Crowflight study aloft on better nickel price

Higher nickel prices and an increase in resources combined to increase the value of the Bucko nickel project in northern Manitoba, an updated feasibility study says.

The study, done by consulting firm Micon International for owner Crowflight Minerals (CML-V, CMLGF-O) puts the net present value (NPV) of the deposit at $201 million, using an 8% discount rate and assuming a nickel price of US$8 per lb. (US$17,600 per tonnne).

The net present value increased substantially over a previous final-stage feasibility study tabled in January 2006, which gave the project an NPV of $36 million at a 5% discount rate and $21.5 million at a 10% discount rate, based then on a nickel price of US$5 per lb. (US$11,000 per tonne). The project’s internal rate of return has increased to 92% from 23%.

Other than metal prices, the central factor in the change to the project’s economics is a 32% increase in contained metal in the project resource, which totals 2.5 million indicated tonnes grading 2.01% nickel, based on a nickel cutoff grade of 1.4%. Out of that, the feasibility study shows a reserve of 2.3 million tonnes grading 1.84% nickel. There are small copper, cobalt and platinum group element credits.

Another 1.2 million tonnes grading 2.23% nickel is inferred.

The resource estimate brought about 700,000 tonnes into the indicated resource through drilling at the level of existing workings (about 300 metres vertical depth) and targets downdip to about the 600-metre level.

Bucko would be developed as an underground mine, partly using a three-compartment shaft sunk for Falconbridge in the early 1970s. Current thinking is that a decline could be driven for equipment and mine access, leaving the shaft purely for hoisting; a used headframe from the Louvicourt mine in Quebec is now on-site, with its structural steel assembled.

The capital cost of the project would be $66 million, and it would produce 1,000 tonnes of ore per day. Its annual nickel production would be 5,700 tonnes (12.5 million lbs.) at a cash cost of US$7,850 per tonne (US$3.56 per lb.).

Increases to the production rate juice the project’s economics, with a 25% increase (to 1,250 tonnes per day) boosting the NPV to $221 million. The former Chimo gold mill, purchased used like the headframe, and the hoist are both capable of that increase without significant modifications.

Metallurgical recovery was estimated at 81% for the feasibility study.

Xstrata (XSRAF-O, XTA-L) has an offtake agreement with Crowflight for Bucko concentrates, part of a property deal under which Crowflight is taking the project to a final feasibility study to earn a 100% interest. Xstrata gets 2 million shares in Crowflight and retains a back-in right under which it can take a 50% interest by paying Crowflight 100% of Crowflight’s expenditures if measured and indicated resources on the property, other than the Bucko deposit, exceed 200 million lbs. nickel (90,700 tonnes).

Under a separate agreement, Crowflight can earn 35% of a 440-sq.-km package of exploration properties in the Thompson nickel belt by funding $7.2 million in exploration by the end of 2009, and can convert that to a 100% interest by funding another $6 million in work by the end of 2013. Xstrata holds a similar back-in right, triggered by the delineation of a deposit of 500 million lbs. nickel (227,000 tonnes) or larger.

The project is awaiting comments on permitting from the Canadian Environmental Assessment Agency, which has the role of approving the company’s plan to place tailings in Bucko Lake. Manitoba provincial regulators have already approved the project subject to the national government’s approval. Financing remains dependent on permitting.