CONTINENTAL NICKEL LIMITED 
By TORONTO, ONTARIO--(Marketwire - Oct. 5, 2011) - Continental Nickel Limited (TSX VENTURE:CNI) ("CNI" or the "Company") is pleased to announce that it has received a positive Preliminary Economic Assessment ("PEA") for the development of its Ntaka Hill Nickel Project ("Ntaka Hill" or the "Project"). Ntaka Hill is part of the 75:25 Nachingwea exploration joint venture property in southern Tanzania with IMX Resources Limited of Australia.
- Total after tax NPV for the Base Case of US$207M.
- Total life of mine forecast production for the Base Case of 376 million lbs of nickel contained in high grade concentrate, based on Mineral Resources announced 15 April 2011.
- Low capital cost for the project reflecting the low infrastructure requirements and staged development.
- Initial scale of the project sized to suit extraction of high grade near surface Measured and Indicated Resources in the first four years followed by an expansion, which will of a scale to suit the resources in the Sleeping Giant zone, which are still the subject of step-out drilling.
- Overall mine life in excess of 12 years.
- Cash costs (C1) and total production costs (C2) per pound of contained nickel in the second quartile on industry cost curves.
- Excellent metallurgical performance (previously announced in detail 15 September 2011) delivers the possibility to attract a premium for the concentrate off take.
- Previous drilling of the Sleeping Giant zone showed the presence of low grade mineralisation that is not included in the current resource estimate.
- Results of the PEA indicate that a lower cut-off grade can be used than in the preparation of the current Mineral Resource.
- A Sensitivity Case based on an allowance for potential tonnage and grade of this low grade mineralisation in the Base Case pit indicated the possibility of increasing contained nickel production by 20% and greatly improving project value.
- The current extension drilling program continues to provide positive results on the Sleeping Giant zone which also includes wide intersections of disseminated mineralisation within the Base Case pit shell. These results, along with full analysis of the low grade mineralisation, will be used to update Mineral Resources and the economic assessment at the beginning of the second quarter of 2012.
The study considered two development scenarios and the upside sensitivity case which are outlined further below. As shown in Table 1 below, the Project provides a positive economic outcome from the mining and treatment of the resources at Ntaka Hill.
| Table 1 – Highlights of Project and Economic Outcomes | |
| Parameter | Base Case |
| Mining | |
| Years 1 to 4 processing rate, Mtpa | 1.0 |
| Years 5 onwards processing rate, Mtpa | 2.5 |
| Total mill feed, Mt | 23.8 |
| Total material mined, Mt | 432.8 |
| Strip ratio | 17.2 |
| Production | |
| Average Feed Grade, %Ni | 0.82 |
| Average Ni Recovery, % | 87.3 |
| Average Concentrate Grade, %Ni | 15.2 |
| Concentrate Contained Ni, lbs'000 | 377,000 |
| Capital Costs | |
| Initial Capital Cost, US$M | 216.7 |
| Total Capital Cost, US$M | 559.0 |
| Unit Production Costs, US$/lb. Ni | |
| Operating | 4.24 |
| Capital | 1.48 |
| Total | 5.72 |
| Economic Outcomes, US$M | |
| Net after-tax cash flow | 539 |
| After-tax internal rate of return, % | 21.6 |
| After-tax NPV @ 8% discount rate | 207.4 |
| Note: All cases in this Preliminary Economic Assessment are preliminary in nature and include both Indicated and Inferred Mineral Resources. Inferred Mineral Resources are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves. There is no certainty that the Preliminary Economic Assessment will be realized. |
Mr. David Massola, President and CEO, commented "The positive results of the technical study are an important milestone in the advancement of the Ntaka Hill Project. The Company will move into the next stage of evaluating the project by updating the resources and project economics to include the analysis of already identified low grade mineralisation and incorporate the results of this season's step-out drilling on Sleeping Giant."
"We will progress options studies looking at various project parameters and other technical studies in 2012 with the goal of preparing a feasibility study by the end of the year. In parallel with this, we will move forward with detailed metallurgical test work and the environment studies and permitting as these represent the critical path in bringing the project into production."
