First Nickel Inc.
TSX : FNI

First Nickel Inc.

October 19, 2009 11:57 ET

First Nickel Announces an Update to the Feasibility Study Economic Model Completed on the Lockerby Depth Project

TORONTO, ONTARIO--(Marketwire - Oct. 19, 2009) - First Nickel Inc. ("First Nickel" or the "Company") (TSX:FNI) is pleased to announce an update of the economic model ("Update") of the Feasibility Study ("Study") on the development and mining of the Lockerby Depth from GENIVAR Limited Partnership ("GENIVAR"), a consulting engineering firm based in Quebec City, Quebec. A technical report on the Study was filed on SEDAR on April 13, 2009 and can be viewed at www.sedar.com.

The Update was requested in order to reflect the change in project timing from the original Study, incorporate some adjustments to the treatment charges, and investigate the effects of performance improvements in the mine development component on the capital plan. The capital and operating estimates for the mine remain the same, with the parameters modified in the updated model as follows:

  • Metal price forecasts;
  • US$/C$ exchange rate;
  • Project start-up re-set to mid-2010
  • Escalation adjustments incorporated into treatment charges related to the Off-take agreement; and
  • Incorporation of the Au/Pt/Pd/Ag net smelter returns into revenues based upon previous mine receipts.

Assuming average metal prices of US$8.00/lb nickel, US$2.75/lb copper, and US$15.00/lb cobalt, and an exchange rate of US$0.85/$C, the Update indicates that the project has an internal rate of return ("IRR") of 74.0% and would generate an undiscounted pre-tax, pre-finance cumulative cash flow ("CCF") of $112.2 million after capital recovery. Based on a 10% discount rate the project has a $66.8 million net present value ("NPV") as calculated by GENIVAR.

Unit cash operating costs net of by-product credits are estimated at US$4.56 per pound of nickel over the 6.5 year mine plan. Mine operating costs are estimated to average C$155 per tonne.

A significant outcome in the Update of the Study economic model was the reduction in the payback period from 27 months to 14 months. The main factor influencing the quicker payback period was the increase in nickel and copper average prices that were applied equally for each year of the project. This resulted in higher revenues earlier in the project which lead to the shortened payback period, improved project economics and reduced risk on the initial capital investment.

The projected impacts of the modifications have been summarized in the following table:

 April 2009 Study October 2009 Update 
Revenue ($M)520.5 588.5 
Xstrata Treatment Charges ($M)162.5 183.3 
Net Value ($M)358.0 405.2 
Operating Profits ($M)135.2 182.0 
Capital Costs ($M)69.8 69.8 
Undiscounted Cumulative Cash Flow ($M)65.4 112.2 
Net Present Value at 10% discount rate ($M)34.1 66.8 
Internal Rate of Return (%)40.5 74.0 
Payback Period27 Months 14 Months 

All other parameters including the resource/reserve estimates, mining methods and mine operations, ore transportation and processing, production plan and schedule, and capital and mine operating costs are identical to the Study completed in April 2009 and are summarized as follows:

  • Capital expenditures and ongoing investments, including a 10% contingency, are estimated to total $69.8 million of which $37.6 million is required during the preproduction phase.
  • Metal production would total 51.7 million pounds payable nickel, 34.4 million pounds payable copper, and 1.0 million pounds payable cobalt. The mining method proposed is longhole stoping between the 65-3 and 70 levels utilizing a transverse accessed blasthole stope design.
  • The Study derived the reserves from an estimated Indicated Mineral Resource of 1.42 million tonnes grading 2.58 percent nickel, 1.60 percent copper and 0.098 percent cobalt at a 1.5 percent nickel equivalent cut-off grade. Conversion of the resources, above the 70 Level, to reserves yielded a Probable Mineral Reserve of 1.44 million tonnes grading 2.23 percent nickel, 1.36 percent copper and 0.083 percent cobalt. Reserves were estimated using 20 percent dilution, 90 percent overall mining recovery and 1.5 percent nickel equivalent cut-off grade.
  • At the full production rate of 800 tonnes per day (280,000 tonnes per year), the Lockerby Depth Project Mine Plan schedule to extract the probable reserve, covers 6.5 years, including one year of preproduction and 5.5 years of development and production.

Sensitivity calculations on the Updated Base Case economic indicators including cumulative cash flow, internal rate of return and net present value were performed by GENIVAR as part of the Update. Sensitivities included the application in increments of $0.05 on the exchange rate (US$/C$) from $0.70 to $1.00, and in increments of US$0.25 on the nickel price from US$7.00 to US$9.00 per pound nickel. The project is most sensitive to exchange rates, with a decrease in cumulative cash flow of approximately C$6 million for each one cent increase in the Canadian dollar value relative to the US$. Sensitivities are presented below in graphical form.

To view the graphs, please visit the following link: http://media3.marketwire.com/docs/fni1019.pdf

GENIVAR was also asked to investigate several improved development scenarios to assess the impact on project economics. The development scenarios assessed are as follows:

  • A 10% increase in development performance rates;
  • A 20% increase in development performance rates;
  • A 20% decrease in development costs; and
  • A reduction in lateral development with the elimination of 19 primary stope drawpoints.

