You are on page 1of 2
REACTIONREACTIONREACTIONREACTION NOTENOTENOTENOTE European Nickel ENK.L Progress update on Caldag nickel mine Buy 35.75p


European Nickel


Progress update on Caldag nickel mine

Buy 35.75p mkt cap £132.7m

Target Price: 57p

Last Different Recommendation: None

MetalsMetalsMetalsMetals &&&& MiningMiningMiningMining

13 July 2006

Reserves off

Estimated Project Evaluation Results (60%debt)



@ 0.6% Ni Cut off Ore Mt Proved Probable







IRR NPV Payback

Ni Production Co Production Long Term Nickel Price Long Term Cobalt Price Operating Cost Capital Intensity


Capex Heap Leach & Processing Plant Acid Plant Infrastructure EPCM Pre-Operating expenditure Owners Cost Contingency Total Capex


Financing Total Capex Escalation Working Capital Interest and Financing costs Total Development cost





5 uears










Nickel %













Source: European Nickel

Following a recent site visit to European Nickel's Caldag deposit, work appears to be progressing well in the development of a 20,400tpa nickel plant. The company has developed a heap leach process, similar to that used for copper heap leaching. It is extracting nickel from nickel laterite deposits at significantly lower capital cost than other technologies being developed and used on these types of deposit e.g. high pressure acid leaching.

Nickel laterites are the most common form of deposit and could dominate new scheduled nickel supply. However, the low grades, high costs and frequent technical problems have inhibited their development in the past.

The Caldag deposit contains proved and probable reserves of 33.5mt of ore at 1.14% Nickel and is expected to produce 258kt of nickel over a 15 year mine life. Mining at Caldag will be achieved via three open pits:

! Doktor Pit = 4.5mt @ 1.22% and strip ratio of 2.8

! Pig Valley Pit = 19.0mt @ 1.21% and strip ratio of 4.5

! South Pit = 9.8mt @ 0.94% and strip ratio of 6.6

Operations will start at Doktor Pit due to its higher nickel content and lower strip ratio. Whilst in production, mining at Pig Valley will commence. Lastly mining will take place at South Pit in years 10-15, which are likely to be the least profitable pit due to the higher strip ratio and that this part of the deposit contains more calcium carbonate, which raises the acid demand for ore treatment. Acid production will be raised to treat this ore, but ore treatment is due to drop from 2.5mtpa to 2.0mtpa of ore.

European Nickel’s specially developed heap leach technology is expected to extract 80% of the nickel and 84% of the cobalt contained. The ore is leached on pads with sulphuric acid for around 18 months. A series of

For Disclaimer and Terms of Use - see overleaf or Numis website.

ponds collect the run off from the pads and hold the liquour at various stages of concentration and either re- circulates it over a pad or enters the nickel removal process.

Once at a sufficient nickel concentration, the liquour is treated to remove the nickel. The first stage of separation precipitates out iron by adding limestone, the second stage has soda ash added to produce a first nickel product and a third stage precipitates out a second stage nickel product. The remaining liquid is re-circulated back to the ponds and where sulphuric acid will be added to re- acidify and continue the leaching.

The two nickel separation stages produce two different products, which have been proved to be treatable at smelters: The first product is 36% nickel, 1-1.4% cobalt and less than 2% manganese. The second product is 22% nickel, 0.6-1% cobalt and less than 10% manganese. Both products are a green cake that then gets bagged for shipment in containers. The pilot plant’s product has high moisture content of around 65%, although more effective drying/pressing equipment will be installed to reduce this significantly on the final plant. Methods to do this are being investigated.

There is the possibility of altering the output of the ratio by 30-70% between the two products. The advantage of this is that the two products can be blended and that there is a degree of control to produce a final single product that is optimised for the relevant smelter/refiner that will take the material.


John Meyer

020 7776 1578

Marc Elliott

020 7776 1464

Simon Toyne

020 7776 1579

REACTIONREACTIONREACTIONREACTION NOTENOTENOTENOTE The technology to develop the heap leach treatment process has been


The technology to develop the heap leach treatment process has been developed with BHP Billiton, which has opted to take 100% of the nickel output of the project. European Nickel views this as positive news and the conditions of the agreement are under discussion. It could be advantageous to European Nickel, for BHP to take ownership of the product at port and ship it to the desired smelting destination. Once possible reason is that BHP can no doubt get cheaper shipping terms than European Nickel due to its size and the volumes it already ships.

