The project was approved in mid-2015 but suspended months later due to weak market conditions.
Capital costs have increased by A$2 million to $24 million, but with $6.5 million already spent on long-lead items, the cost to complete the project is $17.5 million.
The project has a pre-tax internal rate of return of 33% with payback to be by June 2020.
The mill recovery enhancement project (MREP) will increase recoveries by 3-5% at Forrestania, with unit cash costs to be $2.44 per pound of nickel.
Original contractor GR Engineering Services will complete the six-month project, with work to begin in the September quarter for the first production of high-grade nickel sulphide due in the March 2018 quarter.
Since the project’s deferral, Western Areas and GR have made enhancements to the original design, with 1400 tonnes per annum of nickel to be recovered per year, 200tpa more than first envisaged.
The company said the decision to restart the project was made after it secured new offtake agreements and started to see major growth in the demand for nickel from the battery market.
“The mill recovery enhancement project is innovative and industry leading, particularly given we are extracting additional nickel from the tailings stream that was previously considered waste, and using our wholly‐owned BioHeap leaching process and converting it into a marketable product applicable in the EV battery market and/or the conventional nickel concentrate market,” Western Areas managing director Dan Lougher said.
The economics include Western Areas’ new offtake deals with Tsingshan Group and BHP Billiton Nickel West, but Lougher said there was further upside.
“Over the last 18 months, we have been in discussions with major global companies active in the EV battery market.
“The demand for nickel products in this market has intensified substantially and we have an expectation, based on our discussions, to improve commercial terms for our new 45‐50% high grade product generated by this project. As such, any improvement in those commercial terms will enhance the base case economics presented today.”
Over the next 12 months, Western Areas will continue to work on a process to produce a nickel sulphate product grading 22% with no impurities.
Such a product can yield a 20% premium to the London Metal Exchange nickel price.
Lougher added that there were further opportunities use BioHeap on other base metal projects worldwide.
Western Areas will fund the project from existing cash, with the project to increase FY17 capital expenditure by $3 million to $25-27 million.
At December 31, the company had no debt and $124.7 million in cash and receivables.
RBC Capital Markets analyst Paul Hissey said the strength of the balance sheet meant that it made sense to move ahead with the project.
“The ability to produce a higher specification nickel concentrate (45-50%) could open up more commercial opportunities for the company in the future, which we do not currently model,” he said.
“Such a project reiterates the technical ability of Western Areas, though we remain cautious on the stock given the current nickel price environment and its potential implications on cashflow.”
The nickel price dropped by more than 3% overnight to back below US$10,000 a tonne. It was trading at more than $11,000/t in February.
Western Areas shares were down by A1.5c to $2.305.
