The Company is pleased to announce positive results from the Scoping Study for its Yerilla Project located some 150 km north-east of Kalgoorlie in Western Australia. Heron has been able to deliver on its commitment to complete this Scoping Study on time and within budget because of the quality of the project assets and Heron's in-house project team.
Using Atmospheric Leaching Technology process, the study has identified an 18 year mine life with annual production of 21,000 tonnes of nickel in mixed sulphide intermediate product and a further 1,400 tonnes of cobalt sourced from 2.5Mt of leach feed grading 1.06% Ni and 0.07% Co.
The study was based on a combined resource of some 135.3Mt at 0.77% Ni and 0.05% Co with a cash operating cost estimate of US$5.70 per pound of payable nickel net of credits.
Capital cost of the project is estimated at A$1.2 billion and payback is estimated to be 6.5 years. Financial modelling for sensitivity analysis assumed a pre-tax 8% discount rate, US$9.00/lb average nickel price and 0.75 A$:US$ exchange rate. The study uses a long term sulphur price, based on expert studies by British Sulphur Consultants a division of international market forecasting consultancy CRU.
The level of detail contained in the scoping study was similar to the requirements of a prefeasibility study, with some of the test-work conducted at BHP Billiton's testing facilities. Heron is fortunate to have had the support of BHP Billiton in undertaking this study through the use of its Technology Centre and contributions from BHP Billiton's technical experts through our technology sharing agreement. The study has provided Heron with confidence to proceed with more detailed test-work to further calculate the project's financial dynamics.
Heron will now review the results of the study and determine the optimum development options for the Yerilla Project. As previously advised this will likely include the desire to identify an equity partner for the project given its large capital requirement. Further studies will be undertaken to investigate opportunities for further improvements in important aspects of the project, including resource beneficiation, leaching performance, and water quality.
The application of the BHP Billiton patented atmospheric leach technology to the expanded 135.3 Mt resource base which incorporates the Jump-up Dam, Boyce Creek and Aubils projects, has significantly improved the project's financial integrity in comparison to the stand-alone Jump-up Dam Heap Leach Project pre-feasibility study which Heron completed in January this year. Heron has access to the atmospheric leach technology through the Technology Sharing and Product supply agreement executed with BHP Billiton in January 2008.
This expanded resource base and change to atmospheric leaching technology has allowed an increase in the production rate and the application of beneficiation to increase leach feed grade. It has also significantly reduced the production ramp-up period and the amount of nickel inventory in circuit. The atmospheric leach technology also eliminates the project risks associated with laterite heap leaching, while facilitating treatment of a larger range of ore types.
The Yerilla Project involves mining 3.2Mt of ore per annum from shallow open pits located at Jump-up Dam, Boyce Creek and Aubils. A proportion of the ore is beneficiated through simple scrubbing, attritioning and size separation to produce 2.5Mt per annum of upgraded leach feed material. The ore is classified into high and low iron streams which feed the primary and secondary leach circuits respectively. Leaching takes place in conventional agitated leach tanks with sulphuric acid at normal atmospheric pressure. The sulphuric acid is produced on site in a sulphur burning acid plant, which also provides all the project's power requirements via steam turbine generators. The nickel intermediate product is recovered from the leach solution after neutralisation and precipitation.
Technology agreement
Heron entered into a Master Technology Licensing and Product Supply Agreement (Agreement) with BHP Billiton in January of 2008. The Agreement covers nickel laterite projects that Heron develops in the Eastern Goldfields, excluding the area of the Kalgoorlie Nickel Project (KNP). Under the Agreement BHP Billiton has licensed to Heron the relevant parts of its Intellectual Property relating to Nickel Laterite Technology (Technology) and in return Heron has granted to BHP Billiton the right to purchase at market the first 50% of any product generated from a project in the Eastern Goldfields using the Technology. All product generated by non BHP Billiton technology, is unfettered for offtake.
A further right is accorded to BHP Billiton to match the best offer received by Heron in the market for the second 50% of any supply produced from that project (including any financing terms). A license fee would apply to any product not sold to BHP Billiton.
The Agreement will only extend to nickel laterite projects (excluding the KNP) that are developed in the Eastern Goldfields with the licensed technology. To avail itself of the licensing provisions of the Agreement, Heron must be a majority owner and manager of the project to be licensed at the time a decision to mine is taken.
The Agreement has a life of 15 years provided that Heron commences construction of a licenced project within five years from signing. BHP Billiton and Heron have also agreed to share their respective background Intellectual Property and knowledge relating to extraction of nickel from nickel laterite ores. A technical exchange environment will be established to help reduce the technical risks and formulate new ideas and methods in the emerging area of heap leaching of nickel ores.
BHP Billiton has developed extensive nickel laterite Atmospheric Leach technology which is protected by Australian and international patents. Access to this technology was a large contributor to the positive Scoping Study result for the Yerilla Project.
Resources
During the year the Company upgraded its resources at Jump-up Dam, Boyce Creek and Aubils to a combined total of 135.3Mt @ 0.77% Ni and 0.05% Co. Of this total more than half is in the higher confidence indicated and measured categories. The resources were estimated by Indicator Kriging into a block model. This resource upgrade increased the Company's total resource position to over 1 billion tonnes at 0.75% Ni and 0.05% Co for a total of 7.78Mt of contained nickel. The increase in the Yerilla Resources supported the doubling of potential nickel production examined by the Scoping Study helping to reduce the operating costs and improve economies of scale.
Test-work
The extensive metallurgical test-work program looked at the beneficiation performance of the ore and the leaching performance. Beneficiation is applicable to approximately 40% of the ore and increases the grade on average 33% contributing to higher life of project leach feed grades.
Leaching test-work indicated an 8% increase in nickel recoveries in 24 hours above average nickel recoveries in heap leaching over 12 months. Acid consumption was at acceptable levels due to the patented process technology available from BHP Billiton.
Risk reduction
The move to Atmospheric Leaching in tanks substantially reduced the risk associated with leaching clay ores in heaps contributing to the expanded project scale. Tank leaching allows for better monitoring of leaching chemistry and greater leach control resulting in improved metal recoveries and more efficient reagent use.
Costs
The change in leaching technology and expanded scale of the operation has reduced the estimated operating costs of the Yerilla Project to US$5.70 per pound of payable nickel. This cost result is a competitive cost compared to cash costs of other operations in particular nickel laterite operations. The project has an estimated breakeven nickel price of US$8.40 per pound.
The primary driver of operating costs is sulphur, the cost of which has escalated dramatically on the spot market during the course of 2007 and 2008 from a historic price of US$30 per tonne to a high of some US$800 per tonne. In recent months the market has seen a reduction in spot pricing. The Company has used long term sulphur prices provided by sulphur market specialists British Sulphur Consultants. The Company believes sulphur prices will come down as new production is brought to market. Sulphur is a by product of petroleum production.
Capital cost of the Yerilla project is estimated to be A$1.2 billion, and the capital intensity is approximately US$17 per pound of annual nickel production. This is an improvement of more than US$5 dollars over the capital intensity of Heap Leach and a very significant improvement over the capital intensity of High Pressure Acid Leach.
