As it advances restart preparations Mincor Resources (ASX: MCR) has secured an offtake term sheet with BHP’s (ASX: BHP) subsidiary BHP Billiton Nickel West Pty Ltd, which will underpin a binding agreement between the parties.
The latest agreement replaces a previous 20-year contract between Mincor and BHP Nickel West, which expired earlier this year.
Under the new deal, Mincor has the right to transport up to 600,000 tonnes per annum of nickel sulphide ore to BHP Nickel West’s Kambalda facilities in Western Australia for processing.
The contract takes effect from the date Mincor delivers its first ore and expires either on the fifth anniversary of that date or 31 December 2025 – whichever comes first.
Processing costs were not disclosed, but Mincor managing director David Southam said the agreement presented a “commercially attractive processing and offtake solution”.
The company also noted the processing charge had been “benchmarked” and was consistent with the cost of running comparable nickel concentrators in WA.
Meanwhile, Mincor’s revenue will come from its nickel-in-concentrate sales to BHP Nickel West, which will be dependent on the average monthly London Metal Exchange nickel price.
“Mincor has clearly outlined its strategy to re-commence mining operations in Kambalda to take advantage of what we see as a looming generational change in the nickel market – and the signing of this term sheet marks a critical step towards realising that vision,” Mr Southam said.
“We weighed up the alternatives, including investing in our own stand-alone nickel concentrator and the option of toll-treating our ore via third parties.”
“The term sheet we negotiated with BHP Nickel West is compelling on a number of levels – most importantly with respect to price, risk and capital intensity – which clearly meant that this was the best economic outcome for our shareholders over the contract term with the lowest risk,” Mr Southam added.
Taking advantage of the new nickel era
Mincor has more than 300 square kilometres in WA’s Kambalda nickel district. The company has several deposits with combined reserves of 1.1 million tonnes grading 2.5% nickel for 28,000t of contained nickel.
Global resources are estimated at 3.3Mt grading 3.6% nickel for 118,000t of contained nickel.
As it plans to take advantage of the imminent new nickel era, Mincor is advancing the restart strategy for its Ken/McMahon, Cassini, Durkin North and Mittel/Burnett deposits and hopes to firm up five years’ worth of reserves before operations begin with throughput estimated at up to 500,000tpa.
“We believe the nickel market is on the cusp of a new era, driven by a combination of rising underlying demand from the stainless steel market supplemented by new demand from the global lithium-ion battery industry as it gears up to supply the rapidly growing electric vehicle and energy storage sectors,” Mr Southam explained.
“With the production solution for Mincor’s high-grade nickel sulphide ore now settled, our focus turns to ramping up our studies to feasibility status while committing additional funding for an accelerated drilling programme – particularly at our greenfields discovery at Cassini,” he added.
This morning’s offtake news spurred Mincor’s share price up 4% to $0.39.