Jinchuan backs Allegiance in $US1.3 billion deal
MiningNews.net + Jinchuan backs Allegiance in $US1.3 billion deal
CHINA'S largest nickel producer Jinchuan Group has thrown its support behind Allegiance Mining and its Avebury project in Tasmania, signing a $US1.3 billion ($A1.76 billion) off-take agreement for all the concentrates produced from the current resource.
"Jinchuan have offered a very favourable off-take agreement and it gets us on the way, but it is restricted by definition to a certain area and we believe the potential area for mineralisation is much greater," Allegiance chairman Tony Howland-Rose told MiningNews.net.
"One of the foundation stones is having an off-take contract so people know what you're doing is real and there is somebody there willing to buy it, should you produce it."
Production estimates from the current resources are pegged at 70,000 tonnes of contained nickel metal-in-concentrate, and Jinchuan has also been provided with first rights to enter into negotiations for securing additional concentrates sourced from new resources.
"They [Jinchuan] also have expertise which I think is a really important thing at this time because … Australia in particular is very short of skills in various areas and Jinchuan is very eager to assist us should we not be able to get Australian expertise," Howland-Rose said.
"They're nickel experts, which is very relevant."
In addition, Jinchuan will provide the budding nickel producer with a $5 million subordinated loan and will make available technical support in the form of metallurgical experts.
Howland-Rose said the company was reviewing earlier production estimates – originally flagged at an initial 5700t per annum start-up before ramping up production to more than 10,000t – adding if the figures come out right "it maybe a bit higher than that".
"Our drilling has been reasonably successful … and we do believe there is significantly more nickel to be had, not only along the line there but in the region, so I think there is good cause to think a little bigger than we have been," he said.
In addition, Howland-Rose said it could be time for a re-rating of the small company.
"I think the thing that will give us a re-rating is the off-take contract because obviously Jinchuan doesn't muck around, they're quite professional in what they do and they've been familiar with our deposit since the earliest days."
The $A77 million project is expected to come online early next year. On initial reserves, the project has a net present value of $26 million and in internal rate of return of 17%, but the company's business plan envisages a NPV of $94 million with an IRR of 29%.
The business plan involves the rapid expansion of resources and reserves at Avebury this year during the construction phase. Allegiance used a nickel price and cobalt price of $US12,000t in the study and an exchange rate of 0.735.
Shares in Allegiance hit a 52-week low of 10.5c in May before gaining ground to hit a 52-week high of 43c this week. The stock climbed 7.5c (25.9%) during morning trade to 36.5c.
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