"We are also confident that the Company's current and future exploration programs will continue to add resources that will enhance the project going forward."
The preliminary economic assessment was compiled by Roscoe Postle Associates Inc. ("RPA"), Mineralurgy Pty Ltd ("Mineralurgy") and Lycopodium Minerals Pty Limited ("Lycopodium"). The key consultants involved in the studies are described at the end of this press release, in the "Qualified Persons" section. The preparation of the study was managed by Stewart Watkins, CNI's Study Manager.
Next Steps
Based on the results of this PEA, CNI's management and board are committed to continuing the evaluation of the Project. Activities that are currently underway, which include drilling to secure additional metallurgical samples, metallurgical test work, environmental baseline studies and the preparation of the environmental scoping study will position the project for fast track development.
Following the completion of the step-out drilling, the extents of the Sleeping Giant mineralisation will be redefined using an updated nickel cut-off grade to accommodate the economics outlined in this study. This will result in an update of the Mineral Resource, which will include detailed analysis of the low grade mineralisation that has been included in the Upside Sensitivity Case. This updated Mineral Resource will then be used as a basis to update the project economics. The company is targeting the start of the second quarter 2012 to release the results of an updated Preliminary Economic Analysis.
A detailed outline of the project evaluation and development timeline with key milestone dates is outlined below.
Options Considered
The PEA considered two development scenarios, Open Pit Only or "Base Case", Open Pit Plus Underground. Along with traditional sensitivity analysis, an Upside Sensitivity Case was also investigated to understand the impact of low grade mineralisation that is believed to be contained in the Base Case Sleeping Giant pit.
All of these scenarios commence operation at 1 Mtpa of mill feed for four years followed by an expansion of the mining and processing rate. This upgrade development philosophy is aimed at providing a project scenario that delivers early production from current Measured and Indicated Resources, maintains modest capital requirements and is fundable for CNI.
The key aspects include:
| Open Pit Only (Base Case) |
- Open pit mining of all zones with resources based on current Mineral Resources announced April 2011.
- First four years of ore production and processing at a rate of 1 Mtpa from the higher grade near surface L, H, J, M and NAD013 zones which are predominately contained in the current Measured and Indicated Resources categories.
- Expansion of ore production and processing rate in year five to 2.5 Mtpa coinciding with the commencement of mining from the Sleeping Giant zone.
- G zone, possessing lower grade and less favorable metallurgy, mined at the end of the mine life.
- Total mine life of approximately 12 years.
| Open Pit Plus Underground |
- Resources based on current Mineral Resources announced April 2011.
- First four years of ore production and processing at a rate of 1 Mtpa from open pit mining of J, L, M, G and the upper portion of H zones.
- Expansion of ore production and processing rate in year five to 2.5 Mtpa coinciding with the commencement of underground mining from the Sleeping Giant, NAD013 and the lower portion of H zones.
- Total mine life of just over 12 years.
- Open pit mining of all zones with resources based on current Mineral Resources and the addition of an allowance for potential tonnage and grade of the low grade mineralisation contained in the upper parts of the Sleeping Giant pit shell. The understanding of the value of any low grade mineralisation contained in the pit shells has been a recent occurrence and, as such, there has been insufficient time to complete a rigorous geological interpretation of this low grade mineralisation.
- First four years of operations identical to the Base Case.
- Expansion of ore production and processing rate in year five to 4 Mtpa coinciding with the commencement of mining from the Sleeping Giant zone.
- G zone mined at the end of the mine life.
- Total mine life of just over 12 years.
- It should be noted that the Upside Sensitivity Case includes an allowance for material identified as an "exploration target" (as defined by NI43-101). The allowance for the quantity and grade of this "exploration target" is conceptual in nature and there has been insufficient analysis completed to define a Mineral Resource. It is uncertain if further exploration will result in the definition of a Mineral Resource in this area.
