Poseidon Nickel Ltd (ASX:POS) (OTCMKTS:PSDNF) (FRA:NYG) has big plans for its Black Swan Nickel Project in Western Australia in quarter three of 2021 with the company securing a valuation of A$0.18 in a research report by MST Access analyst Michael Bentley.
This is based on the high-grade Golden Swan discovery where the company is targeting delivery of a maiden resource in the September quarter.
The company also expects to begin metallurgical test-work and to complete detailed mine plans and reserve definition during the quarter.
Bentley said: “Our valuation is based on the restart of the Black Swan project.
“Exploration success, resource definition and the commencement of Direct Shipping Ore (DSO) from Golden Swan presents the key driver of valuation upside.
“With the drill drive completed, POS has set a firm path to first production from Golden Swan in CY2022.”
New drill drive delivers
POS recently completed a 465 metres Golden Swan drill drive from the Silver Swan deposit, allowing it to significantly increase the speed and efficiency of exploration and resource definition drilling.
The current round of resource definition drilling (57 holes for 13,000 metres planned) demonstrating the high-grade continuity within the trend.
Key results from drilling to date include:
- 3.05 metres at 6.75% nickel;
- 3.80 metres at 5.56% nickel;
- 7 metres at 3.92% nickel;
- 1.25 metres at 5.14% nickel;
- 4.10 metres at 3.95% nickel; and
- 17.40 metres at 3.16% nickel including 3.4 metres at 8.18% nickel.
Maiden resource set for Q3
The analyst said: “These high-grade results are very promising and show the potential of POS’ maiden resource definition which is expected for Q3 CY21.
“Additionally, POS has indicated that with drilling progressing rapidly, the resource definition plan should be completed ahead of schedule, allowing for a switch over to drill testing of the very prospective Southern Terrace.
“POS expects to report a maiden resource by Q3 CY2021."
Bentley said the resource definition was a key step towards production.
He said: “The size and grade of the Golden Swan deposit will be defined and will allow POS to work towards defining a detailed mine plan and a subsequent reserve for commercial mining.”
The company is also setting up for further testing of the Southern Terrace once the Resource drilling is complete, and is also planning to commence infill drilling at Silver Swan in late 2021 or early 2022 – with the potential to add more high-grade Ni tonnes to the Black Swan mining inventory.
Metallurgical test-work
POS has conducted preliminary metallurgical testing on Golden Swan Ore, with the following results achieved using a conventional flotation process.
- Nickel recovery > 90%;
- Nickel grade >13% in concentrate;
- Negligible arsenic in concentrate; and
- Attractive Fe:MgO ratio (>50:1).
Further extensive metallurgical testing will be conducted on a larger sample of ore to ensure that it can be highly amenable to conventional sulphide flotation techniques, yielding high nickel recoveries and saleable grade nickel concentrate.
Proposed timetable for the Black Swan Project
First production in 2022
The report said the Golden Swan discovery (discovered March 2020) continues to deliver high-grade nickel intersections and is the key to POS restarting ore production in 2022.
“POS aims to begin generating revenue through the production of saleable ore by mid-CY2022.
“All drilling activities are aimed at building high-grade nickel resource to allow mining to recommence after a 10-year hiatus.
“The initial plan is to sell DSO to a third-party processor.
“DSO would minimise capital and keep operating costs low as it requires minimal processing. “Discussions are underway with potential buyers of the DSO in Western Australia and internationally.”
The company has commenced a study into the DSO options, which will be release by the end of the year.
After deciding between the concentrator and DSO options, POS will reach the final investment decision (FID) for the project.
Golden Swan key to further upside
The report said the current valuation is based on POS adopting the concentrator model as there is currently no resource defined.
“Upon definition of a resource, and with an understanding of potential volumes and grades, we consider there is potential substantial upside to our valuation if the DSO option proceeds.
“We see a number of potential scenarios for share price upside driven primarily by exploration success.
"The current inputs into the Black Swan model are:
- Operating costs: Our cost estimates are US$2.80/lb in the first two years of operations and US$2.75/lb from the third year of operation.
- Nickel grade: Our overall average Nickel grade for the Black Swan project has been lifted reflecting a greater contribution from Golden Swan.
- Nickel price assumptions: We believe that the nickel price will continue to increase over the next decade. We base this assumption on the demand from electric vehicles and the subsequent pull through of demand for Nickel to enhance battery life. Our base price assumption is US$6.00/pound for the first two years, increasing at 5% per annum onwards. Current Nickel prices are US$8.00/pound, substantially higher than our current forecast.
- Project timing: Our start time for the project is H1FY2023. We have assumed the majority of the capex in FY2022 and the remainder in FY2023.
“Our spot price valuation is A$0.29 per share using an A$/US$ exchange rate of 0.77, a nickel price of US$8.30/pound and a gold price of US$1877/ounce.”