Wednesday, August 04, 2004 SHERLOCK Bay Nickel Corporation looks set to become a major low-cost environmentally-friendly nickel producer at just the right time.
Sherlock Bay Nickel Corporation Ltd has entered the final stages of approval for its Sherlock Bay nickel project near Karratha in Western Australia and looks set to reap the benefits of entering a market eager to source new product.
As ResourceStocks went to press Sherlock Bay had completed native title negotiations and was waiting on development approval for the $30 million project and an anticipated significant resource upgrade. A bankable feasibility study was also in the final stages of completion and talks with a number of parties for life-of-mine contracts were well advanced.
Sherlock Bay is coming together at a time when the world is running at a nickel deficit. London Metal Exchange stockpiles are low at under 10,000 tonnes and nickel prices have more than doubled over the past 12 months to above $US12,000 per tonne.
Recent recoveries in the United States and European markets, combined with continued improved economic conditions in Japan and strong growth in China have fuelled demand for stainless steel, the largest consumer of nickel.
In May the International Stainless Steel Forum forecast a 6.8% rise in stainless steel production in 2004 to 24.4 million tonnes, compared to 22.7Mt the previous year.
Importantly for an Australian exporter seeking close markets, Asia is now the largest stainless steel producing area in the world. In 2004, Asian production is expected to grow by more than 7% to 11.4Mt after an extraordinary high increase of almost 18% in 2003.
It's all good news for Sherlock Bay, which is on track to commence production in mid-2005 at a mining rate of two million tonnes a year to produce a nickel hydroxide concentrate containing 8,000t of nickel metal, 1600t of copper and 200t of cobalt.
Located 100km east of Karratha on the Pilbara coast the deposit is close to a sealed highway, existing powerlines, a gas pipeline, and handling facilities at the Port of Dampier. The project is economically robust and once it ramps up, cash costs are expected to be among the lowest of the nickel producers.
The Sherlock Bay deposit was discovered in the 1970s by United States-based Texasgulf. The US company undertook an extensive drilling and metallurgical testwork program and uncovered a sizeable pre-Joint Ore Reserves Committee resource of 75Mt at 0.5% nickel. Although a recovery rate of 86% nickel was established, the Australian/American exchange rate of $A1.45 to the $US1.00 made it an uneconomic deposit.
The deposit eventually found its way into the hands of Boris Gerick. Gerick had his own exploration and drilling company and was also a founding director of Goldminco Ltd. In June 2002 he was appointed as a director of Central Kalgoorlie Gold Mines Ltd (CKGM) and in April 2003 took over as managing director.
The Sherlock Bay deposit was sold into CKGM and Gerick emerged as the company's largest shareholder. In December 2003 CKGM changed its name to Sherlock Bay Nickel Corporation Ltd to reflect the company's new focus on its prime asset, a 100% interest in the Sherlock Bay deposit.
Since then it's been a busy 18 months on a number of fronts. Gerick implemented an intensive drilling program to prove up the potential of Sherlock Bay to a JORC standard.
The result to date is a measured resource of 9Mt at 0.53% nickel and 0.10% copper from two drilled orebodies.
And the prospects are good for additional increases.
Gerick said: "It is looking more and more likely the Discovery and Symond's deposits will join up, forming a strike length of about 1.6km with an average width of about 23.5m and a very consistent grade. We also have other targets to drill over the 17km strike length of the tenement and have been picking up additional land in the area".
He said he was confident of a substantial resource upgrade and a mine life in excess of 10 years.
On another front Sherlock has been working with Titan Resources NL subsidiary Pacific Ore Technology to find the most efficient recovery method for extracting the nickel from the ore utilising advancements in their BioHeap™ Leach method -- and the results have been exciting.
Pacific Ore developed the BioHeap™ saline proprietary bacterial heap leach technology over four years at Titan's Mt Sholl 17,000t pilot plant near Radio Hill in WA. Its application to Sherlock Bay has shown recovery rates of 91.6% nickel and 84.5% copper over a relatively short recovery period of 37 days.
SHERLOCK has an ongoing agreement with Pacific Ore that gives it access to all data and human resources developed at the Mt Sholl pilot plant as well as any further refinements developed in their proprietary technology. The company has already employed Colin Molloy to head up the project; Colin was project manager of the heap leach at Mt Sholl for Titan when the pilot plant trial was conducted.
By utilising the BioHeap™ Leach extraction method Sherlock Bay will produce a nickel cobalt hydroxide able to bypass the smelter process and be sold straight to the refinery. This is expected to result in significant cost savings and a potentially higher return to the producer than available with a concentrate, which will reflect well on the bottom line.
The low cost, high recovery method is expected to put Sherlock Bay in a position to become a major player in the production of refinery feed nickel products for many years to come and circumventing the smelting phase means significant reductions in greenhouse gas emissions.
Gerick believes the environmental benefits of the mining and processing method to be used at Sherlock Bay have the potential to revolutionise nickel production in the years ahead.
In a research report on Sherlock Bay Perth-based Montagu Stockbrokers said: "The improvement in the nickel price over the past 12 months has seen a number of companies aggressively pursue the development of their projects bringing them closer to production status. At the same time there have been a significant number of nickel exploration companies that have successfully sought to list on the Australian Stock Exchange.
"This activity has created a significant level of interest by investors in the sector as some outstanding increases in investor value have emerged. We consider Sherlock Bay compares favourably with other prospective nickel producers in its potential to provide investors with value appreciation".
The BioHeap™ saline proprietary technology, very clean nature of the orebody and the low magnesium content of the Sherlock deposit are all contributing factors to the company's "potential" to provide shareholder value through the production of a low cost nickel refinery feed.
Gerick said Sherlock could produce a nickel cobalt hydroxide containing 30% nickel at about $US3500 per tonne. The ability of the product to feed directly into a refinery is also expected to allow Sherlock to seek a premium price on its product.
Sherlock Bay is currently in the process of negotiating off-take agreements with potential clients as well as arranging funding for the project. The expectation is the development will be 100% debt-funded with shareholders unlikely to be asked to contribute additional funds.
Gerick's aim is to build the company into a major low cost environmentally friendly nickel producer supplying product directly to the refineries. The building blocks required to achieve that target are now rapidly falling into place.
If the group can meet its goals over the next 12 months it will be the sole owner of a modern low cost nickel mine in a region with expected high demand for stainless steel and other nickel based products into the foreseeable future. It's an enviable position.
* This report, first published in the June/July 2004 edition of RESOURCESTOCKS magazine, was commissioned by Sherlock Bay Nickel Corporation
SHN Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
(20min delay)