22-Oct-2018 Intellasia | | 9:19 AM Print This Post

Western Areas Ltd (ASX: WSA, “Western Areas” or the “Company”) is pleased to announce the results of the Cosmos Odysseus Definitive Feasibility Study (“DFS”), which confirms a robust 10-year operation producing 130kt of contained nickel in concentrate. Odysseus is expected to generate significant EBITDA and free cashflow at a very low all-in sustaining cost (“AISC”).

The Board has approved a decision to mine (“DTM”), with Odysseus (or the “Project”) to continue the separate early works program announced in April 2018. The Project does not require any significant capital outlay for a number of years, therefore providing optionality around funding future commitments.

The DFS demonstrates a larger, longer life project with improved economics compared to the Pre-Feasibility Study (“PFS”). The Project also has significant upside opportunities, with optimisation studies to commence on the potential of bringing the AM5 and AM6 deposits into production, which collectively comprise an Indicated Mineral Resource of 57.6kt of nickel adjacent to Odysseus. With first nickel concentrate scheduled for the December 2022 quarter, Odysseus will be one of the few nickel sulphide mines coming on-line just as forecast demand for class one nickel is expected to substantially increase in the Electric Vehicle (“EV”) sector. Accordingly, the Company expects, and is already receiving, significant interest in offtake contracts.


Strong financial returns

* Pre-tax NPV7% of $418m and 28% IRR at US$7.50/lb Ni price and 0.75 AUD:USD exchange rate

* EBITDA totalling $1.24 billion

* Surplus pre-tax net cashflow of $854m with a short 3.5 year payback from production start

* Circa $130m per annum average free cash flow (pre-tax) post start-up

Low cost operations

* LOM cash costs of $2.65/lb (US$1.98/lb) with cobalt by-products and AISC of $3.50/lb (US$2.63/lb)

* LOM cash breakeven price of $6.10/lb (US$4.58/lb) on an undiscounted basis (current spot price around $7.92/lb / US$5.64/lb)

Low early capital outlay and well funded

* Pre-production capital expenditure of $299m including contingency

* Low near-term funding, $12m for FY19 and $49m in FY20, readily covered by current cash reserves

Physical parameters

* Initial 10 year mine life from Ore Reserves of 8.1Mt grading 2.0% for 164kt of nickel2

* LOM average 13ktpa nickel in concentrate (14.6ktpa nickel in concentrate average from FY24-FY31)

* Shaft haulage incorporated with an average 900ktpa ore throughput in the mill

Significant upside potential

* Conservative cobalt by-product price assumption of US$12/lb; spot price adds $46m revenue LOM . AM5 and AM6 Indicated Mineral Resources of 57.6kt subject to an optimisation study for potential additional production feed . Exploration beneath Odysseus, following the massive sulphide intersection (5.3m @ 15.2% Ni).

Western Areas Managing Director Dan Lougher said that the DFS was an excellent outcome for Western Areas, with a decision to mine placing Odysseus as one of the few new global nickel sulphide operations scheduled to come on-line around the same time as the forecast uplift in nickel demand for batteries contained in Electric Vehicles.

“The DFS project team was able to refine the PFS work, which resulted in positive outcomes on many fronts, delivering a substantially larger and longer life project. The Odysseus Ore Reserve is now 164,500 tonnes of nickel, with the life of mine nickel concentrate production increasing by 42,700 tonnes to 130,100 tonnes compared to the PFS.”

“Odysseus will utilise a shaft hoisting system, which is justified based on a 10-year operating life and throughput averaging around 900,000 tonnes per annum. Western Areas has already secured an option over a high quality, second-hand, shaft hoisting asset from South Africa that is ideally suited to Odysseus and has been costed into the DFS. The shaft hoisting operation will utilise a top-down mining approach, rather than the bottom-up method assumed in the PFS, and accordingly has generated substantial savings in ore transportation costs, as well as a reduction in mine development capex.”

“With the Board making the decision to mine, the capital expenditure outlays are relatively minor over the next 12-24 months. This provides significant optionality to the Company, given that we are able to fund these costs from our cash reserves, which are currently in excess of $150m. In fact, the major pre-production expenditure, totalling $162m, is not required until FY22 and FY23.”

“Whilst funding is not a short or medium-term matter to be addressed, we have fielded expressions of interest in providing offtake finance, unsolicited, non-binding and incomplete interest in purchasing a direct minority stake in Odysseus and other funding mechanisms. No decision has been made in this regard, given it is not an immediate priority for the Company, but it does positively reflect the demand and interest for new nickel sulphide operations and provides additional funding options for the Company.”

“Another exciting aspect of Cosmos is the significant upside opportunity to grow the mining inventory around the Odysseus operation. In this regard, we will commence optimisation studies on how to integrate the substantial nickel tonnes at AM5 and AM6 deposits for additional mine life. These deposits alone contain 57,600 nickel tonnes in Indicated Mineral Resources, situated immediately adjacent to planned Odysseus underground infrastructure, and we are also confident in additional opportunities to expand the resource base and mine life.”

“Odysseus is an important organic growth asset for Western Areas and fits within our core operational expertise, being project development, underground mining and conventional flotation. Furthermore, the Project is an exciting development for the Northern Goldfields community of Western Australia, where we have been nurturing local relationships since first acquiring Cosmos from Glencore for $24.5m in October 2015.”

“Finally, Odysseus is an important asset in the Western Australian nickel sector and is located on the same prolific nickel belt that houses BHPB Nickel West two largest mining operations, Leinster and Mt Keith. With current uncommitted offtake, our belief is that Odysseus will be a key strategic asset in the nickel market, ultimately supplying the EV supply chain, into the future,” said Mr Lougher.


(Source: FTI Consulting, Strategic Communications Perth)


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