The projected impacts of these scenarios are summarized in the following table:

 October 2009 Update 10% Increase in Devel. Rates 20% Increase in Devel. Rates 20% Decrease in Devel.
Costs
 Reduction in Lateral Devel. 
Revenue ($M)588.5 588.5 588.5 588.5 588.5 
Xstrata Treatment Charges ($M)183.3 183.3 183.3 183.3 183.3 
Net Value ($M)405.2 405.2 405.2 405.2 405.2 
Operating Profits ($M)182.0 182.0 182.0 184.6 182.0 
Capital Costs ($M)69.8 68.1 66.5 64.5 68.7 
Undiscounted Cumulative Cash Flow ($M)112.2 113.9 115.5 120.0 113.4 
Net Present Value at 10% discount rate ($M)66.8 68.9 71.0 72.5 67.7 
Internal Rate of Return (%)74.0 79.3 85.2 82.3 75.4 

GENIVAR anticipates that development performance of 3.8 metres per day on a single face used in the April 2009 Study could be improved by up to 20% given the current availability of high-quality crews from reputable contractors and adopting a strong EPCM Project Management Process at the outset. The increased development performance rates were only applied to the preproduction period, after which they reverted to the original development performance for the "just-in-time" development philosophy. Although with improved performance development unit costs could be expected to result in lower unit costs, these were not adjusted lower for accelerated development, and were maintained at the Study levels to remain conservative. Total cost savings due to indirect costs applied over a shorter preproduction duration were found to be $1.75 million (+10%) and $3.39 million (+20%) in capital expenditures. The economic analysis showed that scenarios dealing with accelerated development rates have major positive impacts on the project with increases in IRR of 5% to 11% and on CCF and NPV(10%) of $2 million to $4 million.

GENIVAR is confident that a reduction of 20% in the unit costs can be achieved given the unit costs used in the April 2009 Study were provided in the aftermath of a "boom" period in the mining sector, the current higher availability of reputable contractors and the adoption of an EPCM Project Management Process at the outset. For the Update, only the unit costs in the April 2009 Study were reduced by 20% while related material costs were left the same. The related overall savings estimated for a reduction of unit costs by 20% is $7.84 million, including $5.32 million in capital expenditures. The reduction in unit costs also had a major positive impact on project economics, increasing the IRR by 8%, raising the NPV(10%) by $6 million and increasing the CCF by $8 million.

GENIVAR identified an opportunity to reduce the number of primary drawpoints by 19 resulting in reduced development metres from haulage drifts by accessing selected primary and secondary stopes not wider than 7 metres from a single drawpoint. It was recognized that the removal of the primary access drawpoints was partly offset by 18 metres of longitudinal development in ore to access these primary stopes. The elimination of the 19 primary drawpoints resulted in an estimated total savings of $1.16 million in capital, an increase of 1% in IRR and increases in CCF and NPV(10%) by $1 million.

While considered independently for the purpose of the Update it is reasonable to consider that two or three of the improved development scenarios could be realized concurrently at the Lockerby Depth Project. This would result in significant improvements to the overall economics of the project and further reduce the risks associated with metal prices and exchange rates.

"The results of the Updated Feasibility Study reinforce our belief that the Lockerby Mine represents one of the best high grade, nickel deposits in a development-ready state. Metal markets over the next half dozen years should be strong, and it is our expectation that the exchange rate will be in the US$0.85-0.90 range. Our operating team is confident we can achieve some of the development performance improvements examined in the update as well as other preproduction initiatives that will allow us to aim for an abbreviated payback period."

"Significant additional upside potential remains at the Lockerby Mine. The production profile outlined in the Updated Study does not incorporate any ore sourced from resources outside of the Lockerby Depth Zone in other areas of the mine including the Lockerby East and Upper West Zones. We still have untested exploration potential for footwall (or hanging wall??) and contact zones. The mineralization is open at depth below the 70 Level on the Lockerby Depth Zone and opportunities exist to further expand the Depth Zone and sustain levels of production at or better than 800 tonnes per day for greater than the 6.5 year mine plan currently projected in the Feasibility Study" concluded Mr. Anderson.

The foregoing technical information in this release was prepared or reviewed by Paul Davis, P.Geo., Vice President Exploration for First Nickel Inc., a "qualified person" as defined by National Instrument 43-101.

GENIVAR has reviewed this release and has confirmed that the information contained in this release is consistent with the Study. Marc Lavigne, Eng., M.Sc., Senior Project Manager, is a qualified person as defined in NI 43-101.

First Nickel is a Canadian mining and exploration company, whose principal asset is the Lockerby Mine near Sudbury, Ontario. In addition to its Lockerby operation, the Company maintains an active exploration program on projects near the mine around Sudbury, and elsewhere in Ontario. First Nickel's shares are traded on the TSX under the symbol FNI.

Some of the statements contained in this news release are forward-looking statements, such as statements that describe First Nickel's expectations in regard to project start-up, expected cumulative cash flows, IRR, pay back period, mineral reserve and resource estimates, expected revenue and profit, development performance rates, expected US/Canada exchange rate and mine production estimates. In certain cases, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates", or "does not anticipate", or "believes" or variations of such words and phrases, or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Since forward-looking statements are not statements of historical fact and address future events, conditions and expectations, forward-looking statements by their nature inherently involve unknown risks, uncertainties, assumptions and other factors well beyond the Company's ability to control or predict. Actual results and developments may differ materially from those contemplated by such forward-looking statements depending on, among others, such key factors as copper, nickel and cobalt prices, US/Canada exchange rate and mine operating costs. The forward-looking statements included in this news release represent First Nickel's views as of the date of this news release. While First Nickel anticipates that subsequent events and developments may cause First Nickel's views to change, First Nickel specifically disclaims any obligation to update these forward-looking statements unless required by law. These forward-looking statements should not be relied upon as representing First Nickel's views as of any date subsequent to the date of this news release. Although First Nickel has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Accordingly, readers should not place undue reliance on any forward-looking statements.

Contact Information

  • First Nickel Inc.
    William Anderson
    President & CEO
    Toll Free: (888)-362-7050 or (416) 362-7050
    (416) 362-9050 (FAX)
    wanderson@firstnickel.com