have we been beaten to the punch?

To manage reagent costs, Proto Resources aims to incorporate these
lower cost leaching methods with innovative recycling technology.
Processing nickel laterite involves leaching the nickel with acid, which
forms the primary operating cost. Acid prices have been unusually
volatile of late. After ranging between US$40-90/t since 1980, acid
prices spiked to unprecedented levels in 2008, reaching a peak of
US$390/t in September. By late 2009 the acid price eased to US$100/t,
but over recent months it has since rebounded to US$150/t. Being the
primary operating cost of the Barnes Hill project, the acid price will have
a major impact on its economics.
Figure 2: After decades of relative inactivity, acid prices have become very volatile over
the last two years. As the main operating cost driver for leach based ore processing, the
volatility has caused enormous headaches for nickel laterite projects. Proto aims to
mitigate acid price risks by recycling it. Source: Bloomberg, Purchasing Magazine.
To minimise the associated risks, Proto Resources aims to utilise a new
technology that recycles acid and water used in processing, which
could potentially reduce the projects acid bill by 80%. This recycling
technology is controlled by Barrier Bay Pty Ltd (Barrier Bay), in which
Proto is the major shareholder. Commercial testing is well underway
and a scalable pilot plant could be operating by years end. Patent
applications for the technology have been submitted.
Iron Ore Potential
This recycling technology also extracts iron and magnesium from the
ore, turning otherwise waste into potentially valuable by-products. Iron
ore revenues have the potential to significantly enhance the economics
of Barnes Hill. In addition to iron extracted from lateritic ore via
processing, the iron rich nature of the projects overburden could also
become a revenue generator. 2008 drilling confirmed the presence of
an iron cap atop of the nickel ore body. Intersections of 7-19m were
encountered from surface, grading 35-45% Fe. Highlights are shown
below:
16m @ 43.1% Fe from 0m
10m @ 42.1% Fe from 0m
volatile acid price has
impacted economics of
laterite projects in the
past
new recycling technology
could cut acid bill by 80%
iron rich overburden
could be sold to TEMCO
Page 4 of 12
14 April 2010
On tenements adjacent to the Barnes Hill project, iron ore of similar
grade to these assays is currently being mined and sold to the TEMCO
smelter at Bell Bay. Offering further credence to Barnes Hills iron
potential is that Tasmanias two other operating magnetite iron ore
mines, Savage River and Kara, are based on similar resource grades of
between 30-35% Fe.
Preliminary Economics
Through selling Barnes Hills iron rich overburden to BHP Billitons
nearby TEMCO smelter, Proto could effectively turn a large portion of
its mining costs into revenues. However this enhancement along with
savings possible through Barrier Bays recycling technology have not
been incorporated in economic modelling conducted to date.
Proto Resources completed an in house scoping study on Barnes Hill in
June 2008, and provided updated modelling in October 2009. The
remodelled capex figure of $85m was consistent with initial estimates,
of which around $25-30m will be required up front, and the balance for
expanding output once in production. The project is not sufficiently
advanced to carry out a rigorous financial analysis and sensitivity study,
but acid prices and nickel prices are the main X-factors to consider.
The companys base case production scenario assuming a 12 year
mine life, US$7/lb nickel price, US$112.50/t acid price, and applying a
15% discount rate, yielded a net present value (NPV) of $165m.
Proto Resources has suggested that every US$1/lb change in the
nickel price impacts this valuation by ~ $50m, while every US$20/t
move in the acid price has a $20m impact on NPV. Under these
guidelines, recent movements in the nickel price towards US$11/lb
appear to offset appreciation in the acid price to US$149/t. Its
important to emphasise that this modelling doesnt take into account
potential savings arising from reagent recycling methods which Proto
aims to adopt, nor the possibility of additional revenue streams via iron
ore by-products.
Table 1: Results of the remodelled 2009 Barnes Hill scoping study using base case
assumptions. These outcomes do not incorporate potential savings in acid consumption
which Proto Resources new processing technology has to offer, nor additional revenue
from iron ore by-products. Source: Proto Resources.
Barnes Hill Scoping Study - Base Case Scenario
Available Material 8.6 Mt
Average Ni Content 1.1 %
Average Co Content 0.06 %
Projected Leach Recovery Ni 80 %
Projected Leach Recovery Co 70 %
Life of Mine 12 Years
Ni Price 7 $US/lb
Acid Price 90 A$/t delivered
Exchange Rate 0.8 US/Au
Total Projected Capex 85 A$ million
Total Projected Revenue 1526 A$ million
Operating Costs 672 A$ million
Contingency Costs 15 %
Projected Surplus 854 A$ million
Project IRR 55 %
Project NPV (using 15% discount rate) 165 A$ million
scoping study doesnt
incorporate positive
impacts of recycling
technology or iron ore
production