JOHANNESBURG (miningweekly.com) – TSX- and LSE-listed First Quantum Minerals will spend about $120-million in capital expenditure (capex) to bring the Ravensthorpe nickel operation in Western Australia back into production and to ramp up the operation’s production.

Chairperson and CEO Philip Pascall said in a conference call on Wednesday that the company had made provision to spend about $140-million on the project, thus allowing it to have $20-million of contingency funding available for the project.

BHP Billiton, which had shut down the Ravensthorpe mine in early January owing to low nickel prices, which it said made the operation unprofitable, on Tuesday announced that it would sell the operation to First Quantum for $340-million.

Ravensthorpe is an openpit mine and hydrometallurgical process plant used to recover nickel and cobalt to produce a mixed nickel cobalt hydroxide intermediate product.

Pascall said that the acquisition reflected First Quantum’s clear strategy of diversifying its commodity profile and its geographical footprint.

It was currently mainly a producer of copper cathode, copper in concentrate, gold and sulphuric acid in a number of African countries.

Pascall noted that when the Australian operation first became available for sale, the company had been wary of the project, given its hasty closure.

However, the mining firm had found that the main plant was in “an excellent condition”, he stated, adding that it had been one of the “best mothballed plants” the company had ever seen.

There were, however, some technical challenges, mainly related to the front end of the plant, which along with the financial challenges faced by BHP, had led to the closure of the operation, he noted.

Nevertheless, Pascall was confident that First Quantum had the capability to overcome these technical challenges, saying that some of its other projects in Africa were a lot more complex to develop.

It would make a number of changes to the front end of the plant and some smaller changes in some other areas of the operation.

He also noted that, owing to its size, relative to that of BHP, it did not face all the constraints that the management of the operation previously had.

Pascall said that, for example, the previous management had come up with a number of ideas on how to improve the plant’s performance, but getting the required authority to implement such changes had lengthened the timelines of the project.

Further, Pascall expected to be able to reduce the costs of production by introducing the changes to the plant, which would allow the mine to become more profitable.

He said that First Quantum had put a lot of effort into understanding the nickel market before deciding to buy the Australian operation.

First Quantum would fund the required capex from internal funds, with Pascall pointing out that the company currently had a robust cash flow. It would, however, review the matter again in the next six to 12 months.

The agreement between the two parties was subject to relevant approvals from the Australian Foreign Investment Review Board and the West Australian Minister for Mines and Petroleum and, subject to these approvals, was expected to close in the first quarter of 2010.

Pascall said that the operation would ramp up to full production in less than 18 months after concluding the acquisition.

First Quantum expected the asset to produce an average of 39 000 t/y for the first five years after operations restart. Overall, production over the expected 32-year mine life is forecast at 28 000 t/y.

The company was currently negotiating with a number of offtakers for the Ravensthorpe output, said Pascall, noting that most of the interest came from China.

Meanwhile, Pascall stated that the company would, for the time being, focus on the Ravensthorpe operation and its other development projects in Africa and had no further firm acquisition targets.

It would, however, continue to be on the lookout for potential acquisitions, depending on the project or company. Its acquisition focus would mostly be on exploration projects, as it would have to eventually look at replacing the reserves and resources it was mining at some of its operations.

Pascall noted that the company was spending about $20-million a year on exploration, which was modest compared with the rate at which it was producing products.

First Quantum last month also agreed to buy Zambia-focused explorer Kiwara in a deal worth $260-million.

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