Mindoro keeps its options open in the Philippines

On a recent stop in Toronto, Mindoro Resources‘ (MIO-V) Melbourne-based president and chief executive Jon Dugdale ticked off a list of attributes of the junior’s Agata nickel laterite project on the island of Mindanao in the Philippines.

The deposit lies in the north of the island within 2 km of the ocean, where 30,000-tonne ships can get within 30 metres of shore. It’s close to Asian markets and could support a direct shipping operation (DSO) for the first five years to generate near-term cash flow. And there is virtually no overburden on the property to deal with. “No blasting, just free-digging,” Dugdale noted.

“No one lives on the resource and there are no trees on the resource so we’re unencumbered by any relocation or environmental issues,” Dugdale told a group of analysts and investors attending the luncheon at Toronto’s Intercontinental Hotel.

Mindoro is now drilling to finalize an initial mineral reserve and complete a DSO feasibility study by August. The company expects it can obtain the remaining permitting it requires for a DSO operation in time to start in the second quarter of 2011. (It already has an environmental clearance permit and a mining licence.)

The drill program is designed to define a DSO operation of nickel-iron limonite (greater than 1% nickel and 45% iron) for China’s nickel-pig iron market with a high-grade transition to saprolite ore (greater than 1.4% nickel) for Chinese Electric Arc Furnace (EAF) and or other acid-leach or ferronickel processing facilities in Australasia.

Mindoro anticipates production of 1-2 million wet tonnes of laterite DSO per year.

A recent options study also recommended that a scoping study look at development alternatives in a second phase following the DSO operation in phase one, such as a large-scale nickel laterite processing facility using a combination of high pressure acid-leach (HPAL) and atmospheric leaching technologies.

Agata has measured and indicated resources of 26.92 million dry tonnes at 1.11% nickel and 0.06% cobalt and an inferred resource of 3.79 million tonnes at 1.06% nickel and 0.05% cobalt. Dugdale says he expects Mindoro can define a 100 million tonne resource before the end of the year.

He also says management is in advanced discussions with a company that owns four processing facilities north of Beijing. One of Mindoro’s potential off-take partners, he adds, formerly sourced its nickel laterite ore from Indonesia but is now hoping to diversify its sources to the Philippines. 

Laterite, a red-coloured soil rich in iron and clay, originally formed from the deep weathering of bedrock in tropical and subtropical regions. Typically there are two types of ore: an upper layer of limonite, which typically has lower nickel and higher iron content, and an underlying layer of saprolite, which generally has higher nickel and lower iron content.

Mindoro owns 75% of Agata and a local family owned company called Minimax owns the remaining 25%.

Luke Smith, an analyst at StoneBridge Securities in Melbourne who initiated coverage on Mindoro in early June, noted in a recent research note to clients that the Surigao district has two main nickel laterite belts: the western coastal belt, which is largely controlled by Mindoro, and the eastern coastal belt, which is held by a number of other companies.

The area already “has at least ten DSO nickel laterite mines in production or being developed” that are or will be sending ore to processing plants in Australia, China and Japan, he wrote. These include the Taganito project of Japan’s Sumitomo Metal Mining and the Philippines’ Nickel Asia. Taganita will be a high pressure acid-leach processing operation (HPAL) that will produce about 30,000 tonnes of nickel product a year at a capital cost of US$1.3 billion.

If Mindoro goes ahead with an HPAL operation, Smith forecasts capital costs ranging from US$500 million for an HPAL operation producing an intermediate (mixed sulphide) product, and US$2 billion for an HPAL operation with downstream processing facilities that would produce a nickel matte.

“I do like the progress that Mindoro has made to date,” one Toronto-based analyst told The Northern Miner after hearing Mindoro’s pitch. “I do have some hesitation about the Philippines, but a good prospect like this has a lot of merit. There are indeed a lot of competitive advantages which should generate some interest.”

Another analyst questioned about the project who requested anonymity said that while the intrinsic value of the ore deposit justified further economic valuation and a DSO operation would be “good” (depending on metallurgical and recovery rates), any future pressure leach system would be potentially costly and slow and liquid/solid separation could be a huge issue.

“If they prove to be successful there could be huge economic benefit to be had,” he said. “But I will only put this on the radar screen.”

For those wary of nickel laterite projects in general, however, Mindoro has more to offer. The company has a number of options in the Philippines, one of the most prolifically mineralized countries in the world. In addition to Agata, it has a joint-venture with Goldfields (GFI-N) on three of its gold properties in Batangas province on the island of Luzon, about three to four hours drive from the capital, Manila.

Goldfields has the option of earning up to 75% in each of Mindoro’s El Paso, Lobo and Talahib porphyry copper-gold projects by sole-funding exploration and a feasibility study on each project. Mindoro will retain a 25% interest at a production decision. Goldfields has already started drilling on the Lobo project.

At presstime in Toronto Mindoro was trading at 21.5¢ per share. Since January the stock has traded at a low of 9¢ (Jan. 8) and a high of 34¢ (April 6).

Stonebridge’s Smith has a 52-week price target on the stock of 43¢ per share.

Mindoro has 179 million stocks outstanding.