Minews Story
Date : November 5, 2003
The Ex-Sutton Resources Team Are On Track To Duplicate Success With Canico.
Michael Kenyon was in London a couple of weeks ago to bring investors up to date with Canadian listed Canico and its Onca Puma nickel project in Brazil. Apart from the fact that nickel is still flavour of the month, this project is considered by several leading brokers in Canada to be a world class project in the making. Unusually Michael Kenyon and his team have been here before as they discovered and developed the Bulyanhulu gold deposit in Tanzania before selling it on as part of Sutton Resources to Barrick for US$325 million three years ago. Not that things have gone all their way with Onca Puma. When they visited London in April 2002 they were struggling to raise US$22.5 million in order to take up the option from Inco to acquire the deposit.
In the event Michael Kenyon had to ask for an extension of the payment terms. This was given; the payment was made earlier this year when raising capital for mining projects became easier; and a scoping study is expected later this month. The deposits on the Onca Puma property were first discovered by Inco in the 1970s and when Canico did its deal the resource was estimated at just under 50 million tonnes grading 2.3% nickel and 0.90% cobalt. Since then a major drilling programme has been carried out and the resource has been enlarged to 104.4 million tonnes grading 2.15% nickel and 0.11% cobalt. As a result it can now be claimed to be one of the world’s highest grade undeveloped nickel laterite deposits and there is plenty of potential for its size to increase as it is open laterally and at depth
A scoping study was carried out in 1997 which assumed that the deposits could be exploited using conventional smelting technology. Based on this the project had a net present value of US$107 million assuming a nickel price of US$3.0/lb and a 10 per cent discount rate. The current scoping study, due to be released shortly, is evaluating various development options for Onca Puma so that it can advance to a feasibility study which should be ready before the end of next year. The basic choices are between producing nickel matte which would be expensive, but Inco would purchase all the matte with payments based on a sliding scale based on the nickel price, or ferronickel for which there is great demand and Inco would help on marketing.
The answer seems to be the ferronickel route using pyro-metallurgical methods. The project could be developed in two phases. The first would involve a production facility capable of treating 1.25 million tonnes of ore a year and this could be upgraded to 2.5 million tonnes a year in the third year. At the moment the timetable looks like production should start before the end of 2006. It is impossible at this stage, however, to go firm on any of this. Stockbrokers RBC Capital has estimated that development of the 1st Phase would cost US$600 million and that 70 per cent of this would come from bank loans. This would leave Canico to find US$180 million which is a just about half its current market capitalisation Not an easy task, but the company has some hefty shareholders and the management has an excellent record.
The answer may be for the company to raise a significant proportion of this money before the bankable feasibility study is completed. Such a move would bring with it two advantages. First, it could start work on development work such as detailed design which would help to bring forward the anticipated date for production to start. And second it would persuade potential lenders that the money was virtually in the bag. The alternative, of course, would be to bring in a major partner. Clearly Inco with its 18 per cent interest already in Canico would be first in the queue. Michael Kenyon, however, says that the preferred option would be for his company to develop the mine itself and the sums certainly confirm that this route has plenty of attractions. Either way it is a company worth watching.
--------------------------------------------------------------------------------
PREVIOUS PAGE / PRIVACY / JOIN US / CONTACT US
Copyright © 2003 MINESITE. All rights reserved.
