European Nickel releases interim results

Tag : nickel hydroxide

Chairman's Statement
Dear Shareholder,
Since I last wrote to you the Company has made significantacquisitions in the Philippines increasing its presence there whilecontinuing to advance the Çaldag and Devolli projects inTurkey and Albania. The formal submission of our revisedÇaldag Forestry Permit application in May was an importantmilestone and we anticipate approval will be granted.
During the six month period ended 31 March 2008, the Company earnedUS$4.2 million from direct ore sales ("DOS") at Çaldag,resulting in a gross profit of US$739,000. The net loss for theperiod was US$6.4 million down from the US$5.1 million profitreported for the comparable period last year. A reduced volume ofDOS sales, a significant decrease in the nickel price, lowerinterest income, the lack of the significant foreign exchange gainreported last year, the opening of our Philippines office andincreased costs incurred at Çaldag were the main elementscontributing to this lower income.
With the continuing delivery of long lead items at Çaldagand ongoing work there on infrastructure and design work theCompany's fixed assets have continued to grow.
The Çaldag project - Turkey
Progress continues to be made at our Çaldag project inTurkey. The key activity over the past six months has beenformalising a detailed mine closure and rehabilitation plan andagreeing a local socio-economic package with the Mayor of Turgutlu. This has culminated in our recent revised application in May 2008for a Forestry Permit.
The detailed mine closure and rehabilitation plan is a newlegislative pre-requisite to applying for a Forestry Permit, whichwas introduced in January 2008 by the Turkish parliament. Thepurpose of the legislation is to ensure mine rehabilitation beginsin the first year of operations, according to Turkish and EuropeanUnion Environment Management standards, rather than only towardsthe end of the mine's life.
In order to minimise the project's impact on the forestry area, andfollowing extensive local and regional consultation, we havemodified the plant and heap layout. These changes led to revisionof the area for which a Forestry Permit is required and will havesome increased cost implications for the project, which will bereported in a revised project cost estimate, together with otherupdated figures for capital and operating expenditure, once theForestry Permit is received. However, as regards capitalexpenditure we have been fortunate to have been partially insulatedfrom the current heated market for international construction andmining equipment as we fixed the prices of most of our long leaditems when they were ordered last year.
DOS activities have continued during this financial period withover 85,000 tonnes of ore shipped to Greece and Macedonia. Theseshipments were from stockpiles accumulated last year andÇaldag's shipping programme has subsequently concluded. There is currently no plan to resume direct ore shipping whichwould require a cut-back of the open pit and additional permitting.
As a company, we recognise the need to have a "social licence" tooperate. Our Turkish subsidiary Sardes Nikel has been workingclosely with the Mayor of Turgutlu, the nearby town, on a localsocio-economic programme to ensure the local and regional areadirectly benefits from the project, beyond immediate employment. We will announce further details shortly, once this plan has beenformalised.
An independent review of the carbon footprint of our heap leachingprocess has been completed confirming our initial positiveassessment. Heap leaching has a very low energy consumption pertonne of nickel units produced compared with nickel produced bysmelting. This coupled with the fact that the power used at themine is a by-product from burning sulphur in the acid plant, withthe excess power generated being sold into the Turkish grid, meansthat we will have one of the lowest carbon footprints in the nickelindustry. In addition, with Turkey expected to sign the Kyotoprotocol within the next few months, there are carbon units that weexpect to be able to trade once we have commissioned the plant.
The Acoje/Zambales Project (Rusina Joint Venture) - the Philippines
The Pre-Feasibility Study ("PFS") on a heap leach at Acoje isprogressing well and is on track for completion during the thirdquarter 2008. The PFS study will examine various conceptualinfrastructure and process options before starting work on aDefinitive Feasibility Study, which is anticipated to take some12-18 months to complete.
The PFS is studying a project which would produce 25-30,000 tonnesof contained nickel per year over a 20 year period. Consultantshave been engaged to undertake studies on the mine design, siteselection, transportation, infrastructure and port options and tocollect the baseline data information that will be required for theEnvironmental and Social Impact Assessment.
