Royal Nickel unveils Dumont prefeasibility

Royal Nickel (RNX-T) is targeting first production at its Dumont nickel project in western Quebec by the end of 2015 and once in full production expects it to be among the top five sulfide nickel assets in the world based on yearly nickel production.

A pre-feasibility study on the large, low-grade nickel project unveiled today outlines an after-tax net present value at an 8% discount rate of US$1.1 billion and an internal rate of return of 17%. Cash costs are estimated at US$4.13 per lb.  

The project will be a conventional open pit mine and mill operation using conventional drilling, blasting, loading with electric shovels, and truck haulage. The company envisions a staged development approach. In the first phase Dumont will be a 50,000-tonne-per-day operation with initial capital expenditure of US$1.1 billion. In year five it will expand to a 100,000 tonne per day operation involving additional cap ex of US$0.7 billion.

According to the prefeasibility study, average annual contained nickel production is estimated to be 96 million pounds (44,000 tonnes) during the first nineteen years and 59 million pounds (27,000 tonnes) for the subsequent twelve years from processing the lower grade stockpile (with the open pit mine used for tailings disposal).

Dumont will provide a single high-grade concentrate containing an average of 33% nickel over the 31-year life of the project. (The concentrate grade in the nickel concentrate is expected to exceed 34% nickel for the first fifteen years before falling, ultimately to 30%, when stockpiled material is treated after the pit is depleted.)

In addition to nickel recovery, cobalt, platinum and palladium are also recovered to the nickel concentrate. Cobalt recovery has been estimated at 70% to follow pentlandite recovery, because the majority of the cobalt is contained in the pentlandite mineral. Platinum and palladium recovery to concentrate has been estimated based on two concentrates assays of 2 grams platinum per tonne and 3 grams paladium per tonne in the combined concentrate.

All major infrastructure including a rail line, roads and water are already in place. The project, about 60 km northeast of Rouyn-Noranda and about 70 km northwest of Val-d’Or, is adjacent to a rail line and an 8 km rail spur will be built off the rail line to access the property. A 40 km power line from an existing sub-station will be built.

Royal Nickel hopes to obtain permits by the end of 2013 and says that the majority of its resource drilling for the feasibility study has been completed. Project notice to begin the environmental permitting process will be filed before the end of the month and a project finance advisor will be appointed before the end of the year.

The company believes there is “potential upside” involving the production of a final ferronickel product and an iron ore (magnetite) concentrate by-product. A separate study is underway to assess the feasibility of processing the nickel concentrate using an alternate processing option that is used in parts of Asia to produce a final ferronickel product that can be used by the stainless steel industry.

In lab scale testwork, high-grade ferronickel was produced using downstream roasting and reduction processes. The processing option has the potential to provide higher recoveries, lower costs and greater flexibility than conventional smelting and refining, the company says.

Based on testwork so far, ferronickel from Dumont concentrate is expected to generate a high-grade ferronickel at 55-60% nickel content, compared with typical ferronickel products containing 15-40% nickel. “Significant economic benefits could be realized through its potential to be lower cost, while delivering higher recoveries (98-99% of the nickel in Dumont concentrate compared to the 90-93% typically paid by certain smelters),” the company outlined in a press release.

In addition, very preliminary lab scale testwork has demonstrated that a high grade iron ore (magnetite) concentrate grading about 68% iron can be produced by taking tails from the existing magnetic separation circuit in the mill and upgrading them by regrinding and separating them with a low intensity magnetic separation circuit. In the test sample, the final magnetite concentrate produced was 2.4% of the initial ore feed. Royal Nickel estimates that at a production rate of 100,000 tonnes per day, 2.4% of the mill feed could represent production of over 850,000 tonnes of magnetite concentrate a year. Additional testwork is underway to determine the feasibility and marketability of the product for the steel industry. The results of that study will be incorporated into the feasibility study.

Royal Nickel notes that its flow sheet in the pre-feasibility study was simplified, which led to significant operating and capital cost benefits with a loss in recovery. “Royal Nickel’s pre-feasibility study for the Dumont nickel project shows a significant drop in life-of-mine recoveries to 41% when using the simplified flowsheet,” Matt Murphy, an associate analyst at UBS Investment Research wrote in a note. “While life-of-mine capex was cut 25% to $2.6B and site costs were reduced 25% to $7.89/t milled, unit cash costs increased 7% to $4.13/lb nickel.” Murphy retains his buy rating on the stock but has cut his twelve-month target price from $2.10 per share to $1.50.

In Toronto Royal Nickel closed the day at 79¢ per share within a 52-week trading range of 55¢-$2.99 per share. The company has about 88.9 million shares outstanding.