Lifted from todays Mine Web Bulletin. By: Peter Gonnella Posted:...

Lifted from todays Mine Web Bulletin.

By: Peter Gonnella


Posted: 2003/09/15 Mon 05:00 EDT | © Mineweb 1997-2003


PERTH -- Aussie nickel miners have been extremely popular on the local bourse in recent days and emerging producers have been taken along for the ride.
The near-US$10,000 a tonne (around US$4.50 per pound) nickel price has sent investors into a buying frenzy, which has seen nickel stocks reach dizzying new heights and fundamentals go out the window.

While some analysts feel that a few stocks, including sharemarket darling Jubilee Mines [ASX:JBM], are running way ahead of their respective valuations (see separate article in side bar) at present levels, one of the up-and-comers whose premium hasn’t gone berserk is Sally Malay Mining [ASX:SMY].

Perth-based Sally Malay, which has raised A$63 million in debt (A$48.5 million) and equity (A$14.5 million) funding since November last year, has just commenced construction of the A$60-$65 million open cut and underground nickel project of the same name in Western Australia and expects to be in production by around August next year.

Estimated output has been put at 65,000-70,000 tonnes per annum of concentrate for 7,500-8,500tpa nickel metal, 3,500-4,000tpa copper and 350-430tpa of cobalt at an average cash operating cost of US$1.90 per pound net of by-product credits.

Based on current proven and probable reserves at Sally Malay of 3.4 million tonnes grading 1.56 percent nickel, 0.64 percent copper and 0.08 percent cobalt, initial mine life is projected at five years-plus. Euroz Securities analyst Andrew Clayton forecasts an average annual NPAT of A$14 million with peak earnings of A$18 million once all debt is repaid.

Clayton’s updated valuation for Sally Malay is A$0.42 a share using a long term nickel price of US$3.50/lb, copper price of US$0.85/lb and cobalt price of US$8.50/lb and an Aussie dollar exchange rate of US$0.65. However, though Sally Malay’s share price has indeed rallied strongly, “with other nickel producers trading at a significant premium to valuation …, we believe that in the current nickel price environment a 10-20 percent premium to NAV is justified”, he noted. “This suggests a share price target of A$0.50-$0.55/share.”

Aside from the upside potential in the form of underground exploration beneath 500m depth at Sally Malay, the budding junior miner may extend mine life through the satellite Copernicus deposit where exploration is being carried out as part of its 60:40 joint venture with Thundelarra Exploration [ASX:THX]. Copernicus is only 35km from the main Sally Malay plant site and already hosts an indicated resource of 220,000 tonnes of ore at 1.5 percent nickel. “We believe there is enormous scope for Sally Malay to treat small satellite deposits within a 100km radius of the operation,” Clayton added.

Sally Malay shares were 3.3 percent higher today (Monday), closing at A$0.47, which represents a market capitalisation of A$54.5 million. Other Aussie nickel players who have enjoyed a purple patch of market support lately include WMC Resources [ASX:WMR], which finished the day at A$4.37, LionOre Mining [ASX:LIM] A$7.58, Jubilee A$3.63, Mincor Resources [ASX:MCR] A$0.68, MPI Mines [ASX:MPM] A$1.30, Titan Resources [ASX:TIR] A$0.42, Independence Gold [ASX:IGO] A$0.68 and Tectonic Resources [ASX:TTR] A$0.19.