Royalties tables scoping study for Raglan South (May 29, 2006)

Quebec-based nickel explorer Canadian Royalties (CZZ-T, CRYAF-O) plans a full feasibility study on its Raglan South nickel-copper deposits in the Nunavik (Ungava) region of Quebec following a preliminary economic study that concludes production from four deposits is feasible.

The study examined the economics of production from open pits on the Expo, Mesamax, Mequillon and Ivakkak deposits, feeding a single mill that would seasonally ship concentrate through a deep-water port. The operation would produce 9,100 tonnes nickel and 10,000 tonnes copper annually, plus byproduct platinum and palladium.

Capital costs of building a mill would likely run to $85 million, plus $26 million for the mine fleet, facilities and site preparation. Another $33 million would go into site work, a power plant, roads and an airstrip. A deep-water port is budgeted at $11 million, and getting everything to Nunavik has a ticket of $20 million.

With overhead and transportation, the study put the preproduction capital cost at $225 million.

Production costs ring in at US$2,970 per tonne nickel (US$1.35 per lb.), or about $54 (Canadian) per tonne. Mining and waste-stripping costs make up $15.89 of the per- tonne cost, and milling, $20.88.

Royalties’ plan for a mine operation consists of a fly-in camp with the workforce on rotations of four, three, and two weeks. Falconbridge (fal.lv-t, fal-n) uses a similar approach at the nearby Raglan nickel mine.

A cash-flow analysis, using prices of US$11,000 per tonne (US$5 per lb.) for nickel, US$2,750 per tonne (US$1.25 per lb.) for copper, US$900 per oz. for platinum and US$300 per oz. for palladium, put the project’s internal rate of return at 20%, with a net present value of US$175 million at a 5% discount rate. The project would pay back in just over four years, and would have a 10-year life.

The analysis used an exchange rate of US80 to the Canadian dollar.

There would be four open pits. Expo is the largest, at 4.7 million tonnes grading 0.86% nickel, 0.81% copper, 1.5 grams palladium and 0.4 gram platinum per tonne; its stripping ratio is 4.9. The pit at Mesamax, with 2.1 million tonnes grading 1.84% nickel, 2.31% copper, 3.7 grams palladium and 0.9 gram platinum per tonne, has the lowest stripping ratio of the four, at 2.4.

The other two are the more recent discoveries, Mequillon, with 2.4 million tonnes grading 0.5% nickel, 0.68% copper, 1.7 grams palladium and 0.5 gram platinum per tonne, at a stripping ratio of 5.1; and Ivakkak, with 475,000 tonnes grading 1.65% nickel, 4.83% copper, 7.8 grams palladium and 0.75 gram platinum per tonne, at a stripping ratio of 17.8.

About 783,000 tonnes of material inside the proposed pits are currently only in an inferred resource. Most of that resource is at Expo.

Royalties is reviewing the report and expects to go ahead with a final feasibility study. Under its agreement with Ungava Minerals (UGVAF-O), it owns 70% of most of the project area and will earn a further 10% once it delivers the final feasibility study. Two private companies, Gogama Gold and a numbered Alberta company, are disputing Royalties’ January 2001 buyback of a 2% net smelter return royalty on the same property. Previous disputes between Ungava and Royalties over ownership were resolved in Royalties’ favour in Quebec courts.

Royalties also closed a private placement of 3.3 million shares at $2.00 per share, for proceeds of $6.7 million. The financing was a pure issue of shares and no warrants are attached; the holder must retain the shares for four months.