3[miningmx.com] — CANADA’s First Quantum Minerals will buy BHP Billiton’s closed Ravensthorpe nickel mine for $340m, paving the way to revive production that could add nearly 3% to world supply.
First Quantum said on Wednesday it expects the mine will produce an average of 39,000 tonnes a year for the first five years after operations restart. Overall, production over its expected 32-year life is forecast at 28,000 tonnes a year.
A fund manager said the outcome was good for both companies.
“First Quantum have paid a price where it should be able to make the asset work after additional capital expenditure,” said Tim Schroeders, a portfolio manager at Pengana Capital. “And BHP are able to walk away and pocket a reasonable amount of cash in that transition, rather than have a dormant asset on their balance sheet.”
Engineering work to restart the operation in Australia’s Queensland state could begin as early as mid-2010, according to a First Quantum spokeswoman, Sharon Loung.
“We expect by say mid-next year we can start construction on site and take between six months and a year to start commissioning to ramp up,” Loung told Reuters.
Shares in BHP fell 1% in a broader Australian market down 0.8%. Sources had said BHP was hoping for as much as $1bn when the mine was put up for sale in August.
Ravensthorpe was designed to supply around 55,000 tonnes of nickel annually, or close to 5% of world capacity, but never came near that rate before closing.
BHP spent about $2.2bn to build the mine but shut it in January, just eight months into its life, as nickel prices dropped to barely half the current price around $16,100 a tonne ($7.30 per pound).
The mine also suffers from technical glitches linked to problematic laterite-type ore that analysts say could cost hundreds of millions of dollars to fix.
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First Quantum said Ravensthorpe, combined with its recent commitment to build a project in Finland, would make it one of the world’s leading nickel producers.
First Quantum did not say how much it would cost to revive the mine, but said its strong balance sheet and cash flows would give it time and flexibility to fix the commissioning and operational issues.
In buying Ravensthorpe, First Quantum is taking on one of BHP’s costliest mistakes at a time when analysts forecast the world needs less, not more nickel.
BHP shut Ravensthorpe last January because low nickel prices meant it was costing more to produce the steel alloying metal than it could sell it for. Nickel has since risen more than 60% to near the price BHP said the project needs to make money, partly because Ravensthorpe’s promised 55,000 tonnes per year was out of the picture.
First Quantum used a nickel price of $6.75 per pound ($14,884 a tonne) when determining the price it would offer to pay BHP, according to Loung.
“That’s not a break-even price,” Loung said. “That was a price in our evaluation on the acquisition,” taking into account costs for refurbishment and modification work the operation will require.
Despite nickel’s price gains, the metal remains under pressure due to swollen London Metal Exchange inventories of more than 143,000 tonnes – the highest since January 1995 and less than 10,000 tonnes away from the record 151,254 tonnes in November 1994.
First Quantum and BHP said they expect to complete the sale by end-March 2010, subject to approvals from Australia’s Foreign Investment Review Board and the West Australian state government, which wants the mine to reopen.
BHP said it would reverse previously recognised impairment costs of $441m post-tax from June 2009 as a one-off in its first-half results for this year.
In February BHP took a $3.4bn writedown on Ravensthorpe and the accompanying Yabulu refinery. Yabulu has since been sold to Australian mining entrepreneur Clive Palmer.
First Quantum currently produces copper and gold and has mines in Zambia, the Democratic Republic of Congo and Mauritania.
On November 30 it approved the development of its Kevitsa nickel, copper and platinum project in Finland, which it acquired in June 2008 when it bought Canada’s Scandinavian Minerals. It also plans to buy Zambian prospector Kiwara
