This article was first published in Northern Ontario Business, a newspaper that has been providing northerners with relevant and insightful editorial content, business news and information for over 25 years.
The first half of 2008 has been a busy one for the mid-tier miner with a new shaft in operation and a change at the top.
President John Lill resigned from the company in early August, indicating a desire to pursue other interests. Lill had taken up the mantle of president and CEO in September 2007, replacing Terry MacGibbon, who has since been appointed to his prior roles.
The company’s Podolsky mine went into production earlier this year and has shown greater results than exploration potential had indicated.
With expectations for copper grades of 3 per cent, production has shown 12 per cent in the first quarter, and more than 5 per cent in the second. It’s expected to average out between 6 and 7 per cent over the rest of the year.
“Historically, in the Sudbury basin, these types of deposits have mined about 20 to 40 per cent better than they drilled off,” says MacGibbon.
Having cost $150 million to put into production, Podolsky has been a 300-tonne per day producer since January. That number will rise to 1,000 tonnes by year’s end, representing 400,000 tonnes annually at full production.
FNX’s local production is expected to reach 1.4 million tonnes through to the end of 2008, a number that should climb to 2 million tonnes by 2010.
Ongoing developments include the more exploration of the prospective Rob’s Footwall Deposit, which represents the upper portion of their Levack Footwall Deposit. Having drifted into this upper part from the company’s Levack mine, FNX has produced roughly 5,000 tonnes of ore from it this quarter.
Meanwhile, definition and expansion drilling of the Levack Footwall Deposit are ongoing from access drifts at Xstrata Nickel’s Craig Mine.
Development work and ramp access will increase throughout the year to allow for initial production to begin in 2009 in anticipation of full production in 2010.
“Going forward, our concentration is going to be on these very high-grade footwall ore deposits,” says MacGibbon.
Six surface drills and seven underground drills are currently turning throughout FNX’s various exploration properties, with an exploration budget of $25 million for 2008. Thirteen underground drills are working on various development activities.
To raise funds, FNX recently signed a deal with Gold Wheaton Gold Corp. to sell 50 per cent of the future contained precious metals from its Sudbury operations for $175 million in upfront cash, and shares representing a 38 per cent ownership of the company. Within six months, FNX will also receive $50 million in cash or shares, leaving the value of the deal at roughly $750 million.
With nickel prices coming down from record highs at the same time in 2007, FNX’s net earnings for the first half of 2008 have nearly halved. Whereas net earnings for the first six months of 2007 were $65.2 million, that number has dropped to $35.4 million in 2008. However, officials expect second-half numbers to be significantly higher given the increased production numbers due at Podolsky.
Although the shift in nickel prices has meant some belt-tightening, First Nickel officials remain confident that the future is bright.
Having cracked open the Lockerby Mine in 2005 after Xstrata Nickel (then Falconbridge) ceased production there in 2004, First Nickel has recently managed to convert additional resources into reserves.
A pre-feasibility study generated by Quebec City-based Genivar has converted 1.8 million tonnes of the 2.89 million tonne resource of the Lockerby Depth ore body into reserves.
To access those new reserves means a weighty investment of $85 million. The bulk of it — about $52 million — is for upfront development costs including the purchase of new equipment and vehicles such as high-speed personnel carriers and electric trucks for haulage.
Though lenders have already expressed interest in supporting the project, debt financing for the project will be sought in the fall.
It will take about 15 months to move mining operations from the 6,500-foot level down to the 6,900-foot level. Annual production will climb from 150,000 tonnes to 400,000 tonnes, or 10 million pounds of payable nickel.
“This would bring the mine back to the levels it used to produce at, and at which it was built for, says William Anderson, First Nickel president and CEO. From there, the company will keep its eye on the potential to move beyond
the 6,900-foot mark.
With a $7 million exploration budget, the company is concentrated on targets around the Lockerby Mine. It’s involved 6,000 metres of drilling at their nearby West Graham property in anticipation of developing a bankable resource estimate this year. The project seeks to find a deposit suitable for bulk mining on the property, which is under option from Landore Resources Ltd.