ARM sells half of Nkomati Nickel to LionOre

ARM sells half of Nkomati Nickel to LionOre

African Rainbow Minerals (ARM), the diversified South African mining group, has sold half of its Nkomati Nickel Mine to LionOre Mining, a Toronto-listed nickel producer for $48.5 million.

In ARM’s 2004 annual report, the company said that it was in discussions with a strategic technical partner to expand the current operations at the mine, located a few hundred kilometers east of Johannesburg.

”This partner will play a significant role in the future operations of Nkomati,” said the report, ”The expansion may result in an open-pit operation producing over 16,000 tons of nickel a year from a reserve base of some 64 million tons of nickel.”

The mine sold 4,920 tons of nickel in the 2004 year, while LionOre produces more than 20,000 tons a year from its two mines in Botswana and Australia.

LionOre will also get a 50 percent share in the Nkomati lower-grade disseminated orebody which, it says’ offers significant expansion potential. LionOre says this orebody is very similar in geology to its Phoenix Nickel Mine in Botswana.

Nkomati has a total estimated indicated mineral resource of 139 million tons of ore at a grade of 0.49 percent and a cut-off of 0.30 percent, containing 680,000 tons of nickel. In comparison, Phoenix has a probable reserve of 38 million tons at an average grade of 0.55 percent nickel and a cut-off of 0.25 percent.

LionOre says it could also use its Activox technology to optimize the processing of the concentrates. Activox is a process that treats a wide variety of metal sulphide concentrates. It successfully extracts nickel, copper, cobalt and zinc from most sulphide mineral concentrates, according to LionOre.

Pieter Rorich, an ARM spokesman, says the technology is something the company would like to introduce at the project. He says some testing has been done using the ore from Nkomati, and the company is confident it will work, but that further testing is required.

Rorich says capital costs of the expansion are forecast at around R2 billion ($310 million according to LionOre statement), half of which will be payable by LionOre.

”LionOre, which is in a position to fund its own share of the expansion participation, also brings important technical and operational skills to the new joint venture,” Andrã© Wilkens, ARM’s chief executive said in a statement, ”ARM shareholders’ benefits will be enhanced in that the operating efficiencies that LionOre can bring to Nkomati will result in a longer-life mine that will remain a low-cost operator with increased nickel and PGM production.”

LionOre says $28.5 million cash will be paid to ARM on completion for half of the current operation and the lower-grade expansion orebody. An additional $20 million is payable if both parties agree to proceed with the expansion project.

It is envisaged that the expansion operation would produce an annual average 16,500 tons of nickel, in addition to 7,900 tons of copper, 55,000 ounces of palladium and 19,500 ounces of platinum, with an estimated 16-year mine life. The current project has a life of only three years.

Rorich says the two companies will now optimize the original mining plan, as a feasibility study has already been concluded. He says this process will take around six months to a year to complete, after which ARM will look more closely at project funding.


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