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http://www.minesite.com/nc/minews/singlenews/article/european-nickels-new-strategic-partnership-with-hunter-dickinson-provides-a-useful-pointer-for-inve/1.html


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July 29, 2010
European Nickels New Strategic Partnership With Hunter Dickinson Provides A Useful Pointer For Investors
By Charles Wyatt


Simon Purkiss, executive deputy chairman of European Nickel, a company now listed on the ASX as well as on Aim, following the recent merger with Rusina Mining, freely admits that 2009 was a dark period for him and his company. The Turkish authorities delayed issuing the forestry permit vital to the development of the companys Caldag nickel laterite project and the Chinese prevaricated over the funding promised for it. Those two setbacks took place at a particularly difficult time for world markets and left Simon having to raise money, against the odds, to maintain the impetus at Caldag. If we had let that go off the boil, he explains, it would have meant starting over again. Anyway, he struggled through, and was certainly not looking careworn yesterday as he talked over the latest developments over a quick lunch at Langans, in between flying back from a family celebration in South Africa and on to Diggers and Dealers in Australia.

He was certainly delighted to hear that David Cameron had been urging France and Germany not to delay any more in admitting Turkey, a thrusting young nation, into the EU. Its all down to bureaucracy, he says, in reference to the interminable time it's taking to get Turkey in. And the same is true at Caldag. He knows he is going to get his forestry permit, and the recent funding by Hunter Dickinson of Canada as well as the merger with Rusina confirms that this opinion withstands the most intense due diligence. In fact these are the two major events of 2010 and they have transformed the potential of the company, though the share price still seems to be dragging its feet. Hunter Dickinson is a Canadian investment group specialising in resource companies, for whom it can provide a multi-disciplinary team of technical specialists, if required.

It was David Whitehead, chairman of European Nickel, a man who used to be head of exploration at BHP Billiton for many a year, who introduced Hunter Dickinson. A meeting took place at PDAC earlier this year, and due diligence commenced. But it was the volcanic ash cloud that really brought the two together as a Hunter Dickinson team was stranded in Vienna, and Simon and chief executive Rob Gregory were in Doha. By one means or another they all found themselves in Istanbul and that is where the talks really got going. The result is a strategic partnership between the two, with Hunter Dickinson committed to injecting US$60 million of which US$50 million will be equity investment in the Caldag project. HD has already stumped up 3.36 million via a private placement at 32p per share, and its worth noting that price as the actual share price has yet to reach that level, and is still stagnating at 22.5p. Moreover, the second, and considerably bigger tranche from HD is priced at 44p per share, so someone, somewhere has got their pricing wrong. A research note from broker Mirabeau on the enlarged company is due shortly, and this may shine a bit more light on the situation.

The failure of the Chinese to come up with the money is becoming less of an issue by the day. Funding is now being arranged by western banks, with Societe Generale and UnitCredit as lead arrangers. The target is US$300 million, with a US$25 million over-run, and this looks now well within reach. Simon Purkiss, however, points out that when the feasibility study was carried out the prices of certain structural products were higher than now, so it could come in under budget. No sensible board puts too much reliance on such hopes so the second tranche of 36.7 million due from Hunter Dickinson will put some padding in the system, though it will not be paid before the project finance facility is in the bag. European Nickel is also committed to raising another 20 million at about that time. The total project development cost is currently set at US$428 million, but US$78 million has already been spent on long lead items, and the mine infrastructure is virtually complete. Caldag has proven JORC reserves of 33.2 million tonnes at 1.13% nickel, and the feasibility study was based on production of 20,500 tonnes per annum over a mine life of 14 years at a cash cost of US$3.59 per pound.

Coming up behind it, of course, is the Acoje nickel project nurtured by Rusina, which uses the same low-cost, environmentally friendly, heap leach technology. Acoje contains a JORC resource amounting to 713,000 tonnes of contained nickel, and there is plenty of potential to increase this from exploration in the area. A pre-feasibility study has proved positive, and a definitive feasibility is under way targeting production of 24,500 tonnes a year. From European Nickels point of view, it was therefore a logical time to acquire Rusina, ahead of the development of Acoje. The enlarged group thus has two projects coming into production within the next four years. By 2015 European Nickel should be producing at a rate of 44,500 tonnes of nickel a year, which takes it well into the mid-tier, alongside a company such as Talvivaara. The current state of play at Acoje is that a key environmental permit has been received for commercial operations, and the heap leach trial site has been constructed. The heaps will be irrigated once the rains have stopped, using the same solution as at Caldag.

But it is on Caldag that all attention is focussed at the moment. It is a very fair bet that the forestry permit will be received by October, and then everything clicks into place. Funding should all be in place before Christmas and it will then take around 11 months to first production of a mixed hydroxide solution containing the nickel, a product high on the demand list from smelters. Another 18 months should see the acid plant in operation, and then it will be onwards and upwards to full production, which will include 1,000 tonnes per year of cobalt. As to offtakes, BHP Billiton is very much in the running, due to its history as a collaborator with European Nickel in developing its technology, but the Chinese companies who failed to come up with the capex have certainly not gone away, according to Simon Purkiss. We still have a good relationship and it is possible that they might even help to fund Acoje.

It has been a long wait for the forestry permit, and Simon should be awarded some sort of medal for patience, but the ducks are in a row and will shortly start quacking. In the meantime investors should reflect on the disparity between the 44p per share that Hunter Dickinson is prepared to stump up before the end of the year and the current share price.