enk goes for dso for cashflow

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ENK, Previously European Nickel, Goes For Early Cash Flow From Direct Shipping Ore
By Charles Wyatt



When European Nickel and Rusina Mining merged last summer to create the entity now known as ENK, there seemed little doubt that this was a sensible combination, as the companies were very close, had similar nickel laterite projects in Turkey and the Philippines respectively, and shared the technology to exploit them. Since then, however, events have moved in unexpected ways, and what was originally billed as a merger now looks like a reverse takeover in all but name. For a start, the Turkish Government, despite a mass of assurances that the project was on track to receive its forestry permit, failed to deliver. At the same time ENK had had to put up with prolonged negotiations with two potential partners on the Caldag project in Turkey. Jiangxi Rare Earth and Rare Metals Tungsten Company, was going to inject US$20 million for a 22 per cent share in the project, while China Tianchen Engineering Corporation was going to help find the capital required for development.
Clearly, the Canadian group Hunter Dickinson was confident that both these deals would materialise when it entered into a strategic partnership with ENK last July, and took an initial placement of shares at 32p to raise ?3.36 million. There was also supposed to be a second tranche of this placement, priced at 40p for ?55 million, but this never materialised, as it was contingent on the project finance being put in place. This simply did not happen, even though executive deputy chairman Simon Purkiss had given up on the Chinese by then, and was pursuing funds from Western banks instead. But the new board of ENK had run out of patience with the Turkish Government and put Caldag on care and maintenance in December. At the same time, the offtake agreement that had been signed with BHP Billiton for the project?s mixed hydroxide product was also terminated.

But that?s no bad thing at all, as managing director Rob Gregory pointed out on the telephone from Manila, when Minews rang him up for a chat. The product is an extremely high grade concentrate, for which there are a number of potential takers at prices higher than originally agreed, and negotiations with them will start as soon as the forestry permit for Caldag is received. A new offtake agreement might even cover the equity portion of the capex for the project.

In the meantime, Rob confirmed that the company is well funded to carry out site work this year and to complete the ongoing definitive feasibility study at Acoje, on Luzon Island in the Philippines. Not only did ENK raise ?11 million from a placing earlier this month, but it is also expecting a refund of around US$3.5 million for the forestry permit fee, which should be received at any moment. The current expectation is that the permit will be received by the end of this year, after the Turkish election due in June. At that point the board of ENK will then reconsider matters. In the meantime it should also accrue payments on various items of plant which can now be sold for higher prices rather than lying around in sheds.

So after so many false starts, when can ENK expect to start generating cash flow? The answer comes in two parts. The conventional project at Acoje will be fast tracked, but even so, progress is bound to be limited until the feasibility study is completed and required capital raised. However, the company?s technical team has now been transferred from Caldag to Acoje, which should focus minds, and a significant amount of metallurgical and engineering data is also readily transferable.

Just as important, a decision has now been taken to start a direct shipping pre-operation at Acoje. Plans for direct shipping were first formulated earlier in the decade, and the operation would have been economic had the price of nickel not slipped, at which point the idea was put on the back burner. Now the price of nickel has improved, the direct shipping file has been taken down from the shelf and dusted off, with a view to starting as soon as possible, given that Acoje is fully permitted already.

The definitive feasibility study on the Acoje project got underway in March 2009 following a pre-feasibility which confirmed it as an economically viable nickel heap leach project producing 24,500 tonnes per year of mixed hydroxide product over an initial ten years. That study was carried out using prices of US$7.00 per pound for nickel, and US$10 per pound for cobalt. The current prices of these two metals are US$12.65 per pound for nickel and US$20 per pound for cobalt, so the previous net present value of US$586 million will be left far behind, as will the previous internal rate of return, of 37.2 per cent.

Moreover, the initial mine life will be just about doubled to twenty years if inferred resources are upgraded to the indicated category. More resources should also materialise from drilling. Much reliance can be placed on the recovery capability of the low cost, heap leach technology that will be used, as tests have been extensive. A metallurgical laboratory has been operating for 30 months and a 2,500 tonne heap leach and integrated downstream nickel and cobalt recovery process plant is now starting to operate. Rob Gregory is reasonably confident that nickel and cobalt recoveries can be improved to produce a higher-value end-product than was envisaged in the pre-feasibility study.

This is all good news, which investors should take on board, even as they face a bit of a wait this year for the result of the definitive feasibility study. In the meantime they might like to ruminate, Rob suggests, on what might have happened to the two companies if they had not merged. European Nickel might be heading for the knacker?s yard without a project, while Rusina would have a project, but no technology. While they wait, investors might also like to dream up a better name than ENK, which is totally unmemorable, since it always helps if the name of a company sticks in the mind. Send any suggestions to alastair[at]minesite.com, and if the new board takes up the new idea a small prize will be forthcoming. Lastly Rob wants shareholders to gain comfort from the realisation that the net present value for Acoje alone is far higher than the current market capitalisation of the company.