Anglo American buys into Aussie nickel miner

Having advanced its Murrin Murrin nickel-cobalt mine and refinery to the commissioning stage, Australian-listed Anaconda Nickel is receiving a second vote of confidence from a foreign nickel producer.

The first came in May, when the dark horse of the Canadian nickel scene, Sherritt International (s-t), announced it had spent $45 million buying 12.8 million Anaconda shares, or about 9% of the company.

Now, in a second deal, South Africa’s Anglo American (AAUK-Q) has agreed to become Anaconda’s largest shareholder, boosting its stake to 23% from 2.3% by buying up to 77.3 million newly issued Anaconda shares at $3.05 each. As well, Anglo has agreed to pay another 97 cents per share should Anaconda trade at, or above, $4.02 for 60 continuous days within three years. (When the deal was announced, Anaconda shares were trading at $2.08.)

The US$160-million placement, to be carried out in tranches of 43.2 million and 34.1 million shares, still requires the approval of Australia’s foreign investment review board. Anaconda’s shareholders must also approve the second tranche.

“Whilst I would always argue that Anaconda was not undercapitalized, the injection of capital confidence and overall resources-industry credibility by Anglo into the company is welcome,” says Anaconda’s deputy chairman, Andrew Forrest.

Joining Anaconda’s board is James Campbell, chairman of Anglo American Base Metals, who states: “We wanted to be in the nickel market in a bigger way. It was important to us to take a lead position to be sure that we are at the front end of evolution in case this technology actually produces low-cost nickel, resulting in a low nickel price.

“We’ve seen technological evolutions in the past in various base metals, and there is no doubt that the laterites in Western Australia fit that category. We feel quite strongly that these nickel productions in Western Australia will [usher in] a new wave of technology at new cost numbers. The volumes here are substantial and the structure of the nickel market will change.”

Situated 60 km north of Leonora in the northeastern goldfields of Western Australia, Murrin Murrin is a joint venture between operator Anaconda, with a 60% interest, and Switzerland’s Glencore International, with 40%. Glencore also holds a minority stake in Anaconda.

Murrin Murrin’s total reserves are estimated at 306 million tonnes grading 1% nickel and 0.064% cobalt using a cutoff of 0.8% nickel. These reserves are divided between Murrin Murrin proper (233 million tonnes) and Murrin Murrin East (73 million tonnes), which is situated 45 km to the southeast.

The project is being built in two stages, each of which will cost about US$650 million. The first stage is designed to produce 45,000 tonnes nickel and 3,000 tonnes cobalt annually.

First-stage nickel production began in May, less than two years after the start of construction, and cobalt production commenced in July.

Australian Prime Minister John Howard attended the opening ceremonies, as did Western Australia Premier Richard Court, who announced the launch of Murrin Murrin’s stage II expansion.

When both stages reach capacity, Murrin Murrin will be the world’s third-largest nickel producer and largest cobalt producer, processing 10 million tonnes annually and yielding 115,000 tonnes nickel and 8,500 tonnes cobalt per year over a projected mine life of 30 years.

Because of Murrin Murrin’s unproven pressure acid leach technology, Anaconda’s share of first-stage funding had to be raised from a US$420-million capital markets issue in 1997 — the first-ever “junk-bond” financing package in the U.S. capital markets for a large-scale mining project. The second stage will be financed largely through the sale of infrastructure used in the first stage.

As might be expected from a fast-tracked project employing new metallurgical techniques, the startup of first-stage production has been beset with problems, in particular a shaky performance from flash vessels in the plant’s four autoclaves. Forrest says tens of millions of dollars will be spent by contractor Fluor Daniel to upgrade the vessels. There have also been reports of corrosion damage in the plant’s precipitation circuit.

Despite these and other setbacks, a total of 1,274 tonnes of mixed sulphides was produced in the quarter ended June 30. The facility is expected to produce at 60% capacity in the last quarter of the calendar year, at 80-90% in the first quarter of 2000, and at full capacity in the subsequent quarter.

By comparison, open-pit operations have progressed smoothly. Production in the past quarter totalled 261,158 tonnes grading 1.35% nickel and 0.098% cobalt from the MM1 and MM9 pits. Infill drilling in the MM7 deposit and further optimization of Murrin Murrin East are ongoing.

Anaconda intends to become the world’s lowest-cost nickel producer, with overall operating costs of US35 cents per lb. nickel, though these are currently running at US50-60 cents per lb.

Meanwhile, a feasibility study is under way at Mt. Margaret, another stand-alone nickel-cobalt laterite project, situated near Murrin Murrin. With capital costs estimated at US$840 million, Mt. Margaret is expected to enter the construction phase by mid-2000.

With annual output pegged at 100,000 tonnes nickel and 5,000 tonnes cobalt, the project could potentially rival Murrin Murrin.

Anaconda holds interests in three other nickel laterite projects: Three Rivers in Queensland (55 million tonnes); Marlborough, also in Queensland (20 million tonnes); and Wowo Gap in Papua New Guinea (49 million tonnes).

The company says its new nickel projects could make it the world’s largest producer, surpassing such heavyweights as Noril’sk in Russia, Inco (N-T), Falconbridge (FL-T) and Australia’s WMC (WMC-N).