BHP lights the road back to Wingellina for NiCo Resources

BHP’s (ASX: BHP) takeover bid for OZ Minerals (ASX: OZL) has turned a spotlight on the enormous untapped critical metals potential of central Australia and could spark fresh interest in Wingellina, the original nickel discovery in the Musgrave Ranges, and the small company which now owns it, NiCo Resources (ASX: NC1).

Only the oldest readers are likely to remember Wingellina, which enjoyed a few years of fame in the 1950s thanks to its discovery by International Nickel of Canada (Inco), which was then the world’s biggest producer of a metal used almost exclusively in the production of stainless steel.

Ranked as the world’s third biggest undeveloped nickel deposit, Wingellina hit multiple roadblocks which prevented Inco from developing its discovery, including its remote location, the need to use what was then a new ore processing technology, and traditional owner objections.

Inco walked away from its discovery in 1970, and between 1975 and 2001 no further exploration was undertaken – until traditional landowners signed a deal with a small mining company, Acclaim Exploration.

For much of the past 21 years attempts to revive interest in Wingellina have been led by Metals X (ASX: MLX), a company best known as Australia’s biggest tin miner.

But earlier this year the first of two big events occurred. Metals X spun Wingellina into NiCo (the name comes from the project’s two most valuable metals, nickel and cobalt) which raised $10 million in a float priced at $0.20 a share.

Mounting demand for battery metals

The creation of NiCo as a Wingellina specialist coincided with growing global interest in battery metals, a business which barely existed in 1956 when Inco reported the discovery of nickel in the Musgrave Ranges which run east/west through central Australian, traversing the borders of WA, South Australia and the Northern Territory.

NiCo’s birth was followed on 8 August by BHP returning to the Australian nickel (and copper) hunt with its opening $25 a share takeover bid for OZ – a move which was effectively a trip back to the future for BHP.

Unsaid, or politely whispered, is an important piece of BHP’s history with the West Musgrave project which is next cab off the rank for OZ which already operates the Prominent Hill and Carrapateena copper and gold mines in South Australia.

The embarrassing history for BHP (which has just lifted its OZ offer to $28.25) is that it once owned the West Musgrave project after inheriting it with the 2005 takeover of Western Mining Corporation (the company which found the primary orebodies of Babel and Nebo).

By 2014, BHP couldn’t see a future for central Australian nickel, just as it lost faith in south coast nickel with the 2009 sale of the Ravensthorpe project.

It had retained only the nickel heart of the old WMC – the mines and processing plants of Nickel West centred on Kambalda and Kwinana in WA.

Even Nickel West would have been sold as BHP rushed exit nickel.

The sales process was only cancelled when potential bidders found there was a $100 million environmental clean-up obligation attached to the 50-year-old assets.

Lure of the Musgraves

It’s the battery rush which has lured BHP back to the Musgraves, firstly because the nickel, copper, and cobalt in the region’s rocks are in high demand and, secondly, because it is those metals which are contributing to a power solution for remote mines – the renewable energy sources of wind and solar.

There has been barely a mention of Wingellina since the NiCo float which initially saw its $0.20 shares storm up to $1.45 in late May, before starting a long decline to last sales at $0.61, a price which values the company at $53.6 million.

Like previous owners of Wingellina, NiCo has big plans for the asset, which it has renamed the Central Musgrave project, but it needs to first complete a pre-feasibility study (PFS), which incorporates the latest costs for a renewable power solution and undertake another drilling program to pinpoint zones of richest mineralisation in a series of near-surface deposits.

High level of interest

Managing director, Rod Corps, a former stockbroker with Macquarie Group, said in NiCo’s September quarter report that there was a high level of interest in Wingellina from potential joint venture partners and metal buyers (offtake partners).

“After the delivery of the PFS the company will be embarking on a rigorous program of promotion, which we believe will bring even greater awareness to what is the largest undeveloped nickel-cobalt project in Australia,” Mr Corps said.

NiCo has a long way to go if it is to successfully develop what Inco first saw 66 years ago with the biggest challenge being remoteness (1,800 kilometres from Adelaide and 1,700km from Perth) with the Musgrave Ranges vying for the title of Australia’s dead heart.

Students of history and Australian outback yarns might know that the Musgraves are believed to have been where legendary prospector, Harold Lasseter, discovered his “lost reef of gold” – or where he concocted the story because he died of thirst on a return expedition.

NiCo’s advantages

But NiCo has a number of advantages that early explorer and developers lacked, including:

• A new market for nickel and cobalt in batteries and other forms of renewable energy.
• The development of major renewable energy systems of the sort which are critical to the OZ/BHP project at West Musgrave.
• Advances in the high-pressure, acid-leach (HPAL) technology proposed for extracting the nickel and cobalt.
• The production of Mixed Hydroxide Precipitant, the same cost-lowering product being investigated by OZ/BHP for the West Musgrave project; and
• The positive effect on essential infrastructure services which will follow BHP’s investment in a new nickel project, such as the WA Government’s plans to seal the dirt track known as the Great Central Road which connects the Musgraves with Laverton in WA.

For investors, NiCo is a small company gripping a nickel tiger by the tail but it’s also the company which could put Wingellina back on the global metal map.