CaNickel Mining Ltd. of Vancouver, formerly Crowflight Minerals Inc. said Dec. 29 that it has decided to scale back operations at its Bucko Lake mine, near Wabowden, due to unfavourable nickel prices.
The benchmark cash nickel price on the London Metal Exchange (LME) has fallen in less than a year from about $13 per pound to around $8.50 per pound, a decline of about 34.6 per cent. Nickel was the second worst performing metal on the LME over the last half of 2011. Analysts attributed the drop in price to a large nickelsurplus, and the ever-increasing use of nickel pig-iron (NPI) by Chinese stainless steel producers.
Ca Nickel bills itself as "nickel producer in Canada's most prolific nickel camps." It has the second-largest land position in the Thompson Nickel Belt, a narrow band of rock trending southwest and northeast of Thompson. It is second only to Vale operating in the Thompson Nickel Belt. In addition to the operation at the Bucko Lake Nickel Mine, CaNickel owns or has under option an additional 800 square kilometres of advanced-stage base metal exploration properties in the Thompson Nickel Belt and the Sudbury Basin in Ontario.
Net loss for the three months ended Sept. 30, 2011 for CaNickel Mining was $7.6 million or ($0.01) per share compared to net loss of $14.6 million or ($0.03) per share in same period in 2010. Working capital was in a deficit position of $13.3 million with cash and cash equivalent of $2.1 million on hand as at Sept. 30, 2011 compared to working capital of deficit of $24.6 million with cash and cash equivalent of $4.1 million on hand as at Dec. 31, 2010.
In the third quarter last year, CaNickel mined 38,846 tonnes of ores and milled 37,035 tonnes of ore to produce 661,394 pounds of nickel compared to a total of 53,518 tonnes of ore mined and a total of 58,605 tonnes of ore milled to produce a total of 989,265 pounds of nickel in the third quarter of 2010.
CaNickel said it did not know how long the reduction in operations would last and gave no indication of how many jobs would be affected.
Scaling back will reduce ore production from the current rate of 600 to 700 tonnes per day to between 400 and 500 tonnes.
"This is expected to reduce the company's cash burn from $2.7 million per month to approximately $1.7 million per month and to be able to generate positive cash flow from the mine operations," said Dianmin Chen, director and CEO of CaNickel.
CaNickel said it has entered into an agreement with Hong Kong-based Luckyup Investment Ltd. to increase its one- year term debt facility to US$25 million from US$15 million at an interest rate of 12 per cent per year.
The company said it intends to carry out a study to review the feasibility of upgrading the existing mill circuit and flotation facility to 1,300 tonnes per day as well as commencing a study on optimizing mining methods.
"It is expected that these studies will be completed in 2012 and exact completion time for the mill upgrade is uncertain at this time," the Chen said.
CaNickel Mining resumed mining operations at its Bucko Lake Mine last April after a six-month suspension of activities. The Bucko Lake mine, six kilometres south of Wabowden, was also closed earlier for three months from November 2009 to February 2010 - just after commercial production had started, resulting in the layoff of about 45 employees temporarily to complete ramp development, accelerate mine development and upgrade the backfill plant.
The company, in an attempt to address operational problems hurting its cash flow, last year shifted away from a heavy reliance on contract equipment and staffing to using more of its own equipment and people.
The mine started commercial production in the second quarter of 2009 and was estimated to contain proven and probable nickel reserves of 3.7 million tons.
CaNickel Mining entered into a joint venture agreement with Falconbridge in June 2004 for the exploration and development of the Bucko Lake deposit. Field activities then began in late 2004.Under the terms of its earn-in agreement with Falconbridge, CaNickel Mining can earn up to a 100 per cent interest in a 5.5 square kilometre area contained within Mining Lease (ML) 031 (including the Bucko Deposit Resource Block - the area containing the current resources defined within the deposit).
Consolidated Marbenor Mines Limited originally acquired the property contained within ML 031 in 1959. In 1962, diamond drilling intersected 1.54 per cent nickel over 6.34 metres in hole M77-B (the discovery hole) and soon thereafter the property was optioned to Falconbridge.
Falconbridge first discovered the Bucko Lake mineralization in 1964. Additional drilling was conducted in the 1970s and a shaft was sunk. By the time, Crowflight Minerals became involved in the project, 143 holes had been drilled.
A feasibility study on the project has been conducted and released by Crowflight Minerals. The Bucko Mine is expected to have a life of five years.