The economic analysis of the options demonstrated that the Open Pit Only (Base Case) scenario provided a far superior return than the Open Pit Plus Underground scenario (which achieved an after-Tax NPV @8% of US$117M) and as such further discussion of this scenario is not included in this release.
Mineral Resources
Ntaka Hill resources, as disclosed on 15 April, 2011, are outlined below in Table 2.
| Table 2 –Summary of Ntaka Hill Mineral Resources | ||||
| Resource Category | Tonnes (000's) | % Ni | % Cu | Contained Ni (tonnes) |
| Measured | 1,871 | 1.74 | 0.30 | 32,500 |
| Indicated | 3,110 | 0.91 | 0.20 | 28,400 |
| Total Measured + Indicated | 4,981 | 1.22 | 0.24 | 60,900 |
| Inferred | 17,260 | 0.76 | 0.17 | 131,000 |
| Notes: | ||
| 1. | CIM definitions were followed for Mineral Resources. | |
| 2. | Mineral Resources were estimated at a NSR cut-off value of $17/t for open pit mining; this corresponds to an approximate grade of 0.14% Ni. | |
| 3. | Mineral Resources were estimated using an average long-term nickel, copper, and cobalt prices of $10.00/lb, $3.50/lb, and $20.00/lb, respectively. | |
| 4. | Preliminary metal recoveries were estimated at 87% for nickel, 81% for copper, and 80% for cobalt. | |
| 5. | No minimum width was used. | |
| 6. | Ntaka Hill Mineral Resources collectively include J, G, M, L, NAD013, H and Sleeping Giant zones. | |
The current and previous drilling programs have also intersected multiple zones of disseminated sulphide mineralization located above the Sleeping Giant zone which have not yet been included in the Mineral Resource estimate. An allowance of between 12 Mt and 14 Mt, at grades ranging from 0.25% Ni to 0.40% Ni has been made for this low grade "exploration target" (as defined in Ni 43-101) based on conceptual interpretation of low grade mineralisation intersections contained within the bounds of the Sleeping Giant pit shell.
Mining
Open Pit Mining is based on conceptual pit shells. Mining is planned to be carried out by contract mining for the first four years of production by conventional means with a conversion to owner mining thereafter. Key mining parameters used and calculated in the PEA are summarised in Table 3.
| Table 3 – Key Mining Parameters | |
| Parameter | Base Case |
| Pre-Production | |
| Tonnes Moved, Mt | 8.0 |
| Years 1 to 4 | |
| Mill Feed Production, Mtpa | 1.0 |
| Mill Feed Produced, Mt | 3.9 |
| Waste Moved, Mt | 78.1 |
| Total Moved, Mt | 82.0 |
| Total Moved per Day, t | 66,000 |
| Strip Ratio | 20.0 |
| Years 5 to LOM | |
| Mill Feed Production, Mtpa | 2.5 |
| Mill Feed Produced, Mt | 19.9 |
| Waste Moved, Mt | 322.9 |
| Total Moved, Mt | 342.7 |
| Total Moved per Day, t | 137,000 |
| Strip Ratio | 16.2 |
| Life of Mine | |
| Mill Feed Produced, Mt | 23.8 |
| Waste Moved, Mt | 409.0 |
| Total Moved, Mt | 432.8 |
| Strip Ratio | 17.2 |
The Upside Sensitivity Case assumes that some material classified as waste within the Sleeping Giant pit in the Base Case will be processed as mill feed. Consequently the mining operation for the first four years would remain unchanged however the ratio between waste and mill feed would be reduced thereafter. It is estimated that the change in stripping ratio would be to lower it from the Base Case of 17.2 to between 10 and 12.
Processing, Metallurgy and Production
Preliminary metallurgical test work results have indicated that the Project can use a conventional approach to the recovery of nickel from sulphide ore and produce a high grade nickel plus copper bulk concentrate with very low levels of MgO and clean of other contaminants. These results have previously been announced (15 September 2011) in detail. Using these initial flotation test work results and previous mineralogical studies, an estimate was made of the concentrate grade and recovery from each mineralised zone and this was applied to the production schedule.
