Ambatovy looks good on paper

A 60,000-tonne-per-year nickel operation at the Ambatovy nickel laterite deposit in Madagascar should be profitable, according to a feasibility study released today by Dynatec (DY-T).

Ambatovy, about 100 km east of Antananarivo, was purchased from Phelps Dodge (PD-N) in transactions between August 2003 and January of this year. Dynatec now has a full interest in the project, Phelps Dodge having taken shares in Dynatec.

The feasibility study concluded the project has reserves of 125 million tonnes grading 1.04% nickel and 0.1% cobalt, part of a resource of 134 million tonnes at the same grades, based on a 0.8% nickel cutoff grade. Another 39 million tonnes of low-grade material that did not meet the cutoff grade can be stockpiled and processed; it has average grades of 0.69% nickel and 0.06% cobalt.

The reserve is divided between two zones, Ambatovy and Analamay, which will be developed as two open pits, with truck-and-shovel excavation and no blasting. Laterite ore would be slurried down a 195-km pipeline to a plant site near Toamasina, Madagascar’s principal port city.

The plant uses a pressure-acid-leach (PAL) process with sulphuric acid leaching at 260C. Leached nickel and cobalt would be precipitated with hydrogen sulphide to produce a sulphide material, which would be re-leached with oxygen before solvent extraction. The nickel and cobalt would then be reduced with hydrogen to produce a metal powder product.

The process is similar to that used in the Western Australian PAL projects, which were a conspicuous economic failure in their early years. Dynatec expects no problems with the process at Ambatovy, because the ore has a very low magnesium content, the principal culprit in the metallurgical problems with early PAL plants.

Production costs are expected to be very low, around US$3,650 per tonne nickel (US$1.66 per lb.). After including credits for cobalt and ammonium sulphate (the latter a byproduct of the hydrogen-reduction stage of the process) production costs fall to US$1,475 per tonne (US67 per lb.).

The project has a massive capital cost: US$2.3 billion, with about half to build the plant. Discounted cash flow models of the project show an internal rate of return of 11% and a net present value of US$168 million in a base-case analysis that assumes a nickel price of US$7,700 per tonne (US$3.50 per lb.), a cobalt price of US$10 per lb., and a discount rate of 10%.

The project is still economic at nickel prices of US$3,740 per tonne (US$1.70 per lb.), and based on long-term average prices of US$8,950 per tonne for nickel and US$18.95 per lb. for cobalt, it has a net present value of US$1 billion, or an internal rate of return of over 16%.

Dynatec is currently shopping the project around to potential partners, with the intention of keeping at least a half-interest in the property.