POS can be big, page-34

Hi Fredy

I thought I would just have a go at the valuation taking into process recoveries. What I am trying to say is that 1 tonne of nickel in ore requires 59 tonnes of ore (assuming 1.7% for Windara ore grade) to be crushed, milled, floated and then dried etc.... Generally speaking the recovery varies with the ore characteristics (note Petra Capital used 80%) hence the tonnes of nickel in the concentrate produced is somewhat less than the tonnes in ore. I think 85% is not unreasonable so let's stick with this number.

So unfortunately once we produce our own concentrate at Black Swan we could lose around 15 to 20%. If you refer to my previous posts tonight DS indicated that we could be producing 12,000 to 14,000 tpa early in 2015. For ease of calculations let's say it is 15,000 tonnes of nickel per year.
So after we put our 15,000 tonnes nickel in ore through the concentrator we are left with 12,750 nickel tonnes.

Now we are ready to sell our concentrate to a smelter who will then smelt and refine it to LME grade nickel or on sell it to a refinery. As you can imagine each of these processes lose some nickel hence they won't pay the $20,000 per tonne either. From my memory I think there is a tendency to sell concentrate as a % of the LME price (win / win or lose / lose relationship as price increases or decreases). Note, Petra Capital in their May POS report estimated that we would only be left with 4896 nickel tonnes out of the 8500 nickel tonnes after smelter charges if on selling ore. I think what they were trying to say is that nickel in ore is worth around 58% of LME refined nickel.

Revenue - Now that I have completely confused you I think a reasonable LME % for clean concentrate is around 70 to 72%. Let's assume 72% for this estimate. So after we have produced our concentrate we have 12750 tonnes which we will sell it at 72% of LME (your $20,000 US/tonne). Hence our annual revenue is around A$204 million (used an exchange rate of 0.9).

Costs - I think DS indicated that costs including transport for Windarra ore was approx. $120 per tonne (transport $30 per tonne). I think we can transport ore to Black Swan around the back road so it is only about 50 km longer. So let's allow another $10 per tonne. So cost to transport ore is around $130 per tonne. If you assume ore grade of 1.7% then we will have to transport around 882,000 tonnes of ore at $130 to black swan. This ore will then have to be processed through the concentrator and of course that will cost us money. It is much cheaper than cost of mining ore and transport however must admit I am not sure on the range here. I think about $30 per tonne is reasonable (could refine if check Western Areas data), Hence our total process cost is around $160 per tonne. Total cost for 882,000 tonnes of ore is about $141 million per annum.

Guess these numbers give us an annual cash profit of around $63 million. I hope this helps.

regards

Stevo_61