Study finds Gladstone Pacific mega-nickel project viable

Gladstone Pacific Nickel’s (GPN-T, GPN-L)vision is to build a nickel-cobalt refinery at the deepwater port of Gladstone, in Queensland, Australia, that would treat high-grade nickel laterite ores from New Caledonia and other Pacific islands, as well as from its own Marlborough deposits.

The company says the project could become one of the biggest of its type in the world, producing about 120,000 tonnes nickel per year — about 8% to 10% of the world’s nickel demand — as well as 10,000 tonnes per year of cobalt metal in its first two stages.

A new feasibility study suggests the venture would be profitable. The proposed nickel project could earn Gladstone US$625 million in profit after tax in its first year of production, the feasibility study states. That number is based on a gearing ratio of 70% debt for a 10-year loan period with an interest rate of 8.5% per year.

The project would generate gross revenues of US$2.41 billion, assuming a two-year ramp up, according to the study. Earnings before interest, tax, depreciation and amortization, or EBITDA, would be US$1.37 billion using current prices and exchange rates.

Gladstone plans to build nickel and cobalt production facilities that would treat a blend of its ore from Australia (30%) together with ore from its joint venture in New Caledonia (70%).

Management says the project has strong economics as well as the potential for expansion. It also enjoys the benefits of a low sovereign risk environment.

Using an 8% discount rate and current prices and exchange rates, the net present value is estimated at US$4.3 billion.

The feasibility study forecasts unit operating costs at US$2.71 per lb. nickel, net of byproduct credits. Capital costs would be in the range of US$3.65 billion.

Gladstone says the plant will produce up to 64,750 tonnes nickel and 6,160 tonnes cobalt in its first year of full production.

In the second stage of the project, the plant will be expanded to four autoclaves from two, boosting annual output to 120,000 tonnes nickel and 12,000 tonnes cobalt.

Gladstone will purchase its overseas ore under a laterite ore purchase arrangement with joint-venture partner Socit Minire Georges Montagnat, or SMGM.

Drilling is now under way to generate a JORC-compliant mine ore reserve for the joint-venture deposits. Overseas ore costs will also include the purchase of 800,000 tonnes of ore per year from Socit des Mines de la Tontouta, or SMT, a company that owns nickel mines and numerous nickel tenements on the east coast of New Caledonia.

Shipping costs were calculated based on 10-year, long-term shipping contract rates provided by industry experts.

In Toronto on the news, Gladstone’s shares remained unchanged at $3.25 apiece. On the London Stock Exchange’s AIM index, Gladstone’s shares rose 7 pence to close at 1.40.