Base metals are back. If you’re in any doubt check out the performance of the nickel price in the past 18 months. After slumping to 12-year lows in December 1998 because of the Asian economic slowdown and an anticipated supply surge from Western Australia’s first-wave laterite nickel miners, the price has boomed.

Fuelled by a heady cocktail of strong economic growth, diminished stocks and the slow ramp-up of the WA laterite miners, nickel hit a five-year high of $US10,460 per tonne in March this year. There has been a sharp correction since then (down 20% to around $US8240/t at press time), but all up the fundamentals look good for nickel and a large number of commodity strategists expect the price to again firm.

 

 

"Although much of the ground we're looking at has been well mapped and sampled, there is very little testing at depth and there has been little evaluation using modern electro-magnetic techniques. I think given a reasonable amount of luck there is a good chance of success." - Don Boyer, chairman, Western Areas.

 

This is positive news for Australian nickel miners, most particularly those miners with latent capacity like WMC or high-grade producers such as Jubilee Mines. Jubilee’s Cosmos mine in WA has become a strong earner in the current climate. Its high-grade, close proximity to infrastructure and relatively small start-up cost, coupled with the strong price, mean the operation will throw off cashflows of about $60 million per annum. Better still, there have been very encouraging signs from Cosmos Deeps.

It therefore should come as no surprise that another company is trying to emulate Jubilee’s success. That player is Western Areas, which this month was in the process of raising $5 million to explore six nickel sulphide projects in WA.

The structure of the proposed new listing is relatively simple — there will be almost 44 million shares on issue and just shy of 15 million unlisted options. The public is being offered 25 million shares at 20c, which equates to 57% of the issued capital. The float has not been underwritten, however, Paterson Ord Minnett is the consulting broker. If the IPO goes according to plan, the biggest stockholder will be key seed capitalist and director, Terry Streeter, who will own about 23% of the company.

Apart from its suite of projects, Western Areas’ greatest attraction is its board. Chairman of the company is former Gilt-Edged Mining chief, Don Boyer, while Julian Hanna (a senior ex-Forrest Gold geologist) will take up the only executive position, that of managing director. Other board members include Timothy King (a partner with Norgard Clohessy), Streeter (currently a director of Jubilee Mines) and David Cooper (a practice manager with TA Mairs and Co). Helping Hanna at the technical end will be geologist Terrence Grammer and geophysicist Richard Stuart.

For Boyer, Western Areas represents a chance to quickly get back into the cut and thrust of company management after Gilt-Edged Mining was recently taken over by Goldfields with a cash offer of 50c a share. “It (the takeover) was a steal at that price but that was the price. It’s not so bad. I look back and I see a lot of smiles out there. I certainly haven’t had any complaints,” he said.

“One of the lessons we learned was that the actual combat costs are high and we (Gilt-Edged) were not well placed to handle that. In some ways I’d like us (Western Areas) to raise more money to prevent that happening again, but basically this ($5 million) is all the market will allow us to raise for now.

“There is still interest in the resource sector but people want strong value from day one. Certainly the days of banging together a few tenements and raising millions of dollars to explore them are gone forever.”

Boyer, who has spent half his 30-year career chasing nickel sulphides, said he was attracted to Western Areas’ assets because of their maturity. “All of them are reasonably advanced in that we know that there are nickel sulphides there; it’s more a case of in what quantity? We’re planning to spend $1.6 million in the first year and a similar amount in year two finding that out.

“This will be real exploration; the money won’t be soaked up on fat salaries, swank offices or flash cars. We want our shareholders to know that we are looking to add value to the assets.”

Western Areas’ three main targets are Bullfinch North (70km north of Southern Cross), Koolyanobbing (55km north of Southern Cross) and Mt Jewell (65km north of Kalgoorlie).

Bullfinch North covers an area of about 443sq.km and Western Areas has the right to earn 70% of the project. Of immediate interest is the Trough Well prospect, which has returned significant hits but has to date not yielded a resource of any substance.

At Koolyanobbing (Western Areas earning up to 70% at Koolyanobbing North), much of the nickel potential was overlooked in the past in preference to iron ore mining. Exploration back in the late 1960s and early 1970s by BHP did unveil a number of prospective nickel sulphide targets in the region including Jock’s Dream. Jock’s Dream was subsequently followed up by a number of other explorers and although numerous significant intersections were encountered, none of the results were deemed commercial. Western Areas plans to re-examine the existing data and test the area for down-plunge extensions of the known massive sulphide flow sequence.

Mineralisation has also been identified at Mt Jewell, and again exploration dates back to the late 1960s. There were plenty of promising sniffs, including the delineation of a very modest resource for one prospect called GSP, but Mt Jewell never produced a mine in the same vein as Scotia or Carr Boyd which lie in adjacent belts to the east and west respectively.

“Essentially we’ll be focusing on structures where there is the possibility of remobilisation due to massive intrusions,” Boyer said. “Although much of the ground we’re looking at has been well mapped and sampled, there is very little testing at depth and there has been little evaluation using modern electromagnetic techniques.

“I think given a reasonable amount of luck there is a good chance of success. There is no rubbish in here.”