The Windarra nickel project has gone down in Australia's mining folklore as the site of the country's first nickel boom in the 1970s and the subsequent bust on the back of nickel price plunge.

Jump forward around 40 years and the new Poseidon Nickel is dusting off plans to resurrect operations at Windarra after the project was placed on care and maintenance in September 2008 on the back of the GFC and plunge in nickel prices.

Poseidon, which is chaired by Fortescue Metals Group chief executive Andrew Forrest, is currently refurbishing the Mt Windarra mine and this is expected to take around 9-12 months. The company also has plans to expand the resource base through exploration.

The operations include two long-life mines previously mined by WMC Resources: Mt Windarra, a shaft and decline operation, and the open pit South Windarra operation. The two sites lie about 20 kilometres apart.

In 2008, Poseidon discovered the high-grade Cerberus deposit which lies around 3km along strike from South Windarra.

Poseidon has so far defined 97,331 tonnes of nickel sulfide resources at 1.71% nickel grade at Windarra, comprising 61,764t at 1.6% nickel at Mt Windarra, a maiden 25,269t resource at 2.45% nickel at the Cerberus deposit and 10,298t at 1.14% nickel at South Windarra.

Production at Windarra is tipped to start in 2012 with a target of 10,000 tonnes per annum of nickel.
Poseidon is also planning to build a new $US30 million concentrator onsite with an initial 350,000tpa capacity with potential to expand to 700,000tpa capacity.

After joining the board more than three years ago, chief executive officer David Singleton remains unsurprisingly bullish about the project's potential.

"Poseidon has the biggest undeveloped nickel sulfide resource of any company in Australia," he said. "There are some other big companies but as an investor if you want exposure to a new nickel company coming into production there is no one else.

"In the past three years, bearing in mind we had a GFC in the middle of that which impacted on everybody, we have gone from zero resource to 100,000 tonnes which is big and we have got to the point where we are a couple years away from first concentrate."

Singleton also noted the low resource and development risk of the project.

"There is a lot of infrastructure and a lot of history already in place and it has been in production before," he said. "The ore body is well known and the mine is well known."

Exploration upside

Earlier this year, Poseidon announced it had identified seven lava channels at surface over 24km of strike between the Mt Windarra underground mine and Cerberus deposit which could be prospective for nickel sulfide.

Singleton remains confident that Poseidon's exploration program would uncover further nickel sulfide lava channels similar to Cerberus.

"We want to find at least one more ore body on the site from those seven lava channels," he said.

"We also want to get more of Cerberus into an indicated status so that we can then put a mine plan around it."

The company recently wrapped up preparatory surface electromagnetics testing the seven lava channels to determine drilling priorities and has recently begun an initial diamond and RC drilling program to test the identified lava channels.

Experienced board

Poseidon also has another string to its bow: the company's board and management. Like Forrest's iron ore behemoth FMG, Poseidon boasts senior executives with decades of mining experience.

Singleton was previously a CEO of engineering group Clough and is supported by FMG director Geoff Brayshaw, while well-known geologist Richard Monti and former Alinta executive general manager for strategy and development Chris Indermaur fill out the executive team.

At senior management level, Poseidon has hired ex-Jubilee Nickel Mines Neil Hutchison as general manager of geology, while chief operating officer Rob Dennis was formerly COO at Aditya Birla, WMC and Windarra.

"I remember Andrew [Forrest] was once asked what the secret to his success was and he said it was to choose the team at the beginning that you want to be there at the end," Singleton said.

"Most companies do it very cheaply and they build their team up as their projects builds. We have got some top-class people who are more than capable on taking the whole project through to production."

Financing

To bring Windarra back into production, Poseidon expects to spend around $US55 million, of which $25 million will be spent on refurbishing the Mt Windarra decline while the remaining $30 million will go towards the initial 350,000tpa concentrator.

In order to fund this, Poseidon will either draw down a $US35 million convertible note from former major backer of FMG, Harbinger Capital, or announce an alternate funding deal.

"The company is working on both the Harbinger funding and the potential sources of funding," Singleton said.

"We want to get the financing in place so that we can complete the underground refurbishment over the next nine to twelve months, and undertake the necessary underground drilling to get more Mt Windarra resource into an indicated status."

Harbinger, the hedge fund controlled by New York-based billionaire Phil Falcone, agreed to a $US50 million funding package for its development of Windarra in 2008.

Earlier this year, Harbinger completely sold out of FMG and recently cut its Poseidon stake from 15.8% to 14.4%.

However, it is believed that Harbinger has given assurances to the company that it will not be selling any more Poseidon shares.

History

Windarra was first discovered by the original Poseidon in the 1970s, and its name will be forever linked with the first nickel boom and the resulting share price bubble that saw the company's shares soar from 80c in September 1969 to a peak of $280 in February 1970 on speculation about finds it had made on its leases.

However, investor dreams turned sour when Poseidon's share price was hammered following a slump in the nickel price. The company de-listed in 1976 - and control of the Windarra mine passed to WMC Resources - and Poseidon was eventually taken over by Robert Champion de Crespigny's Normandy Gold in the 1980s.

The mine produced about 7 million tonnes of sulfide nickel ore at grades of more than 1.58% before it was closed in 1993 due to low nickel prices.

Niagara, which picked up Windarra from WMC in 2005 for around $7 million, changed its name to Poseidon Nickel in July 2007 and restructured its board and management team who accelerated exploration, refurbishment of the underground mine and recommissioning of existing infrastructure.

This all came to an abrupt halt in September 2008 when the project was placed on care and maintenance during the GFC and the resultant plunge in nickel prices to as low as $9050/t in December of that year.

Today, Poseidon is trading at 1.5c higher at 19.5c.