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Winnipeg Free Press - PRINT EDITION

Study cools nickel mine fever

Cost-cutting will keep plan a going concern

By: Martin Cash

Posted: 12/15/2009 1:00 AM | Comments: 0 (including replies)

THE release of a feasibility study on the economics of a potentially huge nickel mine near Grand Rapids got a big thumbs down from investors on Monday, but company officials say they are still committed to the project.

Victory Nickel Inc.'s long-awaited economic study on the Minago property north of Grand Rapids estimates that total capital costs would be just shy of $600 million for construction of the concentrator and infrastructure to support a massive open pit mine with a lifespan of seven years.

But Hendrik Visagie, a mining analyst with Octagon Capital, said such a large investment on a mine with such a short life span may be too expensive.

"The numbers do not look that exciting," said Visagie. "This is not a slam dunk, but they have a good chance to improve on it."

At current nickel prices (about US$7.50 a pound), the project would generate a 6.52 per cent internal rate of return. One industry official said investors would probably like to see that number somewhere in the low teens.

Victory's shares closed down 23.4 per cent on Monday to 18 cents.

Visagie and company officials both said the feasibility report was a conservative estimate and there are plenty of opportunities to bring costs down.

One of the issues that both the analyst and company officials speculate could change the economics is the existence of additional mineral resources atthe mine or at other locations on the site.

Further drilling is necessary for the company to be able to confirm those resources.

The report does factor in the possibility of as much as $70 million in annual revenue from millions of tonnes of frac sand that overlies the nickel mineralization. The sand must be removed and the company has determined it could be sold to the oil and gas industry to improve drilling recoveries.

Steve Harapiak, president and chief operating officer of Victory Nickel, said the presence of the frac sand significantly reduces the cost of nickel production at Minago.

"It puts us in the lower quartile of producers," he said.

The study says the construction of the open pit mine would require a workforce of more than 600 people with more than 400 needed to operate the mine.

Company officials said while the study was important, it is not the final step. Plenty of other regulatory requirements need to be in place before a mine could begin construction, even if the company was able to secure the required $500 million in financing.

Victory is building a road from Highway 6 to the site and is working on a "robust" environmental impact statement.

Sean Stokes, another Victory executive, said, "There is a lot more fine tuning of the numbers we need to do and obviously financing will be a big effort over the next little while. But I guarantee you we will continue to push it forward."

martin.cash@freepress.mb.ca

The Minago project

"ö The property is considered to be one of the largest undeveloped nickel deposits in the country.

"ö The milled ore will produce the world's highest grade nickel concentrate.

"ö It is close to a highway, power lines and a rail line.

"ö Memorandums of understanding are in place with three of four First Nations whose traditional land use area overlap the potential mine site.

"ö Federal environmental and operating permits are required before mine construction could begin.

Republished from the Winnipeg Free Press print edition December 15, 2009 B6

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