold per tonne (2.62% nickel equivalent) and inferred resources of 7.2 million tonnes grading 1.11% nickel, 0.68% copper, 0.03% cobalt, 0.16 gram palladium, 0.26 gram platinum, and 0.14 gram gold (1.57% nickel equivalent).

Talon plans to drill 25,000-30,000 metres this year, primarily focused on expanding the disseminated and high-grade massive sulphide mineralization outside the project’s current resource area. 

“We have three drill rigs currently turning on the property, two of which we own,” Werger said. “We also have an in-house drill team, which enables us to drill 24/7, allowing us to be very efficient with our drilling.”

Recently Talon released the longest intercept of mixed massive sulphide mineralisation to date. Drillhole 20TK0278 cut 21.73 metres grading 6.72% nickel, 2.95% copper, 0.13% cobalt, 0.56 gram palladium per tonne, 0.76 gram platinum per tonne, and 0.38 gram gold per tonne (8.35% nickel equivalent) starting from 459.72 metres. The intersection included a higher-grade interval of 6.52 metres of 8.21% nickel, 3.72% copper, 0.16% cobalt, 0.67 gram palladium, 0.86 gram platinum, and 0.36 gram gold (10.21% nickel equivalent).

“We were expecting to hit about two metres of massive sulphide mineralisation but ended up hitting the longest interval to date on the property,” Werger said. “The hole suggests that our current resource area has the potential to grow to the south.”

Drilled on the western limb of a high-grade Massive Sulphide Unit, the hole was a 27-metre step-out from a historic drill hole (08TK0083) in an area that has been largely underexplored. It targeted a geophysical anomaly identified from an off-hole Borehole Electro-Magnetic survey from drillhole 20TK0276.

“From the geophysics, we have interpreted that there are two arms of massive sulphide mineralisation that split and diverge,” he said. “The grades [of these massive sulphides] are incredible, and from an economic standpoint, they will have a meaningful impact as we look to expand the resource area and bring inferred resources into the indicated category to add more material to our mine plan.”

Additional geophysical surveying is currently being conducted to identify the next target locations for further drilling, with the aim to continue expanding the current resource towards the south.

Talon first became involved in Tamarack in 2014. The Company currently has a 17.56% stake in the project.  Kennecott Exploration, a subsidiary of Rio Tinto (NYSE: RIO; LSE: RIO), owns the remaining 82.44%.

In November 2018, Talon struck a new arrangement with Rio Tinto. Under the revised deal, Talon has the right to initially earn a 51% stake in the project by spending US$10 million on exploration and development and paying US$5 million to Kennecott by March 2022. Talon has already paid US$6 million in cash and issued US$1.5 million in shares to Kennecott, and spent US$8 million on exploration as of September 30. Talon can increase its stake to 60% by completing a feasibility study and paying an additional US$10 million to Kennecott by March 2026.

Talon became project operator in October 2019.

The junior has around $45 million in the treasury, which will be “more than enough to fund our exploration program over the next 12 months as well as a prefeasibility study, which is slated to commence by the end of the year,” said Werger.

The company is also mulling over a potential secondary U.S. listing on one of the major exchanges in the latter part of the year.

Significant shareholders include Resource Capital Funds, which holds a 39.2% stake in the company; Rio Tinto has a 4.4% interest; and management and directors a 3.9% stake. 

Talon hopes to reduce the project’s environmental footprint by sourcing renewable power, using dry stack tailings, and is looking at several carbon sequestration studies.