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Kagara sees nickel mine start in 3 months

Initial production will total around 3,000 tonnes of contained nickel a year, though that could increase to 5,000 tonnes in later years by spending a further A$20 million ($15.3 million) on mine development.

Author: James Regan
Posted: Monday , 11 May 2009

SYDNEY (Reuters)  - 

First production of nickel from Australia's Lounge Lizard deposit will start in three months, owner Kagara Ltd said on Monday after it reached a cooperation agreement with neighbouring miner Western Areas NL.

"We'll see production starting in about three months," Kagara Executive Chairman Kim Robinson told Reuters.

Initial production will total around 3,000 tonnes of contained nickel a year, though that could increase to 5,000 tonnes in later years by spending a further A$20 million ($15.3 million) on mine development, Robinson said.

The agreement will result in consolidation of one of Australia's largest high grade nickel mines, containing around 140,140 tonnes of nickel in ore, Robinson said.

The agreement, which enables Kagara to make a quicker start to production from Lounge Lizard by accessing ore from a property owned by Western Areas, drove Kagara's stock up 19 percent to A$1.49 against modest declines in the wider market .

Kagara's ore will be treated at Western Areas' Cosmic Boy nickel concentrator, with concentrate to be sold into Western Areas' existing nickel offtake agreements.

Western Areas has already agreed to supply the nearby Kalgoorlie nickel smelter owned by BHP Billiton Ltd up to 10,000 tonnes of nickel in concentrate each year up to a total of 75,000 tonnes.

"We could have reached our own agreement with BHP, but this makes more sense," Robinson said.

The potential to yield more nickel comes as a slew of closures occur in the sector in response to sagging prices for the stainless steel alloy. Nickel sells for around $13,000 a tonne ($5.90/lb), compared with a record highs above $51,000 a tonne two years ago.

Robinson said it would cost about $4 per pound to produce its nickel, providing a sufficient profit margin at current prices.

Kagara bought the Lounge Lizard deposit from Lionore Mining International, now part of Russia's Norilsk Nickel for A$25 million in December 2006. Until now, Kagara has focused mainly on zinc and copper mining. ($1=1.305 Australian Dollar) (Editing by James Thornhill)

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