[Update] Liberty looks for a ray of light

Less than two weeks after Timmins, Ont.-focused Liberty Mines (LBE-T) temporarily halted production because of declining nickel prices and posted a positive preliminary economic assessment (PEA) for its Hart nickel deposit.

While this was much needed positive news, showing that the Hart project, 30 km from Timmins, had an estimated pre-tax net present value (NPV) of $81.5 million; it added only half a penny, or roughly 8%, to the miner’s tarnished share price to close Aug. 23 at 6.5¢, near its 52-week low.  

The stock hit rock bottom on Aug. 15, a day after Liberty Mines reported that it froze activities at its McWatters nickel mine and the Redstone nickel concentrator because the nickel price fell 25% in the past six months. This news sent Liberty shares tumbling 63% over two days to close at a year low of 4¢. The company was trading at a 52-week high of 22¢ last October.

The spot price for nickel dipped to US$6.90 per lb. in mid-August, down from US$8.50 per lb. six months ago and from US$10 per lb. last September.

BMO Research predicts nickel prices to average US$8 per lb. in the second half of the year, before rebounding slightly to US$8.50 per lb. with a recovery in metal demand forecast for 2013.

While the company has a history of starting and stopping its operations, Liberty’s president and CEO Chris Stewart says the only reason it put a pause on mining this time was due to the low nickel environment and not because of operational issues.

“The team in Timmins that we put together was actually performing extremely well, so we are a bit disappointed we had to stop because of the drop in nickel price,” Stewart comments in an interview. “So we are anxious to get restarted here.”

Liberty controls 120 sq. km of the Shaw Dome nickel belt, located 25 km southeast of Timmins, which hosts the company’s Redstone mine and mill, the McWatters mine and the Hart project.

Last spring, Liberty put the Redstone and McWatters mines on care and maintenance as it fixed the tailings storage facility at the Redstone mill. It was only in the first quarter of this year that it restarted operations at the mill and the McWatters mine, before pulling the cord again in mid-August.  

When asked what price range nickel has to reach before operations resume, Stewart said Liberty’s management is assessing ways to restart mining in the current environment.

“Right now we aren’t talking about what price because we are working on a couple of different things that will allow us to start at a lower nickel price. So we are optimistic that by the end of the year, we should get ourselves back up and running again.”

One such option that the miner is considering is adding higher-grade ore to its mill. However, Stewart declined to provide further details on that or other options the company is exploring.

Another producer that has been impacted by the low nickel prices is Vancouver-based CaNickel Mining (CML-T).

In July, CaNickel said the stop work order authorities imposed two months earlier on its Bucko Lake nickel mine in Manitoba has been lifted, but given the suppressed nickel price it would keep its mine on care and maintenance.

“That’s basically the same place we are at now too,” says Stewart.

Some factors impacting the metal’s price is China’s upcoming elections and its slowed growth and reduced steel production, comments Liberty’s CEO.

Meanwhile to preserve its short-term cash, the producer has temporarily stopped exploration drilling, withdrawn a tentative $10-million prospectus offering and secured an additional $5-million loan from its 60%-shareholder, Jien International Investment, to keep its head above water.

With $5 million expected to come from Jien by year end, Stewart estimates the company should exit 2012 with roughly $1 million in hand.

Before that, the miner intends to move its Hart deposit to feasibility stage later this year.

A recent PEA on the Hart nickel project envisions it as stand-alone underground mine, producing an average of 750 tonnes a day throughout its eight-year mine life. Over that period, the proposed mine should churn out 38.4 million lbs. of payable nickel.

The total gross revenue is anticipated at $429.3 million using a base nickel price of $10 per lb., which includes fees generated from the by-product production of copper and nickel.

Using an 8% discount and a $10 per lb. nickel price, the Hart project has a pre-tax NPV of $81.5 million and a 23% internal rate of return.

Stewart says the company plans to start constructing the underground mine in late 2013, with first production anticipated in 2014 at a rate of 250 tonnes per day, before ramping up to 750 tonnes per day by 2017.

To get the project up and running is forecast to cost $105 million, a price tag that Stewart says could be substantially reduced by having his staff at the nearby McWatters mine and Redstone mill operate the Hart project.

Ore from the Hart mine will be processed at the Redstone mill, which lies 5 km to the east and has a design capacity of 2,000 tonnes per day, however is currently permitted to operate at 1,500 tonnes per day.

The Hart project contains 1.55 million tonnes grading 1.4% nickel for 47.8 million lbs. nickel in indicated, and another 322,000 tonnes grading 1.27% nickel for 8.9 million lbs. in inferred.

The company is also evaluating its options to place the Redstone mine back into production in 2014.

But for now Liberty is working on initiatives to get the ball rolling.

“They are things on the go that we can’t talk about,” says Stewart. “But we are optimistic about the future of Liberty Mines.” 

The company’s other assets include the Groves nickel-copper-platinum group metals project near Gogama, Ont., and the McAra Lake-Ray cobalt nickel copper project near Timmins.