WeeklyComm8July2023.pdfArdea surges on deal with Japanese and PFS
Ardea Resources surged last week on news of a deal with
Sumitomo Metal Mining, Mitsubishi Corporation and Mitsui,
three heavyweights from Japan. Although the MoU is nonbinding, it nevertheless is good testament to the quality
Kalgoorlie Nickel Project - Goongarrie Hub.
The first step is to define a scope of work for a Definitive
Feasibility Study, which will be funded by these three
companies. That is good news for Ardea, not just in being
free carried through this stage with a cost potentially in the
order of $50m, but because the Japanese Consortium will
likely be doing it to the high standards it wants, rather than
picking apart one already completed by the Company.
There are still quite a few details that have to be decided,
such as equity in the project and joint venture terms, but it
is a good start.
Positive PFS as well
Additionally, a very positive PFS was released by Ardea
last week, based on a 3.5 Mtpa operation that would
produce an average of 30,000 tpa of nickel and 2,000 tpa
of cobalt, over a 40 year mine life. This is going to be a low
grade mine with reserve grades of 0.7% Ni, and 0.05% Co,
yet it still has an excellent capex payback period of only
three years. That is unusually short for a project of this size.
The economics are obviously enhanced by the low waste to
ore ratio of only 1.5:1 for the first 35 years. Another
impressive figure is the average annual EBITDA of $800m.
The capex of $3.1bn would normally be intimidating, but
that becomes manageable when you have the three
heavyweight Japanese companies stepping up to the plate.
All up, it is a great achievement by Ardea to get to this
point. There is still heavy lifting to be done with a DFS likely
to take 12-18 months to complete, and construction could
easily be another couple of years once a commitment is
made, but this is a reflection of the size of the project. The
partners will want it done properly. It might become too
serious for the punters in the market but it will nonetheless
offer useful leverage for those who want a proxy for the
nickel price. Longer term investors should be able to take
positions with confidence, knowing that this promises to be
a very profitable project.
The Bottom Line
The deal announced by Ardea is an example of what can
be done with very large strategic mining projects if you get
the right parties involved, and the project has real merit.
Normally the investors are intimidated by the amount of
equity capital required by juniors for projects this size. That
is why it is such a win for the company to have secured the
participation of the Japanese Consortium. The risk profile
for the development has been significantly moderated with
the announcements today.
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