Page 18 - pd248 April17 mag-web

NEWS

Western Areas begins
Odysseus journey

Western Areas Ltd has moved quickly Dan Lougher company recently upgraded production
to validate the acquisition of the guidance for Forrestania’s high-grade
Cosmos nickel complex from Glencore Assuming surplus pre-tax net cash flow Spotted Quoll and Flying Fox mines to
subsidiary Xstrata Nickel Australasia Op- of $580 million, payback from the start of 25,000-26,000t mine production and
erations Pty Ltd. production could potentially be achieved 22,000-23,000t nickel-in-concentrate at
in 3.5 years. unit cash costs of $2.35-2.50/lb.
Upon breaking the shackles of debt in
2015, Western Areas purchased Cos- Post-start up annual pre-tax free cash Lougher said improvements to metal-
mos, which included the Odysseus un- flow is estimated to be $100 million, with lurgy, plus huge upside below Odysseus
derground play, for a total consideration Western Areas factoring in life-of-mine and at the adjacent M5 and M6 deposits,
of $24.5 million. C1 cash costs of $3.21/lb, including co- would be compelling reasons behind im-
balt by-products, and AISC of $3.69/lb. provements to the base case scenario of
Within 18 months of the acquisition, the PFS.
Western Areas has delivered a PFS on A cash breakeven price of $6.09/lb (on
re-opening Cosmos and mining Odys- an undiscounted basis) and life-of-mine Lougher also expects circumstances
seus potentially by the end of 2020. First sustaining capital expenditure of $68 in the Philippines and Indonesia to have
concentrate delivery would be set for million are also assumed, with capital settled down in the back half of this year,
early 2021. requirements of $7 million this year and as the company progresses one of the
$34 million budgeted for CY2018. few nickel developments in the world.
Managing director Dan Lougher said
the positive Odysseus PFS was merely The advantage Western Areas de- “Out of Western Australia there is Sa-
a bonus to Western Areas’ overarching rives from acquiring a former operation vannah North and Nova, which has been
strategy for completing the deal. – “which could be switched on tomor- built. I am not aware of any other projects
row” – is having existing infrastructure to coming on line,” Lougher said.
“At the end of the day, we bought Cos- work with, which means it has been able
mos for exploration, mainly that southern to curtail pre-production capital expendi- The company received a mixed reac-
tenement block where we have drilling ture to $190-210 million, including PFS, tion upon releasing the PFS, an indica-
at Neptune happening right now. That DFS and contingency costs. tion that perhaps the market isn’t seeing
programme has been really successful the restart of Cosmos in the same light
in finding nickel which will report to the Commissioning of Cosmos Odys- as Western Areas.
Cosmos mill. So, that is justification for seus would hand Western Areas a sec-
the $24.5 million deal. Additionally, the in- ond production centre to complement “We were using a consensus price
frastructure we have at Cosmos – to buy its flagship Forrestania operations. The deck – pretty much a bit of everybody’s
that today would be a couple of hundred pricing. This is not a today project, given
million dollars,” Lougher told Paydirt. that the breakeven price is basically what
spot is today,” Lougher said.
The company will carry the momentum
from a positive PFS straight into a DFS “We have got the potential now to basi-
costing $5-7 million and scheduled for cally do the capex in instalments. If we
completion in Q1 CY2018. do the DFS by Q1 next year, then we can
start evaporation ponds, dewatering, re-
The parameters Western Areas is habilitation and we can stop at any stage.
working within is a mine life of 7.5 years We are not building a greenfields site; we
for production of 4.9 mtpa @ 2.3% nickel are seeing this project come to fruition in
for 12,000 tpa nickel-in-concentrate to- the next three years. We are not actually
talling 87,000t nickel metal. spending a huge amount of capital, so
we can temper what we are going to do.”
Estimated financial returns include a
pre-tax NPV of $292 million at $US7.50/ Boasting “one of the cleanest” balance
lb, based on an exchange rate of 75c. sheets in the industry – no debt and cash
and receivables of $124.7 million – and
Western Areas Ltd completed a farm-in JV agreement in March with Kidman Re- on track to deliver a full-year dividend,
sources Ltd for lithium and lithium by-product rights over the northern Forrestania tene- there are multiple funding options avail-
ments. able for Western Areas to consider to de-
velop Cosmos.
Western Areas retains all the rights to the non-lithium tenements.
By spending $5 million over three years (minimum $1.5 million in first 12 months), Kid- “We have cash at bank, cash flow from
man can earn 50%, while Western Areas can co-contribute to further exploration on a operations, equity markets [are open
50:50 basis at the end of stage one. to us]. We can do convertible bonds,
If Western Areas decides not to participate at the end of stage one, Kidman can earn which are really cheap. We haven’t re-
70% by spending a further $4 million over two years. Should stage two be completed, ally opened up that book [on funding]
Western Areas remains free-carried to a decision-to-mine. because it is not really a problem for us
Initially, Western Areas will receive 6.3 million Kidman shares to be escrowed for six to generate money to pay for it,” Lougher
months and has the right to appoint a non-executive director to the Kidman board within said.
three months from the date of the agreement.
– Mark Andrews

PAGE 18 APRIL 2017 AUSTRALIA’S PAYDIRT