Based on typical industry practice, the mineralogical information available and the initial flotation test work, a flowsheet design and basic design criteria were developed for use in this study. Key aspects of this design and criteria include:
- Two stage crushing followed by ball milling to a product size of 80% passing 75 micron.
- Rougher flotation, followed by three stages of cleaning to produce a combined nickel and copper bulk concentrate.
- Thickening and filtration of the concentrate prior to loading into containers for transport to smelters.
- Typical reagent additions.
| A summary of key production parameters are given in Table 4. |
| Table 4 – Key Processing and Production Parameters | |
| Parameter | Base Case |
| Years 1 to 4 | |
| Mill Throughput, Mtpa | 1.0 |
| Total Milled, Mt | 3.9 |
| Average Feed Grade, %Ni | 1.41 |
| Average Ni Recovery, % | 84.4 |
| Average Concentrate Grade, %Ni | 16.9 |
| Concentrate Contained Ni, lbs'000 | 102,000 |
| Years 5 to LOM | |
| Mill Throughput, Mtpa | 2.5 |
| Total Milled, Mt | 19.9 |
| Average Feed Grade, %Ni | 0.71 |
| Average Ni Recovery, % | 88.1 |
| Average Concentrate Grade, %Ni | 14.6 |
| Concentrate Contained Ni, lbs'000 | 275,000 |
| Life of Mine | |
| Total Milled, Mt | 23.8 |
| Average Feed Grade, %Ni | 0.82 |
| Average Ni Recovery, % | 87.3 |
| Average Concentrate Grade, %Ni | 15.2 |
| Concentrate Contained Ni, lbs'000 | 377,000 |
The inclusion of the allowance for low grade mineralisation in the Upside Sensitivity Case reduces the average feed grade following the commencement of expanded mining in the Sleeping Giant zone to between 0.55% and 0.6% Ni however recovery to concentrate would not be expected to vary greatly due to the excellent metallurgical performance of the Sleeping Giant style mineralisation.
Operating Costs
Operating costs for the mining, processing and general and administration were developed for the Project by the various consultants. Key input parameters for the operating costs included:
- Contractor mining for the initial four year of operations with a conversion to owner mining thereafter.
- Typical consumables, labour and other requirements.
- Power sourced from the Mtwara distribution grid which is separate from other parts of Tanzania and fed from a privately operated natural gas fired power station. Connection to this grid is from existing lines near Nachingwea (approximately 45km from site).
| A summary of the operating costs is given in Table 5. |
| Table 5 –Operating Costs Summary (±30%) | |||
| Parameter | Open Pit Only | ||
| US$'000 | US$/t | ||
| Years 1 to 4 | |||
| Mining | 258,426 | ||
| per tonne moved | 3.15 | ||
| per tonne milled | 66.27 | ||
| Processing | 70,285 | 18.02 | |
| G&A | 49,418 | 12.67 | |
| TOTAL | 378,129 | 96.96 | |
| Years 5 to LOM | |||
| Mining | 651,187 | ||
| per tonne moved | 1.90 | ||
| per tonne milled | 32.77 | ||
| Processing | 271,558 | 13.67 | |
| G&A | 108,720 | 5.47 | |
| TOTAL | 1,031,464 | 51.91 | |
| Life of Mine | |||
| Mining | 909,613 | ||
| per tonne moved | 2.10 | ||
| per tonne milled | 38.27 | ||
| Processing | 341,843 | 14.38 | |
| G&A | 158,138 | 6.65 | |
| TOTAL | 1,409,594 | 59.30 | |
| Unit Operating Costs (US$/lb Ni) (net of by-product revenue) | 3.43 | ||
For the Upside Sensitivity Case for year five onwards (since years 1 to 4 are identical to the Base Case) it would be expected that the total mining costs would not change since the total material mined would not vary, which would lead to a significant reduction in the unit mining cost per tonne milled. Processing costs would vary on the breakdown between fixed and variable costs and G&A costs would be largely fixed. Based on this conceptual style of analysis the Upside Sensitivity case would be expected to return overall operating costs of between US$40 and US$45 per tonne milled.
