Exclusive: Weda Bay finds world class nickel reserve in Maluku

Canadian mining company Weda Bay Nickel said it had found a giant nickel reserve in its contract area in Weda Bay, North Maluku, which would enable it to supply 10 percent of the world's nickel demand in the future.

Company president director Malcolm G. Baillie told Petromindo.Com in an interview on Thursday the current the company's exploration had defined a resource of 202.3 million tons in the Central Halmahera regency with the average nickel content of 1.37% cobalt content of 0.12%.

He also said the potential to significantly increase the resource was great, the company has yet tested less than half of the identified laterite occurrences in the area.

Baillie estimated the resource, once fully explored, and could reach up to 500 million tons.

When fully developed, said Baillie, the company would have an output of 120,000 tons per annum of nickel, which would account for 10% of world nickel output, he said.

He also estimated the mine could last up to 50 years of productive life.

The company was now in final exploration stage and expected to complete a bankable feasibility study by the end of next year, Baillie said.

The company expected to commence production in 2004 with an annual output of 45,000 tons of high grade mixed nickel/cobalt sulfide products in the first stage of production, he further said.

He said the capital expenditure for the first-phase construction of production facilities was estimated at US$680 million, some 550 million of which would be derived by the company from debt and equity markets with the balance to be provided by the engineering contractor, mining contractor and product purchasers.

Soon after the first-stage production, Baillie said, the company would launch an expansion to approximately double the output. The product in the second-stage production is nickel metal.

He estimated the capital expenditure for this second-phase development would reach US$1 billion.

However, Baillie said, the company had yet to decide as to when to start the construction works. .

"Given the current situation, we don't undertake this kind of (huge) investment in Indonesia without a lot of thought and preparation. Getting the financial backup would not be easy. Therefore it is very impractical to assume that soon after we finish feasibility study at the end of next year we can start major construction," he said.

Nonetheless, Baillie was confident production would start in 2004.

He said Weda Bay Nickel's parent company Weda Bay has been restructured to enable Weda Bay Nickel to acquire US$20 million needed to complete the feasibility study. New shareholders had been invited into the company to enable Weda Bay Nickel to raise the fund.

Baillie said Weda Bay Nickel would find no problem in marketing its product as it had signed a sales agreement with a refinery in Finland, owned by US Company OM group, which is a leader in the production and sales of nickel and cobalt products. Under the agreement, OM group will absorb all the company's output in the first stage of production.

This contract, he said, was a key to the early development of the project as it provided lenders with a high level of security and would enable the company to obtain more favorable borrowing terms.

One important aspect of the sales agreement, said Baillie, was that OM group would also pay for the contained cobalt. Other refineries usually consider cobalt as waste.

Baillie said Weda Bay Nickel's cost of production would be lower than US$1 per pound.

He further said that the company had thus far spent some $20 million for exploration activities since the company received its contract of work in 1996.

Baillie said the almost-two-year bloody conflict between the Christian and Muslim groups in most of the Maluku region had thus far not significantly affected the company's operation. This is because the company had maintained good relations with the locals from the start of the project and the local government also supported the company.

"We currently employ some 190 locals in the project. And we have in Central Halmahera an outstanding bupati (regent) that supports our operation," said Baillie.

He also admitted that some of the company's contract areas were located in protected forest, which according to the existing regulation, were out of bounds for open-pit mining activities.

"Currently we hold discussion with many parties including the ministry of forestry regarding the matter.

"The new law does forbid open pit mining in protected forests. But the new law also provides way for reclassification. And those discussion suggest that with the good support from the regional authority which we already had, they would favorably consider the kind of reclassification that will enable us to mine in some part of the protected areas," he said

PT Weda Bay Nickel holds a 7th generation of Contract of Work over some 90,000 hectares of land in Central Halmahera. At the end of its exploration stage, the company would have to relinquish one third of its concession.

Weda Bay Mineral is 90% owned by Weda Bay Nickel, which is listed in Toronto Stock Exchange Canada. PT Aneka Tambang owns the rest, free carried interest and has an option to acquire an additional 15% once the feasibility study is completed.

Currently, Weda Bay Mineral's stock is traded at a range of 60 to 70 US cent per share, far lower than its IPO price of around US $1,40. Baillie blamed the weak price on the instability of Indonesian political and economic condition. (alex)