Nickel has become a key commodity in powering the ‘green’ energy economy. The expected demand surge, though, will need to be met by new supply in the form of additional nickel mines being brought into production.
The Decar Nickel District project in British Columbia, which is currently being developed by Canadian resource junior FPX Nickel Corp (TSX-V:FPX), could become a significant source of nickel as the project’s Baptiste deposit is the third largest undeveloped nickel deposit in the world, according to Mining Intelligence.
FPX Nickel CEO Martin Turenne is a seasoned executive with more than 15 years’ experience in the commodities industry. In an interview, Turenne told Proactive about the company’s plans to develop Decar and hopefully help transform it into one of the world’s biggest nickel mines.
Proactive: Your company’s Baptiste deposit is described as having the potential to be among the world's 10 largest nickel mines by annual output. What qualities does the project have that gives FPX the confidence to make such a statement?
Martin Turenne: First, I'd say there's just the issue of scale. This is the third-largest undeveloped nickel deposit in the world. So there are 3 million tonnes of nickel contained or, in terms of pounds, 7 billion pounds of nickel. The preliminary economic assessment (PEA) that we did last year, which was done by an independent engineering firm, confirmed our ability to produce approximately 44,000 tonnes of nickel per year, or 99 million pounds. At that scale, this would be one of the 10 largest nickel operations by annual output. Most importantly, though, that same PEA showed our ability to produce nickel for operating costs of US$2.74 per pound, which would be within the bottom quartile of the cost curve for the nickel business. Scale on its own doesn’t really matter. The key here is the combination of scale with very low operating costs that gives us the confidence that this could be one of the next major nickel mines built in the world.
What is it about the geology of this project that makes it stand out?
The geology is unique in the nickel space. Most nickel deposits are either sulfide nickel or laterite nickel. The nickel here is hosted in a mineral called awaruite, which is a naturally occurring nickel-iron alloy. The key advantage to awaruite is that it is highly magnetic, which allows us to recover the nickel from the host rock using a low cost and low environmental impact process of magnetic separation. Our flowsheet leads ultimately to the production of a very high-grade nickel concentrate, in excess of 60% nickel, from a clean process with a very clean waste material. That allows for the production of this very high-grade product, the highest grading nickel concentrate in the world with very low sulfur content, which means that it can be directly fed into either the stainless steel market or into the electric vehicle (EV) battery market without requiring a smelting stage. So the cleanliness of the host rock, then, presents a huge advantage.
What steps need to be taken to put this project into production? And what stage is the company at now?
The project is at the PEA (Preliminary Economic Assessment) stage. There are two other additional stages of study over the next few years and that would be, first of all, the preliminary feasibility study (PFS) and then the bankable feasibility study. We would like to be in a position to complete both of those studies over the next three to four years, which would bring the project to the point of a construction decision. So we think that before the end of this decade, this mine can be operational and, as I said earlier, be one of the 10 largest nickel mines in the world.
Is this dependent on a minimum nickel price?
No. We ran the PEA last year at a nickel price of $7.75 per pound, but today's spot price is about 10% higher than that. At $7.75 per pound, this project generates an NPV (net present value) in excess of US$1.7 billion. That’s a very attractive NPV and a very attractive internal rate of return in excess of 18%. These are all after-tax numbers. So in that sense, at the $7.75 level we're very confident that this project exceeds the sort of the investment hurdles that are typical for projects of this scale, and in fact achieves those return hurdles at a nickel price even below that $7.75 level. So really anything above that $7 a pound level is seen as being ‘gravy’ to the economics of the project.
How does the company plan to finance the project's development?
Fundamentally, given the large scale, this is likely a project that requires some form of project partnership, or to be owned and operated by a major mining company or in cooperation with a major mining company and potential off-takers either in the stainless steel or EV battery market. We know there's a big push for new nickel production to come online in the next several years. In our engagement with off-takers in both the stainless steel and EV battery markets, we see urgency from those groups to want to get involved at an ownership level in projects like this in order to secure supply. So we think that with a combination of off-taker interest, as well as potential cooperation with a major mining company, this is not a project that would necessarily require us to raise our own debt or equity to fund.
Can you give us an update on your company’s drill program this summer?
It’s a very exciting drill program for us. This has been the busiest program in the project’s history dating back to 2012. The first part is infill drilling at Baptiste, moving the remaining Inferred tonnage into the Indicated category to support the development of our PFS on Baptiste. That program has gone very well and we will have results out on that in the fall. The second exciting part of the drill program has been drilling at our Van Target. This is a brand new target. It is located six kilometers north of Baptiste, and it has a surface expression of nickel in outcrop that is actually larger than Baptiste, but it's never been drilled. And so we have completed a nine-hole program there. And the thesis there is to see if we have a discovery of another major nickel deposit. And we're very much looking forward to releasing the results of that drilling here over the next couple of months. It could end up being a new major discovery for the nickel market.
Do you plan to do any further exploration work on the property and in the Decar District? And, if so, what would that involve?
That’s a great question. It’s important to know that our Decar nickel district covers 245 square kilometers. And within that, the Baptiste deposit covers only approximately 2% of that total landmass. So the rest of the project, or the rest of the property, is relatively underexplored. We see a lot of potential to conduct regional exploration and reconnaissance work to define additional drill targets for drilling in future years, as well as additional drilling at the Van Target and the Sid and B Targets, which have seen some modest drilling in the past. Ultimately, the vision here is to discover and delineate multiple world-class nickel deposits. Again, Baptiste is the third largest undeveloped nickel deposit in the world. And we think there's high potential for more Baptiste-scale nickel deposits to be discovered and delineated in regional work and drilling in the years to come. So we're very excited about that.
Finally, what do your shareholders have to look forward to during the next 12 months?
At a high level, there's two aspects of the project's advancement. First, there's fundamental work to advance and de-risk the Baptiste deposit from the PEA through to completion or preliminary feasibility study. So in the next 12 months, we'll be undertaking all of the fieldwork, and the desktop engineering work in order to support the production of an eventual preliminary feasibility study. And one of the key areas of focus will be continued work on metallurgy, to show that we can achieve high rates of nickel recovery, and that we can produce suitable products for both the battery market and stainless steel market. The other part of the strategy is drilling and resource delineation. We hope at this new Van Target to understand what we have there and to see if there's a potential for this target to host a deposit that is similar to, or potentially even better than, the Baptiste deposit. That's going to be a big area of focus for us to try to understand that over the next 12 months.
Contact Sean at sean@proactiveinvestors.com