Metallurgical breakthrough lifts Hard Creek’s Turnagain

Dease Lake, B.C. – “There’s a lot of moose pasture up here,” jokes Mark Jarvis, president and CEO of Hard Creek Nickel (HNC-T), while looking out at the gently rolling hills littered with pines aboard a short flight to the company’s Turnagain nickel project in north-central British Columbia.

But as the single-prop plane gets closer to the confluence of the fast-flowing Turnagain River and the meandering Hard Creek, Jarvis points toward the roughly 27,500-hectare Turnagain project, where he hopes one day to turn more than 1.2 billion tonnes of rock grading approximately 0.2% nickel and 0.014% cobalt into one of the largest nickel sulphide mines in the world.

Jarvis and his team have been slowly but steadily advancing the mega-project since taking control of the company in early 2004, though previous management and predecessor companies had been working on it as early as 1996. In November of last year, however, the company potentially solved the project’s biggest hangup – low nickel recovery – in a metallurgical breakthrough that “basically changed the world for us,” explains Hard Creek’s executive vice-president in charge of engineering and technical studies, Neil Froc.

Having previously been faced with a substantial US$2.9-billion capital cost to develop the mine, including over US$800 million required to build a complex refinery, Hard Creek assembled a world-class team of metallurgists and advisors to help devise a more economical method of extraction.

They quickly discovered a solution to Hard Creek’s main problem – that nickel mineralization could not be easily separated from the magnesium sulphides in the ore – and were able to boost the concentrate grade from around 4% to over 18%.

As Jarvis describes it, “Instead of trying to suppress the magnesium from floating on the concentrate, we went to dispersants, and it just worked a lot better. Most of the nickel industry suppresses the magnesium, but in this case dispersants work much, much better.

“Before, when we ground the rock, the magnesium minerals were forming – they were flocculating – like cotton candy around the [nickel-bearing] pentlandite. Then, when you floated the pentlandite, the magnesium minerals were being physically dragged into the concentrate.

“Using dispersants, the cotton candy just fell apart, and now when you float the pentlandite, it’s not dragging magnesium with it anymore. That’s the heart of the difference in the metallurgy.”

Explains Froc, “By using the dispersants, it allowed us to float the sulphides and leave the bulk of the gangue behind. What we’re doing is floating the sulphides, predominantly pentlandite, which is nickel sulphides, and separating them from the silicate gangue. We’re then able to create a clean, high-grade concentrate around 18% nickel.”

Hard Creek is now completing further metallurgical testwork in order to optimize the process and demonstrate the method will work across different zones of the property. The studies will be factored into an updated preliminary economic assessment for the Turnagain project, which should be released around October of this year.

It will be the fourth PEA Hard Creek has released for the project. It released the first in mid-2006, the second in late 2007 to incorporate an increase to the project’s resource estimate, and the third in early 2010 to account for changes to the project design and updated metal prices.

According to Jarvis, “The big difference, the huge difference, between this and the last PEA is that we’re modelling creating a very nice [18%] concentrate to sell directly to smelters, whereas in the last PEA we were modelling making a 4% concentrate and refining that on-site. So the capex will be a lot lower and the technical risk will be a lot lower… This is now a plain-vanilla operation, we can simply produce a concentrate for sale.”

Roughly 79,000 metres of drilling to date in 280 holes has already outlined an extensive resource at Turnagain, and the deposit remains open both at depth and to the north. Measured and indicated resources now stand at 695 million tonnes of 0.21% nickel and 0.014% cobalt, while inferred resources add another 510 million tonnes of 0.19% nickel and 0.014% cobalt, all at a cut-off grade of 0.1% nickel.

Parts of the property are also highly prospective for platinum group elements, providing further exploration and resource estimate upside. In 2008, exploration drilling in the Cliffs zone about 2.5 km east of the main Horsetrail zone returned 36.5 metres grading 0.35% nickel and 0.29 gram per tonne platinum and palladium combined. At the DJ and DB zones, about 3 km northwest of Horsetrail, drilling in 2006 outlined a PGE-bearing horizon with a minimum strike length of 1.1 km, with one drill hole returning 36.5 metres grading 0.59 gram platinum and palladium combined.

