BHP Billiton Ltd. (BHP) said Wednesday it has agreed to sell the
failed Ravensthorpe nickel mine for US$340 million to Canada's
First Quantum Minerals Ltd. (FM.T), which is seeking to diversify
its production base.
The sale is expected to be finalized in the first quarter of
next year, and is subject to approvals from the Australian Foreign
Investment Review Board and the West Australian Minister for Mines
and Petroleum.
"The acquisition of the Ravensthorpe nickel operation is a major
step towards First Quantum achieving its goal of becoming a
globally diversified mining company," said Philip Pascall, Chairman
and CEO of First Quantum.
First Quantum plans to get an engeering study underway "as soon
as possible, with some preparations already started," a spokeswoman
for the company told Dow Jones Newswires. The study will take about
a year. Restart and full ramp up will then take another six to 12
months.
Estimated capital expenditure is US$150 million for a restart,
much lower than analyst estimates of US$500 million to get the mine
working again.
The company, a cash-rich copper focused miner with its key
assets in Zambia, Republic of Congo and Mauritania, is new to the
nickel industry. Last month it approved construction of its first
nickel venture, the US$400 million Kevitsa nickel and copper mine
in Finland.
Commercial production for Kevitsa is targeted for mid-2012, and
together with a restart of Ravensthorpe "has the potential to make
the company one of the world's leading nickel producers," said
Pascall.
"We are committed to re-starting Ravensthorpe, which we believe
we can successfully achieve within a realistic timeframe," Pascall
added.
For BHP, the sale marks the end of a costly venture into nickel
laterite mining using high pressure acid leaching that in the past
has proven difficult to master for many companies.
First Quantum already uses the technology employed at
Ravensthorpe at its flagship Kansanshi copper mine in Zambia, the
spokeswoman said. "We bought the mine from Phelps Dodge, and have
made it into the world's eigth largest copper mine."
The Melbourne-based mining giant commissioned the Ravensthorpe
mine in May last year after huge cost overruns and delays, but
decided to shut it in January after plummeting nickel prices
undercut the viability of the mine, damaging the miner's reputation
and relations with the local community.
Ravensthorpe has a nameplate capacity of 50,000 metric tons.
First Quantum said it expects the mine, about 550 kilometers
south-east of Perth, to produce around 39,000 tons of nickel in the
first five years of production, and an average of 28,000 tons over
the expected mine life of 32 years.
"We are delighted that BHP Billiton and First Quantum have
reached this agreement. This reflects the culmination of a thorough
and exhaustive study into a range of future options for
Ravensthorpe, which has delivered a positive outcome for BHP
Billiton, First Quantum and the local communities of Hopetoun and
Ravensthorpe," said Gerard Bond, BHP's acting president of
stainless steel materials.
BHP has written the value of the operation down to zero, and
will now reverse a previous pre-tax impairment charge of around
US$630 million for the half year ended December 2009. After tax,
the reversal will be US$441 million.
One analyst who declined to be named said it was pleasing to see
BHP exit from Ravensthorpe, but question marks remained over how
far it could really distance itself from the social and
environmental liabilities associated with such a large project.
Attempts to work nickel laterite ore bodies using high pressure
acid leach extraction have produced a number of failed attempts
since the 1990s, including the Cawse and Bulong operations in
Western Australia.
The sale to First Quantum will be a disappointment to joint
bidders and existing nickel laterite miners Minara Resources Ltd.
(MRE.AU) and China Metallurgical Group Corp.
Minara, which operates the only surviving nickel laterite mine
in Australia, Murrin Murrin, teamed up with MCC to secure
funding.
MCC owns the US$1.4 billion Ramu nickel mine in Papua New Guinea
that is in the latter stages of construction.
"We entered a competitive tender process and were unsuccessful,"
said Minara Resources CEO Peter Johnson, who declined to say how
much Minara and MCC had jointly bid for the asset.
According to people familiar with the situation, final bidders
also included Poseidon Nickel Ltd. (POS.AU), a small nickel
developer chaired by Fortescue Metals Ltd. Chief Executive Andrew
Forrest.
BHP's ability to secure the sale of an operation with such a
difficult history is a positive signal for the nickel market in
terms of longer-term demand expectations.
However, many analysts continue to doubt Raventhorpe's viability
not only because of its technical challenges, but generally higher
production costs and the addition of significant production
capacity from nickel in pig iron output in China that is expected
to keep a lid on nickel prices.
After touching a five-year low of US$8,850/ton in October last
year on the London Metal Exchange, Nickel has recovered to
US$16,100/ton--still well below record prices of over US$50,000/ton
in 2007.
-By Elisabeth Behrmann, Dow Jones Newswires;
61-2-8272-4689 elisabeth.behrmann@dowjones.com
(Stephen Bell in Perth contributed to this article.)
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