Mining is scheduled to start late this year and the first heap stacked by April 2007. First nickel production is due in October 2007 in conjunction with the plant start up, with full production reached by early 2009. US$4.2m worth of orders have been placed for long lead items and a further US$11.5m approved for further orders.

A key step in development will be the acid plant due to start up in June 2008 which will also generate 30MW of power, of which 15MW will be consumed on site and the remainder sold to the national grid. Prior to the startup, sulphuric acid will need to be imported for the leaching process by road. A road is being constructed to the site due to be complete in February next year in time for acid deliveries. The acid purchases will be short of full production requirements hence the importance of the acid plant. The acid plant will allow full production and improve the project economics significantly. Doubtless the company will try to bring the start up date forward if possible.

The whole operation is zero discharge and will consume 3 million cubic metres per year largely from the local river

MetalsMetalsMetalsMetals &&&& MiningMiningMiningMining

and any shortfall to come from nearby boreholes. Water will be lost from the process through evaporation, hence the net demand for water despite zero discharge. The company will be taking precautions to ensure the land is regenerated when mining is completed.

The pilot scale plant has shown the process to be robust, comparatively simple versus what is taking place for other nickel laterite deposits, e.g. Inco’s Goro project using high pressure acid leach due to cost US$2.2bln for 60,000tpa, versus European Nickel’s process which is expected to cost $310m (including financing costs, US$254m excluding financing costs).

The company expects that payback will take 5 years, but this is based on a long-term nickel price of US$4.25/lb and cobalt price of $10/lb, both of which may be conservative. Current nickel prices are well over US$10/lb and cobalt is around $14/lb. Using cobalt and power as credits, the company expects operating costs of $1.18/lb of Nickel. The project is highly cost competitive and even in a poor pricing environment then the project would add value.

The company currently has 371m shares in issue and at 30 June had US$156m in cash following an £85m raised through a placing in May. Further funding requirements should be raised through debt.

This document has been approved under section 21(1) of FSMA 2000 by Numis Securities Limited (“Numis”) for communication only to market counterparties and intermediate customers as those terms are defined by the rules of the Financial Services Authority. Its contents are not directed at, may not be suitable for and should not be relied on by private customers. Numis does not provide investment advisory services to private customers.

Numis regards this document as objective research material. It does not constitute a personal recommendation and does not constitute an offer or a solicitation to buy or sell any security. Neither Numis nor any of its directors, officers, employees or agents shall have any liability, howsoever arising, for any error or incompleteness of fact or opinion in it or lack of care in its preparation or publication; provided that this shall not exclude liability to the extent that this is impermissible under the law relating to financial services. All statements and opinions are made as of the date on the face of this document and are not held out as applicable thereafter.

This document has been prepared for persons in the United Kingdom and is not intended for distribution or use outside the United Kingdom and in particular is not for distribution in and is not directed at persons in the United States or Canada.

See ( for important legal information and for a list of significant items which could create a conflict of interest and other material interests in relation to research material. See also ( for the full text of Numis’ disclaimer.

In longer pieces of research material the basis of forecasts and target prices will be set out; in shorter pieces there is a cross-reference to the archive of research material on the Numis website where, under the appropriate company name, details of the basis can be viewed. Longer pieces of research material will identify material sources; shorter pieces are normally based on company announcements made through the Regulatory Information Service. In those cases (but not otherwise) where the subject company has seen the draft research material and has suggested factual amendments which are incorporated by the analyst, this will be noted on the research material. This applies normally only to longer pieces. For research material on the Numis website (available to all customers who normally receive Numis research material) – see

In longer pieces of research material the risk warnings (if any) attaching to a particular company will be set out; in shorter pieces there is a cross-reference to the archive of research material on the Numis website where, under the appropriate company name, details of such matters can be viewed. For research material on the Numis website (available to all customers who normally receive Numis research material) - see

Research material will carry the date of publication or, on a research circular printed overnight, the date on which it was sent to the printers. Where a price is quoted in research material it will generally, in the absence of contrary words, be the latest practicable price prior to distribution or, in the case of a research circular printed overnight, the closing price at the close of business.

The tariff for recommendations is set out in the Numis website, together with the relevant time horizon. A chart showing the recommendation history for each company covered for the past twelve months is set out under the appropriate company name in the archive of research material contained in this website and is available to all customers who normally receive Numis research material. There is also available on this website an analysis of the split of recommendations over the past quarter for all subject companies and for corporate clients. For this information - see © Numis Securities Limited.

Related Interests