The nickel price resurgence has prompted Western Areas to dust off old expansion projects but managing director Dan Lougher says grade remains king for the WA nickel producer.
Western Areas retains bragging rights to two of Australia's highest grade nickel mines, which generated cash even during last year's commodity price doldrums. The sharp price rise this year has added about $3 a pound to nickel prices. That means the company will likely generate an extra $50 million in free cash flow in the back half of the year. That would allow it to repay its debt by the end of the financial year.
Western Areas is likely to focus on developments around its two existing mines at Forrestania, however, with its once-preferred option of developing the large but low grade Diggers South deposit likely to remain on the back burner.
Instead Mr Lougher said the New Morning deposit, between its Flying Fox and Spotted Quoll operations, is likely to be the first cab off the rank.
New Morning was the deposit Western Areas first targeted when it bought its Forrestania tenements before its 2002 float but was set aside after it discovered its flagship high-grade Flying Fox deposit.
New Morning's 322,000 tonnes at 3.7 per cent nickel is higher than many of the mines operating in WA and Mr Lougher said it was still a good option.
"We are doing scoping studies on accessing that central corridor, the New Morning corridor," he said. "We can do that from Spotted Quoll easily. It's about 2.7km in a decline and it would cost us $20 million to $25 million. That's the quantum, so you've got to make sure you can get that money back, that it's economic.
"Diggers South is a little more longer term in terms of a sustained nickel price, because . . . mine development would be about $50 million, mill upgrade $2 million, plus surface infrastructure, so that's quite a substantial jump in capex. You'd need to be sure the analysts view of nickel in 2017 is going to be around about that $12/lb to $13/lb they're talking about.
"So the obvious one from an infrastructure perspective is New Morning.
"We're not in the business of reducing our margins, so getting into a third operation would have to prove itself against our other two mines," he said.
The reporter travelled to Forrestania as a guest of Western Areas