a follow on from gtn posting, page-17

re: hrr a follow on from gtn posting BHP Billiton's decision to commit $2 billion to a Western Australian laterite nickel project, coupled with the lessons learnt from the Cawse processing experience, have flow-on benefits for emerging junior Heron Resources. By Michael Quinn - RESOURCESTOCKS

After spending $85 million and six years on testwork, BHPB recently committed around $2 billion to developing a nickel laterite project at Ravensthorpe in Western Australia. The implications of this decision cannot be underestimated. This is the same company which suffered a couple of horrendous development setbacks in the 1990s – think Beenup mineral sands and the HBI plant at Port Hedland – debacles that cost board and management positions following the wrath of the market.

Yet despite this recent history of misadventures, BHPB is developing a project which ostensibly uses similar technology - Pressure Acid Leaching - to that which wreaked havoc with the three companies who also utilised the technology in the late 1990s.

Two of the Australian pioneers subsequently went into administration, and the third (Minara Resources, formerly Anaconda Nickel) is more or less unrecognisable after nearly going to the wall and being totally restructured and recapitalised. However, amongst the carnage there has emerged a few positives, in particular the operational performance of the Cawse laterite nickel project.

While too small to be a commercial success, Cawse is regarded as the standout of the three in terms of operational efficiency. No surprises then that BHPB will utilise much of the Cawse experience at Ravensthorpe – including former Cawse "supremo" Ken Hellsten.

For Heron investors, the good news is that it's also the process route upon which Heron plans to base its so-called Kalgoorlie Nickel Project (KNP). Moreover, it will even process exactly the same mineralisation as Cawse given its ground surrounds Cawse and hence also takes in the so-called Walter Williams Formation which hosts the laterite ore.

Recognised as one of the critical reasons for the success at Cawse was the ability of that operation to beneficiate, or increase, the feed grade of the ore to be fed to the plant via screening out the barren silica.

"One of the lessons of the first generation of Australian [laterite] developments is that a leach feed grade of at least 1.3% nickel is required to cover the capital and running costs of the leaching circuit, considering long run nickel prices of $US3.50 per pound," independent analyst John Macdonald said in a report commissioned by Heron.

The reason for this is that the costs of mechanical mining and screening processes are insignificant relative to the expense of running and maintaining a set of autoclaves and associated pipe work under high temperature, high pressure, acidic conditions.

Hence, points out Macdonald, as long as the tonnages are available, any means of increasing the leach feed grade is likely to improve project economics, regardless of the mass of nickel lost from the starting resource during mining and screening.

Tonnage is definitely one aspect Heron's KNP has covered in spades. It contains a massive resource of 891 million tonnes grading an average of 0.74% nickel and 0.05% cobalt. (As a comparison, BHPB has 253Mt grading 0.69% nickel at Ravensthorpe and Cawse had 275Mt grading 0.7% nickel and 0.04% cobalt at commissioning).

Following screening of siliceous ore, Heron currently estimates that available mill feed is 122Mt grading 1.5% nickel and 0.1% cobalt, equating to 1.8Mt of nickel metal. Indications are that a modelled grade of up to 1.7% nickel over the first seven years can be achieved through selective mining, with processing to take place at an annual rate of around 4.63Mt.

Heron anticipates the project, producing around 50,000tpa of nickel and 3000tpa of cobalt in a mixed intermediate product ready for refining, will cost in the order of $1.4 billion. At a nickel price of $US3.50/lb – though nickel was recently trading at a price well over twice that – the project will have an IRR of about 25% and an estimated NPV (net present value) of $607 million at a discount rate of 10%.

The KNP will typically generate annual revenue of around $710 million with corresponding operating costs put at $312 million, for a yearly pre-tax profit of $276 million after refining and capital replacement charges.

However there is a long way to go – as evidenced by Heron's market capitalisation of around $35 million. Screening tests to date have backed the company's confidence that an enhanced feed grade can be achieved, but much additional testwork is required to ensure the confidence of outsiders.

As is drilling. Heron believes it will need to carry out a further 150,000m of RC drilling, 10,000m of diamond drilling, 2500m of wide diameter Calweld drilling, 100 bulk metallurgical samples, engineering design studies, and baseline environmental surveys to convert the current mineral resources to ore reserves. All up, around $15-16 million is likely to be needed.

Macdonald has a relatively simple take on the situation for shareholders and would-be investors.

"Other technical issues will remain to be studied, including the procurement of acid, the ore leaching characteristics, the cost of infrastructure and the form and destination of an intermediate product," Macdonald maintains.

"However the resource and screening behaviour probably account for about 80% of the project risk.

"If Heron can satisfy the major mining houses that the KNP resource is capable of annually producing 50,000t of nickel in better than 1.5% material to a set of autoclaves for at least 20 years, than Heron can expect to be knocked over in a rush."

Heron's managing director and major shareholder, Ian Buchhorn, said while the junior will at some stage bring in a major partner, he was confident of funding being available for the various feasibility stages.

In recent months Heron's stock has moved into a higher trading range on two distinct occasions. When the resource for the KNP was announced shares moved from around 12c to around 20c, and when results of the scoping study were released, they began trading upwards of 24-25c to a high of 34c.

Buchhorn expects further re-ratings to occur over the course of 2005, with a critical milestone being confirmation of the beneficiation testwork. A pre-feasibility study is targeted for completion by the end of 2005.

Assuming all goes as expected, a full feasibility will be carried out over 2006, leading to development, construction and first production in 2007-08.
be good
simon