The future of Canada’s two leading nickel producers appears to be waiting on a South Sea island, where the red carpet is being rolled out by government officials and aboriginal groups anxious to make their country the next big name in nickel. Analyst Greg Barnes of Canaccord Capital recently toured the Goro and Koniambo nickel laterite projects in New Caledonia and came back sufficiently impressed to entitle his subsequent report: “A visit to the future of nickel production.”
The Goro project is being advanced by
Barnes expects that Goro and Koniambo will be “the second generation of pressure acid-leaching (PAL) nickel producers,” following the PAL projects recently placed into production in Australia. The Aussies projected low costs from their hydrometallutical processes and boasted that northern sulphide producers such as Inco and Falconbridge would soon be eating their dust.
Barnes suggests their boast was premature. “It is apparent that the Australian experiment in PAL of limonitic lateritic nickel continues to be just that — an experiment,” he writes. “While the two smaller projects — Cawse and Bulong — appear to be moving toward full production, their relatively small size (10,000 tonnes of nickel production annually) means they are not significant on the global scale. At full production on a combined basis, they represent 0.2% of annual production. Anaconda’s Murrin Murrin project, with an annual capacity of 45,000 tonnes of nickel, appeared to have the potential to be a ‘category killer’ (i.e. the mine that would make sulphide nickel mining obsolete). But ballooning capital costs and technological failures have rendered Murrin Murrin nothing but a disappointment so far. Production from the operation has been limited, and the potential for the project to ever generate a return on its A$1.4-billion capital expenditure looks bleak.”
The hoopla generated by these Australian projects has masked Inco and Falco’s steady progress in developing their own PAL technology. Both companies have been producing nickel from nickel laterites for decades; combined, they currently produce about 90,000 tonnes of nickel annually, or about 9% of Western World production. Both Inco’s PT Inco operation in Indonesia and Falco’s Falcondo mine in the Dominican Republic process saprolite ore using pyrometallurgical techniques. However, as Barnes notes in his report, this process is energy-intensive, leaving both operations susceptible to rising oil prices.
The PAL technology being tested by Inco at Goro differs from the Australian model in that it uses higher temperatures (270C versus 250C) and pressures. This allows for a faster reaction time and reduces the number of autoclaves required. Goro also uses a solvent extraction technology that is simpler and more direct than the version used by the Australians, and what is produced is a nickel oxide product (76-77% nickel), not nickel cathode.
“Inco has also taken an incremental approach to the project with the development of the pilot plant, a critical step with new technology that the Australians skipped,” Barnes writes.
Another advantage Goro has over its Australian competitors is grade. States Barnes: “We believe that the substantially higher grade at Goro (1.5% compared with about 1% at the Australian deposits) will result in a much more robust project.”
The analyst also predicts that Goro will be Inco’s next major development, “essentially replacing Voisey’s Bay as the company’s growth platform for the next five years.”
Inco holds 85% of Goro, which hosts minable reserves of 47 million tonnes grading 1.59% nickel. Total resources stand at 219 million tonnes grading 1.57% nickel. Last year, the company built a US$50-million pilot plant to test its processes, and it is considering developing a US$1.3-billion project. Construction could start in 2001, with initial production in the second half of 2004.
The full-scale plant is expected to produce 54,000 tonnes nickel and 5,400 tonnes cobalt annually, with recoveries of 92% and 90%, respectively. Cash operating costs are estimated at less than US$1 per lb. nickel (based on a cobalt price of US$7 per lb.).
Barnes cautions that Goro still faces technical risks, including proprietary technologies and reagents that have not been used commercially. “The decision to build a pilot plant, while not eliminating technical risk, certainly mitigates it, and places Inco on a much firmer footing, with respect to understanding the process, than the Australians . . .
“Nickel laterites undoubtedly hold the future for nickel production,” Barnes concludes. “In fact, if the Goro operation is successfully developed at a scale capable of producing 54,000 tonnes of nickel per year, it will represent about 25% of Inco’s annual production by 2005.”
Falconbridge, meanwhile, holds a 49% interest in Koniambo, which is less advanced than Goro. “While the project has been viewed as a saprolitic nickel laterite that would be developed as a ferronickel producer, recent drilling has indicated that the project could have a significant limonitic nickel laterite component,” Barnes writes. “This could mean that Koniambo may have the potential to be developed into a PAL project.”
Barnes notes that Falco is also taking an incremental approach to developing Koniambo, including a 4-year, $100-million exploration and development study.
Resources at Koniambo total 132 million tonnes grading 2.46% nickel and 0.06% cobalt.
Barnes speculates that Koniambo could become a hybrid operation, incorporating both pyro- and hydrometallurgy. He also notes that the capital investment would be sizable, at about US$1.4 billion, while cash costs would be in the range of US$1.20-1.30 per lb.
The analyst notes that other issues have yet to be resolved, including the tax structure surrounding the project, and the financing structure, which leaves Falco with only 49% while shouldering most of the financial risk. “While the Koniambo project is higher grade [than Goro], it would appear to be more challenging from a mining perspective. On the positive side, the large saprolite resource at Koniambo is amenable to lower-risk pyrometallurgical processing, a proven processing route that Falco has operated successfully at its Falcondo mine in the Dominican Republic for years.”
Looking ahead, Barnes projects that nickel laterites will play an increasingly larger role in future nickel production. “Currently, nickel laterites represent about 37% of annual primary nickel production, but, more importantly, of the 185,000 tonnes of new production now under construction or in commissioning, approximately 169,000 tonnes (or 90%) come from nickel laterites.”
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