European Nickel to focus on Acoje project as Turkish permitting delay continues

Shares in European Nickel ENK slumped by 27% to 23p in early trading today after the AIM listed exploration group said it had been forced to put its flagship Çaldağ project in Turkey on care and maintenance until receipt of a re-issued forestry permit. The relevant licences were originally approved by Turkey's Environment and Forestry Ministry in April 2009. Subsequent political wrangles inside the country led European Nickel to concede in May this year that those permits would be revoked so that they could be re-issued under new mining laws in the country. In today's update, the company said it could no longer wait around for the new permit and would instead turn its attention to fast tracking a definitive feasibility study for the Acoje nickel laterite project in the Philippines.

Çaldağ has been progressed to the point whereby the major outstanding item to completing the project financing with Western Bank and commencing development of the project is the re-issuance of the forestry permit. Despite repeated assurances from government officials that the permit will be re-issued, this has not yet occurred. As a result, the company has suspended the project financing process and said it would re-assess the situation once the permit is re-issued.

In connection with this news, European Nickel reported that, by mutual agreement, a Çaldağ off-take contract with BHP Billiton BLT for 100% of the mixed hydroxide product (MHP) had been terminated. The Çaldağ MHP is an extremely high grade concentrate, with a contained metal value of around 35% and there is a global shortage of good quality nickel feed. It is understood a number of parties have expressed interest in securing an off-take agreement for the Çaldağ MHP and the company is planning to recommence negotiations once the forestry permit has been received.

The fast tracked definitive feasibility study at Acoje will begin with the start up of a heap leach trial facility during the first quarter of 2011. The Çaldağ technical team will be transferred to the Acoje project team shortly. A significant amount of the metallurgical information that has been developed and compiled at Çaldağ is readily transferable to the Acoje DFS.

The Acoje project is based on Luzon Island. A DFS commenced in March 2009, following the results of a positive pre-feasibility study which confirmed an economically viable nickel heap leach project. The base case scenario is an operation producing 24,500 tonnes of nickel MHP a year over an initial 10 year life of mine. There is significant potential to extend the mine life by converting the JORC Inferred Acoje and Zambales Chromite nickel laterite deposits to JORC Indicated status.

Acoje offers attractive project returns, based on the PFS, as demonstrated by the project's NPV of US$586 million, at a discount rate of 10% and an project IRR of 37.2% using a long term nickel price of US$7 per pound and cobalt at US$10 per pound (currently US$10.65 and US$16.30 respectively).

Rob Gregory, the managing director of European Nickel, said: “ENK is determined to become a nickel producer through capitalizing on our low cost, heap leach technology. Whilst we are disappointed that, despite repeated assurances, the forestry permit for the Çaldağ project has yet to be re-issued, we do have an equally viable alternative project in Acoje which has the potential to be significantly larger and longer life than Çaldağ. We cannot tread water indefinitely at Çaldağ until the permit is re-issued, and the Board believes that our efforts and resources are better deployed at Acoje in the meantime.”

Stockopedia