Canico gets Ona-Puma feasibility (August 15, 2005)

Vancouver — Canico Resource (CNI-T) has received results of the long-awaited feasibility study on its Ona-Puma nickel laterite project in north-central Par State, Brazil.

The study, by engineering firm Hatch, reviewed an expected open-pit operation and rotary kiln-electric furnace pyrometallurgical smelting process. Total capital costs are estimated at US$1.1 billion for a 2-line plant to be constructed in stages.

The initial line is to be built over 37 months at an estimated cost of US$762 million, reaching full throughput of 1.28 million tonnes per year over its 2-year ramp-up period.

Subsequently, a second line would be built over the following two years at an additional US$352 million. With both lines in full production, the smelter complex would have annual processing capacity of 2.56 million tonnes of ferronickel laterite ore.

The two main laterite deposits, Ona and Puma, host proven and probable reserves of 77.7 million tonnes grading 1.8% nickel and 18% iron, using a 1.1% nickel cutoff.

The operation would produce a refined ferronickel product (about 25% nickel and 75% iron) for sale to stainless steel mills. Initial mining is expected to exploit higher-grade ore zones, with nickel output of about 67 million lbs. in year three, once the first line has reached full capacity.

Site operating costs of US$1.60 per lb. nickel are anticipated during the initial phase, and would later fall to US$1.54 once the second line reaches full capacity in year seven. Life-of-mine annual production is projected at 82 million lbs. nickel at total cash operating costs of US$1.93 per lb.

Hatch’s study assumed a nickel price of US$3.75 per lb. and shows a 12.2% internal rate of return over a 34-year mine life, or a 7.2-year payback on the initial US$1.1 billion investment. At US$5 per lb. nickel, the rate of return comes in at 19.4%, with a payback of 5.3 years.

Canico is infill drilling Ona-Puma, with an eye to upgrading portions of the 91.2-million-tonne inferred resource grading 1.67% nickel (at a 1.25% nickel cutoff) to reserves.

Anticipating a production decision, the company is continuing to advance construction of the local road network and is working on a contract for a 400-km power line from the nearby town of Marab to the project.

The aspiring mid-tier nickel producer is also finalizing its project loan facility and expects to raise the necessary development capital by late-2005. Canico is optimistic that it can beat the second-half 2008 startup estimate in the feasibility study, forecasting initial production in the first half of 2008.

Investors underwent sticker shock at the project cost estimates, prompting the stock to shed $2.70, or over 18%, to $12.10 per share in the two days following the news.