Capital Costs
A breakdown of the estimated capital costs for the Base Case is presented in Table 6.
| Table 6 – Breakdown of Capital Cost Estimate (±30%) | |||
| Cost Area | Initial (million US$) | Upgrade (million US$) | Sustaining (million US$) |
| Mining | 31.2 | 148.0 | 46.9 |
| Process Plant | 64.5 | 50.2 | 6.0 |
| Infrastructure | 38.8 | 19.8 | 3.6 |
| Tailings Dam | 5.1 | 0.0 | 7.5 |
| Environmental | 0.0 | 0.0 | 21.0 |
| Owners Costs | 12.8 | 14.8 | 0.0 |
| Working capital | 16.1 | 8.5 | 0.0 |
| EPCM | 18.8 | 23.1 | 0.0 |
| Contingency | 29.4 | 32.8 | 0.0 |
| TOTAL | 216.7 | 297.2 | 85.0 |
| Note: Working Capital recovery at the end of the LOM is US$39.9M giving a total capital cost of US$559.0M |
For the Upside Sensitivity Case, the up-front capital cost would remain unchanged from the above, however, the plant upgrade costs would increase with the increased throughput. These costs were estimated from scaling to give a total upgrade capital cost of around US$385M (comparable to US$297.2M for the Base Case) with only minor increases in sustaining and working capital over the Base Case.
Concentrate Marketing and Revenue
CNI engaged Mineral Commerce Services Pty Ltd ("MCS") to conduct a concentrate marketing study to provide metal price assumptions, concentrate terms and freight costs for use in the this study. MCS developed base case metal price assumptions based on published forecasts. A range of prices was forecast and median levels of US$22,500 per tonne of nickel and US$7,500 per tonne of copper were used.
MCS concluded that there would be significant demand for a sulphide concentrate from the project with its high predicted nickel grade and low contaminants. Based on typical off-take contracts for high grade nickel concentrates MCS estimated that the project should achieve 77% payable for nickel (inclusive of smelting and refining charges and at forecast prices) with an average of US$90 per dry metric tonne of concentrate for other metal credits.
Concentrate from the project will be containerised at the mine site and trucked approximately 300km to the port of Mtwara in southern Tanzania. Containerised concentrate will be stored near the port and then loaded using ships gear on an approximately monthly basis. Concentrate transport costs were estimated based on typical trucking and shipping charges with Tanzanian specific port charges estimated. These costs are summarised in Table 7.
| Table 7 – Concentrate Transport Estimates | ||
| Parameter | Cost US$/dry t | |
| Road transport to port | 57.00 | |
| Port Handling | 26.00 | |
| Port ad valorem (Tanzanian Port Authority Charge) | 0.5% of CIF Value | |
| Weighing, sampling and assaying at destination | 4.00 | |
| Insurance | 3.00 | |
| Sea Freight | ||
| China | 32.00 | |
| Europe | 98.00 | |
| North America | 84.00 | |
| South America | 79.00 | |
The concentrate marketing and freight terms were reviewed by RPA for use in the PEA.
Economic Assessment
RPA developed a financial model for the Project using the production parameters, capital and operating costs and revenue information presented above. Assumptions on taxation and other financial parameters were provided by CNI. The net present value (NPV) and Internal Rate of Return (IRR) discounted to the commencement of project delivery are presented on an after-tax basis (only Tanzanian taxes included). Table 8 below presents the financial highlights associated with the Project.
| Table 8 – Financial and Investment Analysis Highlights | |
| Parameter | Base Case |
| Financials, US$M | |
| Revenues (mine gate basis) | 2,721 |
| Operating income (EBIT) | 1,242 |
| Net earnings | 1,028 |
| Cash flow from operations | 1,433 |
| Free cash flow to equity | 539.0 |
| Investment Analysis, US$M | |
| Initial Capital Cost | 216.7 |
| Expansion Capital Cost | 297.2 |
| Total Sustaining Capital | 85.0 |
| Total Capital (after working capital recovery) | 559.0 |
| After-tax internal rate of return, % | 21.6 |
| Payback, years | 5.3 |
| After-tax NPV @ 8% discount rate | 207.4 |
| Note: All scenarios in this Preliminary Economic Assessment are preliminary in nature and include both Indicated and Inferred Mineral Resources. Inferred Mineral Resources are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves. There is no certainty that the Preliminary Economic Assessment will be realized. |
The cash costs (C1) and the total production costs (C2) per pound of nickel net of by-product credits for the Base Case are calculated to be US$4.24 and US$5.72 respectively. Both of these measures place the project in the second quartile of global nickel producers on published industry cost curves.
