The mine is comprised of a massive sulphide body, which is currently being mined, and a larger, lower-grade, disseminated ore body, which has a resource of 139 million tonnes at a grade of 0.49% nickel containing about 680,000 tonnes of nickel
The massive sulphide body currently produces about 4500-5000t per annum of nickel along with 2800t copper, 22,000 ounces of palladium and 7000oz platinum, at cash costs of US$1.02 per pound nickel net of the by-products.
LionOre said it is planning to more than triple production to 16,500tpa nickel over a 16 year mine life and will now conduct an expansion study to review project economics and would also consider the use of its own Activox technology.
A previous study on an expansion indicated costs of about US$310 million. LionOre president Colin Steyn and managing director Peter Breese told a press conference capital expenditure would decrease if there were a significant revaluing of the currently strong South African rand.
While the directors would not comment on the specific internal rate of return that expansion study produced, they said it was “significant and high”.
The acquisition deal will be executed in two stages with LionOre first paying $28.5 million to South African black economic empowerment group African Rainbow Minerals, which will retain a 50% stake, followed by a further US$20 million if both ARM and LionOre agree to the expansion.
If the expansion proceeds, a revisiting of the feasibility study would take 12 months, followed by 18-20 months of construction, with another 12-18 months ahead of full production at the ramped up rate.
The project was held 100% by South African outfit Avmin after it paid R260 million for the 25% balance in the project early last year. ARM is a joint venture between Avmin and Harmony Gold. Following today’s deal the project will be a 50:50 joint venture between ARM and LionOre.
LionOre is planning to develop its Honeymoon Well project in Western Australia and its Tati project in Botswana concurrently with Nkomati. LionOre said the development of the three projects would be internally funded and it was expecting cashflows of about US$500 million over the next 4-5 years.
The company said that while it sounded like it had a lot on its plate it was well placed – both financially and in terms of management – to facilitate its future expansion.
LionOre shares gained 1.5% in early afternoon trading on the ASX to $6.60.
