and so say all of us

November 30, 2010

Metals X Already Has A Big Chunk Of The World's Tin Production, And Now It's Looking To Add A Serious Nickel Capability Too.

By Charles Wyatt / www.minesite.com

London will be over-run by mining men from all over the world this week, as they try to promote their companies at the annual shindig run by the Mining Journal in Islington. One of the games played by investors is to try to find junior mining companies who have not visited London before and then to pin down why exactly their plans changed this year. Usually it is because things have gone a whole lot better than expected and/or they want to raise money - few pay for a booth in order to admit that things are not going to well. The Australian company Metals X seems to be an exception to these rules, though, as chief executive Warren Hallam admits that he has not carried out any promotion in London before and thinks it is time he did. And so say all of us - as Metals X is not only Australia's biggest tin producer, but it also owns the Wingellina nickel project in Western Australia, the 11th largest nickeliferous limonite resource in the world.

It is also interesting to note that Metals X has strategic holdings in a number of other Aussie companies, including Westgold Resources, Aragon Resources, Jabiru Resources and Agaton Phosphate, which means it has exposure to copper, gold, phosphate, lead and zinc. And it's even more interesting to note that Jinchuan Group, China's largest nickel producer, has a 14.8 per cent holding in the company, and that APAC, an investment group out of Hong Kong has a holding amounting to 29.1 per cent of the equity. Andrew Ferguson, chief executive of APAC, is very well known in London and is an old friend of Minews. He was contacted briefly between meetings and was happy to give a strong thumbs-up to Metals X.

And the company's connection with China isn't just in the nickel space. Yunnan Tin is a 50 per cent shareholder in the Metals X's Renison mine in Tasmania. This mine is currently producing over 8,000 tonnes of tin metal per year, which is around 2.5 per cent of the world's supply. The cash operating cost averages A$10,000 per tonne which, when compared with the current world tin price of US$24,095 per tonne, gives a clear insight into just how profitable the operation is. Plans are now in hand to exploit the tailings from the Renison Tin Concentrator via the Rentails expansion project which is being undertaken in conjunction with Yunnan Tin. This expansion should take total tin production over the 13,000 tonnes per year mark in 2012.

Demand for tin remains strong, with increasing usage in computers, cars and the electronic industry. The price is a little below a recent peak of US$26,400 per tonne, but Warren is confident that the application of new technology and tin fuming makes an additional 4,500 to 5,500 tonnes of tin a year well worth recovering from the 19 million tonnes of tailings. The cost should be around A$11,500 per tonne. His confidence is boosted because supply has weakened this year, to the extent that a deficit of 24,000 tonnes is forecast by BMO and the tin industry body, ITRI. This deficit is expected to increase in 2011. A major factor is Indonesian production, which is falling, although the supply issues are not helped either by conflict problems in the eastern provinces of the Democratic Republic of Congo, which accounts for five per cent of global supply.

Copper also comes into the reckoning here, as the Rentails resource contains copper at a grade of 0.21%, compared with tin at 0.44%. It is therefore reckoned that production should run at between 1,500 and 2,500 tonnes of copper per year, and this will be credited as a by-product in order to keep cash costs of production as low as possible. Even so, it's nickel that may end up being the tail that wags the dog. Nickel laterites are now back in vogue and Metals X's Wingellina deposit is one of the few not owned by a major nickel producer. It has a resource of 183 million tonnes at 1% nickel and 0.08% cobalt with 92 per cent of this in the reserve category as defined under JORC, so it should be capable of producing 40,000 tonnes of nickel and 3,000 tonnes of cobalt in concentrate per year over a 40 year mine life.

Wingellina has only been drilled along 10 kilometres of strike out of a potential total of 80 kilometres, so there's clearly lots of potential for more resources. It is distinguished from other operating nickel laterite deposits in Australia, as the ore is limonite which has a low magnesium content, and can be mined without blasting. A Phase One feasibility study was carried out back in 2008 based on the idea of processing the nickel through a High Pressure Acid Leach plant to produced a mixed nickel-cobalt hydroxide. The price of nickel was taken for this study as US$20,000 per tonne, cobalt at US$20 per pound and the currency exchange as A$0.85:US$1.00. The metal prices are conservative, but that Aussie dollar price looks like it'll need tweaking a bit - the current rate is more like A$0.96 to the greenback.

Since the feasibility was completed the focus has been on final approvals and financing options. The betting is that the Jinchuan Group, possibly aided by APAC, will come up with most of the development capital, which is currently estimated at A$2.23 billion including contingencies. According to Warren Hallam the resulting EBITDA would be nearly three times that of the tin operations so it would definitely a case of tail wagging dog. Metals X currently has A$55 million in cash and its strategic investments are worth A$100 million, so dilution should not be too drastic. There seems to be an expectation that Warren will have more to say on this while he is over in London, but since arriving here he has confirmed that the official announcement is actually likely to be made early in the New Year.