Metallurgical column test work continues on Acoje material atÇaldag in Turkey. These studies continue to demonstrate therapid leaching characteristics of the Acoje saprolite ore and theslower but steady leaching of the limonite. Larger scale tests willbe conducted on site at Acoje and at the Company's new testfacility on Luzon Island as soon as the facilities currently beingdeveloped are ready. All of the data obtained from this test workactivity will be used in the Definitive Feasibility Study todetermine the project's operating parameters. Results to date arebelieved to indicate that the Acoje/Zambales ore will leach at afaster rate than the Çaldag ore and recoveries of at least75% can be achieved to produce a high value nickel hydroxideproduct.
Direct ore shipping at Acoje commenced in February 2008 and hascontinued uninterrupted since then. This has generated somevaluable cash flow for the project partners and helped confirm themining grade and geology. The ore is shipped from a dedicated portfacility which is the closest Philippine nickel laterite exportpoint to China. It is also well protected by offshore islands fromthe prevailing weather and so is potentially capable of shippingall year round.
We have opened an office in Manila to manage our various activitiesin the region and this is being headed up by Ken Stein who recentlyjoined us from BHP Billiton. Ken has over 30 years ofinternational experience in mining, construction and heavy industryacross Asia, Africa and Latin America and will further strengthenour team in the Philippines as the Company advances its interestsin the country through the development phase to production.
The Devolli Deposit - Albania
Following the announcement of a JORC compliant inferred resource atDevolli of 36 million tonnes at 1.2% nickel in November last yearwork has continued on assessing various development alternativesand structures.
Corporate Transactions
In April the Company increased its shareholding in Rusina Mining NLto 8,836,430 shares, or 3.6% of the issued share capital, followingits purchase of 2,954,078 shares at a price of A$0.20(£0.094) per share, as part of a sub-underwriting arrangementwith Rusina relating to its traded options that expired on 31 March2008. The total consideration for the share purchase was£259,819.
We recently announced a transaction which strengthens our presencein the Philippines with the acquisition of strategic holdings intwo large nickel laterite deposits on Palawan Island, which initialtesting has shown to be amenable to heap leaching. The acquisitionof 19.3% of AIM listed Toledo Mining Corporation and an 18.7%interest in unlisted Berong Nickel Corporation ("BNC"), for US$48million payable in cash and/or shares, substantially increases ourfootprint on large, good grade laterite deposits in the region andalso delivers immediate cash flow.
This transaction further demonstrates the competitive edge offeredby our low cost, heap leach process as we are able to increase ouraccess to laterite deposits through the provision of our processtechnology and project development experience and expertise.
Toledo has a 56.1% direct and indirect interest in BNC, which holdsthe Berong, Moorsom and Long Point nickel laterite deposits (eachof which are 100% owned by BNC). BNC is currently generatingpositive cash flow through DOS sales to Australia and China fromthe Berong operations. In addition, Toledo has a 52% interest inthe Ipilan nickel deposit and a 58% interest in the Ulugan nickeldeposit.
Toledo has estimated that the Berong and Ipilan deposits have some375 million tonnes of nickel laterite grading about 1.3% nickelwith a total nickel content of more than 4.9 million tonnes. Ourattributable nickel share is approximately 1.2 million tonnes,which boosts the group's equity resources to over two milliontonnes of nickel.
The focus for the reminder of the year is on further advancingthese projects towards full scale commercial production. At Berongthere is an opportunity to considerably increase output of the DOSoperation for relatively modest capital expenditure, while thesurrounding areas are proved up to JORC status in preparation forsubsequent on-site processing. At Ipilan drilling is currentlyunderway and a JORC compliant resource statement is targeted to becompleted by the end of this year. Our regional test facility onLuzon Island will start testing bulk laterite ore samples from theAcoje and Berong deposits by the end of 2008.
Outlook
The Company has now established a strong presence in thePhilippines and with the investment in Toledo has a significantinterest in some of the largest undeveloped, good grade nickellaterite deposits in the world. This, together with progress atÇaldag gives the Company exciting potential for significantfuture growth in achieving its goal of becoming a mid-tier, lowcost nickel producer.
We are optimistic we have made considerable progress in Turkey withthe revised submission for a Forestry Permit and eagerly await apositive outcome. Once we have received the Permit we will thenmove to finalising the project finance documentation and resumeconstruction activity at the site.
David Whitehead
Chairman
http://www.enickel.co.uk