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This article was passed on to me. It is sourced from Minesite.com

July 24, 2008
Think Small, Dig Deeper: Mincor’s Operations At Kambalda Should Last For Decades

By Alastair Ford

Think small and dig deeper. The combination sounds odd, but when you combine it with high-grade ore, a picture emerges which explains why, in a falling price environment, the management at the Australian nickel miner Mincor remains extremely confident about the future. A glimpse of that came this week in the company’s June quarter report which noted record production, falling costs, fresh exploration success and the start of production at new nickel mines. But the real measure of confidence comes from a conversation with Mincor’s chief executive, David Moore, the man who spotted eight years ago a chance to achieve what always eluded the once-mighty Western Mining Corporation (WMC) – the “re-invention” of one of its greatest discoveries, the Kambalda Dome near Kalgoorlie in central Western Australia.

Since Mincor snapped up a controlling stake in Miitel, one of WMC’s mothballed mines at Kambalda in late 2000, it has been on a production and buying spree around Kambalda, which is one of the world’s great sources of high-grade sulphide nickel. Today, Mincor is big enough to divide its operations into two Kambalda divisions, north and south, with 11 separate mines in production, under construction, or subject of a feasibility study. What makes this profusion of mines so interesting is that if a map of their location was overlaid on a map of what WMC was doing between the 1960s and the late 1990s it would be almost identical.

In many ways, apart from ownership of the Kambalda concentrator which is now the property of BHP Billiton, Mincor is what WMC’s Kambalda nickel division might have been if it had stuck around and been able to adjust to modern mining and exploration techniques. One of the keys to working the high-grade shoots of ore which splay out from the Kambalda Dome is the ability to operate small teams of highly-skilled miners rather than using the mass employment approach of an earlier time. A second key is to follow the twisting and turning geological structures which contain the nickel, but which are essentially the lava flows of ancient volcanoes, and which pinch, swell, and dart off in every direction.

“We have a number of ways to continue operating successfully in an environment of falling nickel prices and rising costs,” Moore told Minesite. “One of those is to reduce our mining widths. For the last 18 months, mainly because of the high nickel price, we’ve been using big equipment to achieve a high production rate, at the cost of dilution (mining excess waste). When the nickel price is north of US$30,000 a tonne you take everything you can and you do it quickly. When the price goes down you switch to smaller equipment, take out the same amount of nickel, but at a higher grade because there’s less dilution.”

Somewhat naively, Minesite’s Man in Oz asks whether Mincor is simply high-grading its mines. “No, this is not high-grading,” Moore replied. “High-grading means leaving some ore behind. We’re still aiming for 100 per cent extraction, but we mine the narrow orebodies closer to their true width. It’s less cost effective on an overall tonne of ore basis, but the grade is so much higher that your cash cost per tonne of nickel actually goes down.”

Complex as that might sound to a layman there is proof that it works. In the June quarter, Mincor produced 4,195.9 tonnes of nickel in concentrate at a cash cost of A$6.52 a pound. This generated an operating surplus of A$34.5 million, down on the A$41.5 million of the March quarter, but sufficient to see Mincor end its financial year to 30th June with an operating surplus of A$168.9 million. As important as that pile of cash is, the more significant number was the three per cent reduction in overall cash costs for the financial year. In the hot-house environment of the Australian mining sector, that is a remarkable achievement, and a pointer to why Mincor will remain a leading nickel producer for a very long time.

The questions investors will ask is how long, and how good is the financial outlook? Moore’s answer to those questions is that he sees Mincor producing at a rate of 20,000 tonnes of nickel a year for at least the next 20 years. The reason he is confident that those ambitious twin targets can be met goes back to that original Miitel deal which allowed Mincor to put its foot on one of the world’s great deposits of high-grade nickel. And here’s where this updated look at Mincor introduces the depth factor, because while WMC did a serviceable job in the early years it did not seriously test the structures it was mining at depth, because (a) it was easier to mine near the surface, and (b) the price of nickel was too low, or too erratic to unleash a long-term, at-depth, exploration strategy.

Moore is not hamstrung in the same way, and he has the added advantage of modern exploration tools, continued strong demand for nickel in Asia, and the never-ending problems at the low-grade, laterite nickel mines operated by rivals such as Minara and BHP Billiton. “We are able to bring more intellectual brainpower to each tonne of ore we produce, probably more than WMC had available when it mined at Kambalda,” he said. In theory, Mincor’s advantage gets better as it steps up the use of electromagnetics to detect the contact zone between nickel-rich ore and country rock, and as it starts to deploy an oil-field tool, three-dimensional (3-D) seismic, to get an even clearer picture.

“This is advanced stuff, and we’re assessing a proposition to undertake a major survey in October,” Moore said. “It’s all to do with the geology. All of these Kambalda-style orebodies are on the contact between two rock types. The seismic is to pick out that contact. Once you’ve picked it, maybe you can actually spot the perturbations (deviations) in the contact which could represent an orebody.”

The fact that Mincor is planning 3-D seismic is a pointer to the importance of depth in the next part of Kambalda’s history. “It’s very depth-related,” Moore said. “The thing about the Kambalda Dome is that WMC drilled and drilled, but there was always so much ore there at any one time that they did not have to drill particularly deep holes. There are extremely interesting areas at depth where there has simply been no drilling. This is a tremendously well mineralised domal structure. The depth WMC went to varies. In places they went to between 500 metres and 1,000 metres, but after that there’s nothing.

“Our Otter Juan mine was originally a 300,000 tonne orebody. It was the biggest orebody of high-grade nickel in Australia. That’s the kind of target we’re looking for, and if you can find something that big, even at 1,600 metres, it’s going to be a very rich mine. We’ve already followed Otter-Juan down to 1,400 metres and that’s one of our best mines.” An indication of what might lie at depth in Kambalda’s Otter Juan mine came last month when Mincor reported a 100 metre extension of the structure, including a drill hit assaying a fabulous 12.2% nickel over 3.82 metres.

The work in extending Otter Juan is, arguably, one of the most exciting developments at Kambalda since the original WMC discovery in 1966. It means that Mincor is not just chasing small extensions to its resource base, it is after “Ultra-Sized” nickel ore bodies, the discovery of entirely new, thick and rich, nickel systems, at depth, using a vast array of tools, including the first significant application of 3-D seismic. It is this combination of science in finding new orebodies in an historic mine camp, plus cash flow from existing operations, plus China’s demand for nickel, which continues to make Mincor one of the world’s most interesting nickel miners.