Covering most of an Alaskan-type ultramafic intrusion measuring 8 km by 3.5 km, the Turnagain deposit is elongate in shape and trends in a northwest direction. The ultramafic complex consists of a central, well-exposed dunite core and an outer zone of less exposed wehrlite, olivine pyroxenite, pyroxenite and minor hornblendite.

While some investors would no doubt like to see the company continue to drill off the project, with only $2.4 million in working capital as of March 31 Hard Creek’s Jarvis says he is wary of spending big on another drill program as capital markets remain tetchy. The company has done little drilling over the past three years, however, and this year looks to be little different as the company focuses on improving its metallurgical test results and completing a ground-magnetic geophysical survey on the platinum-palladium-bearing DJ and DB areas. According to Jarvis, increasing the project’s size is not a main concern right now. He does not see Hard Creek completing much, if any, drilling in 2011 until after the new PEA comes out, and by then winter might have set in up north.

When asked about the potential near-term upside for those investors not necessarily looking for a long-term story, Jarvis turned to the PEA update as Hard Creek’s main driver of growth this year. “We think the upcoming PEA is going to show a very robust project. Our market capitalization right now is fairly low… around $25-million. We feel like if we come up with some hard numbers and show that the project’s economics are robust, on a very simple processing circuit, then the market will revalue this thing.”

Hard Creek’s last PEA for Turnagain outlined an open-pit mining operation with a milling rate of 87,000 tonnes per day producing about 35,000 tonnes (77 million lbs.) of payable nickel per year. Operating costs came in around US$3.34 per lb. based on a conventional flotation system, a chloride leach process and on-site refining. Using base-case metals prices of US$8.50 per lb. nickel and US$17.50 per lb. cobalt, the project’s net present value was estimated at US$819 million using an 8% discount rate. The company could produce roughly 1.88 billion lbs. nickel over a 24.4-year mine life, boasting a life of mine strip ratio of just 0.74:1.

Besides building a previously untried type of refinery on site, however, the biggest roadblock presented by the PEA was the project’s US$2.95-billion capital cost, resulting in a 7.8-year payback period and an internal rate of return of 11%. 

In the new PEA, Hard Creek should be able to factor in the new method of recovery and a much higher nickel concentrate grade, while discarding the US$814-million cost of building a refinery. Off-site infrastructure costs previously totalling US$319 million, which would include extending the Northwest Transmission Line about 250 km north from Bob Quinn, also have the potential to be lowered significantly. A positive construction decision by Imperial Metals (III-T) at its Red Chris copper-gold project near Iskut, B.C., would consequently shorten Hard Creek’s transmission line extension to less than 150 km. According to Hard Creek’s Froc,
the company is hoping to eventually lower Turnagain’s capex to around US$1.5 billion, with capital costs already lowered to around US$1.8 billion.

The price of nickel – a major component in stainless steel production – has lagged behind several other base metals over the past year and currently trades for around US$11 per lb., up slightly from around US$9 per lb. a year ago. This is still well below the metal’s 2007 highs of around US$23 per lb. but up from its late 2008 low of around $4.50. As Jarvis sees it, nickel prices will continue to trend above US$9 and but below US$14 or US$15 in the medium term.

“The market for nickel to me is largely driven by cost factors. For one thing, very few new nickel sulphide deposits are coming on stream; most of the new nickel coming on stream is from laterites, and laterites are expensive, and some of them are very technically tricky.

“Where are the greenfield projects that can be profitable at $9 nickel, if you’re starting from scratch? And it’s difficult for nickel to get much over $14 or $15 per lb., because when the price goes up the production of pig nickel in China accelerates, whereas under $10, the margins for making pig nickel get very, very skinny because of high energy costs.” 

Shares of Hard Creek have largely drifted sideways alongside nickel this year and currently sit around the 30¢ level. The company has approximately 77.3 million shares currently outstanding, 90.6 million if fully diluted, and a 52-week share price range of 19¢-57¢.