Anglo American studies Venezuelan nickel mine

Having completed a feasibility study on the Loma de Hierro nickel project in Venezuela, Anglo American hopes to work towards development of an open-pit mine.

The proposed operation would produce ferro-nickel (25% nickel and 75% iron) for the stainless steel industry at an annual rate of about 40 million lb. of contained nickel for the first seven years.

The estimate is based on a feed grade of 1.7% nickel for those initial years, with annual output dropping to 35 million lb. for the remaining 20 years of mine life.

Anglo American holds a 10% interest in the project and can buy a further 60% interest by paying Jordex Resources (TSE) and its Venezuelan joint-venture partner US$26 million at the point of a production decision.

The feasibility study included additional drilling on the deposit, which is now estimated to contain 44 million tons grading 1.5% nickel plus 18.3% iron based on a cutoff grade of 0.8% nickel.

The capital cost of the proposed 1.3-million ton-per-year plant was not disclosed, although Paul Kostuik, chairman of Jordex, says it is in the “US$300-million-plus” range.

Cash operating costs were not disclosed either, but are reported to be in the range of US$1.55-1.80 per lb.

As an alternative to retaining a 30% participating interest, Jordex and its partner can, up until July 13, offer the remaining 90% interest to Anglo for US$40 million. If the joint venture offers to sell the 90% interest and Anglo does not accept, the major’s purchase option will expire and it will be left with a 10% stake.

Kostuik says a decision on retaining an interest in the project has not been made. Based on a nickel price of US$3.75 per lb., he estimates cash flow from Jordex’s potential 15% interest at between $8.5 and $11 million per year.

Approval from the Venezuelan government is expected in the next 90 days, and Anglo is maintaining a project team in Caracas for the purpose of carrying out engineering and design work. The company expects to spend about US$3 million on the project through to the end of the year.

Jordex has 17 million common shares outstanding, US$5.5 million in preferred shares convertible at US92 cents, and US$1 million in long-term debt. In the event Anglo exercises its purchase option, one-third (US$1.8 million) of the preferred shares must be redeemed.