As previously stated, the inclusion of an allowance for low grade mineralisation in the Base Case pit in the Upside Sensitivity Case would be expected to provide a large benefit to the underlying value of the project. The detailed sensitivity analysis carried out for this case included incorporating the complex impacts of mill feed tonnage, feed grade, operating costs and capital cost on the return from the project. This sensitivity analysis indicated that the project NPV could be expected to increase by approximately US$100M should this sensitivity case be realised.
Project Development Timeline
Along with the previously outlined re-estimation of the mineral resources and update of the project economics, the development timeline for the project includes a number of key milestones. These milestones are outlined in Table 9.
| Table 9 – Project Development Timeline Milestones | |
| Project Milestone | Timing |
| Submit Environmental Scoping Study and Terms of Reference for Approval | December 2011 |
| Update Mineral Resources and PEA | Beginning 2Q12 |
| Definitive metallurgical test work complete | End 2Q12 |
| Various options studies completed | End 2Q12 |
| Complete environmental baseline studies | Mid 2012 |
| Complete in-fill drilling on Sleeping Giant zone | 4Q12 |
| Submit EIS and EMP for Approval | 4Q12 |
| Conditional Off-Take in Place | 4Q12 |
| Complete Feasibility Study | End 2012 |
| Update Mineral Resource, Prepare Mining Reserve and Technical Report | 1Q13 |
| Project Commitment by CNI | 1Q13 |
| Front End Engineering Design | 2Q13 |
| Mining Licence and Mine Development Agreement | 3Q13 |
| Financing and Production Commitment | 3Q13 |
| Commence Construction on Site (end of Wet Season) | 2Q14 |
| Commence Commissioning | 2Q15 |
| First Production and Shipment | 3Q15 |
It is worth noting that the critical path on the current construction schedule is the wet season in 2013/14 and as such there exists a certain degree of latitude in the development program and the timeline for permitting, design and procurement activities.
Qualified Persons
The PEA summarized here for the Ntaka Hill Nickel project will be incorporated into an NI 43-101 compliant Technical Report to be available on SEDAR and CNI's website within 45 days of the date of this news release.
The Company is not aware of any environmental, permitting, legal, title, taxation, socio-political, marketing or other issue that might materially affect this estimate of Mineral Resources. The projections, forecasts and estimates presented in the PEA constitute forward-looking statements, and readers are urged not to place undue reliance on such statements. Additional cautionary and forward-looking statement information is provided at the end of this press release.
The Qualified Persons for the purpose of National Instrument 43-101 "Standards of Disclosure for Mineral Projects" for the PEA are shown in Table 10.
| Table 10 – Qualified Persons | ||
| Section | Company | Qualified Person |
| Mineral Resources | RPA | Chester Moore, P. Geo. |
| Mining and Mine Capital and Operating Costs | RPA | Marc Lavigne, Ing. |
| Metallurgy, flowsheet design, performance predictions | Mineralurgy | Peter Munro, FAusIMM |
| Process plant and infrastructure operating/capital costs | Lycopodium | Christopher Waller, MAusIMM(CP) |
| Concentrate marketing and freight | RPA | Jason Cox, P.Eng |
| Financial modelling and general aspects | RPA | Jason Cox, P.Eng |
All qualified persons have reviewed this press release and consented to the inclusion of the data in the form and context in which it appears.
About Continental Nickel Limited
Continental is focused on the exploration, discovery and development of nickel sulphide deposits in geologically prospective, but under
