Poseidon Nickel Limited (ASX: POS) – Challenges to Restarting Mining.

Coffee with Samso Episode 182 is with Peter Harold, Managing Director of Poseidon Nickel Limited.

 

 

Since taking the reins of Poseidon Nickel, Peter Harold has been steadily working towards restarting mining production. Today, Peter will address recent setbacks to restarting, as outlined in the company announcement of July 17.

 

 

About Poseidon Nickel Limited

 

Poseidon Nickel Limited (ASX Code: POS) is a nickel sulphide exploration and development company with three projects located within a radius of 300km from Kalgoorlie in the Goldfields region of Western Australia and a resource base of around 400,000 tonnes of nickel and 180,000 ounces of gold (Figure 1).

 

Poseidon owns the Windarra, Black Swan and the Lake Johnston Nickel Projects. In addition to the mines and infrastructure including concentrators at Black Swan and Lake Johnston, these projects have significant exploration opportunities demonstrated by the discovery of the Golden Swan high-grade resource discovered at Black Swan in 2020. Abi Rose deposit at Lake Johnston and the recent nickel intersections along the Western Ultramafic at Lake Johnston.

 

 

 

 

 

Figure 1: Project location. (Source: Poseidon Nickel Limited)

 

Black Swan Restart

 

Despite the solid progress made since the November 2022 Black Swan BFS was delivered the decision to restart Black Swan has been delayed due a combination of factors including:

 

• The later availability of grid power;
• The need to complete additional metallurgical testwork;
• The continuing tightness of the WA labour market;
• Ability to secure accommodation in Kalgoorlie for FIFO workers; and
• The volatility in global commodity and equity markets.

 

The Company expects a more favourable environment for project development into 2024. The primary aim of the Company remains restarting Black Swan when all the above items have been resolved and the nickel price outlook and equity markets are more favourable.

 

 

 

 

 

Figure 2: Poseidon Nickel's assets strategically located in Western Australia. (Source: Poseidon Nickel Limited)

 

 

 

Company Mission

 

The commencement of mining and processing at Black Swan is viewed as a first step in the Company's "Fill the Mill" strategy and growing the business to a 15ktpa plus nickel producer over the next 5-10 years.

 

Poseidon owns three significant nickel assets with a combined resource of close to 400kt of nickel and processing capacity of up to 3.7Mtpa of ore to produce nickel concentrate. The Company’s business strategy remains focussed on leveraging its existing asset base to grow Poseidon into a significant nickel producer over a period of expected significant growth in nickel demand, largely driven by growth in the electric vehicle market.

 

 

 

 

 

 

BLACK SWAN NICKEL PROJECT

 

• Open pit and underground mineral resources

• Significant established mining and processing infrastructure

• Bankable Feasibility Study completed

 

LAKE JOHNSTON NICKEL PROJECT

 

• Strong exploration potential

• Significant established mining and processing infrastructure

• Previous mining studies being reviewed

 

WINDARRA NICKEL/GOLD PROJECTS

 

• Significant nickel mineral resource

• Potential to mine nickel ore and process at Black Swan

• Gold tailings resource with BFS

 

Black Swan

• 2.2Mtpa processing plant
• Silver Swan underground 12.9kt Ni (grade - 9.5%)
• Golden Swan underground 6.3kt Ni (grade - 3.9%)
• Silver Swan Tailings - 6.2kt Ni (grade - 0.92%)
• Black Swan Disseminated 181kt Ni (grade - 0.63%)
• Southern Terrace remains prospective for additional high grade discoveries

 

History

 

The Black Swan Project is located approximately 600km east of Perth and 50km northeast of Kalgoorlie, Western Australia and 300kms South of Poseidon’s Windarra Nickel Project.

The project commenced operations in 1997 and operated continuously until 2008. The following production was achieved:

Black Swan Open Pit - 5.9Mt @ 0.7% Ni for 41kt Ni

Silver Swan Underground - 2.7Mt @ 5.1% Ni for 138kt Ni

Total production 179kt Ni concentrate

 

Poseidon Business Strategy

 

The Company’s pathway to production was significantly progressed during FY22 with two metallurgical breakthroughs which should significantly improve the economics of the Black Swan project.

 

The first involves incorporating a rougher concentrate regrind into its process flowsheet to significantly improve the quality of the smelter grade concentrate, which is expected to result in improved nickel payability. The second was testwork on a combined serpentinite and talc carbonate ore blend to produce a rougher concentrate which is amenable to both pressure oxidation and high-pressure acid leach to produce a mixed hydroxide precipitate.

 

This culminated with the delivery of the Feasibility Study on the 1.1Mtpa project to produce high grade nickel concentrate suitable for conventional nickel smelters. Refer to ASX Release dated 21 November 2022 "Positive Black Swan Feasibility Study". The Company is now working with a short list of potential offtakers and project financiers with the aim of reaching a Financial Investment Decision.

 

With the assistance of Poseidon’s geological consultants, Newexco, the Company completed an exploration targeting report for Lake Johnston during FY22, with follow up reports for Black Swan and Windarra to be delivered in FY23. The Lake Johnston report identified the Western Ultramafic Unit as a priority, with a program of works approved to undertake 15,000 metres of RC drilling.

 

The primary focus for Poseidon has been advancing the Black Swan Feasibility Study and during this process a major breakthrough on the metallurgy was achieved. The addition of a regrind mill which will utilise the existing Silver Swan mill, increases the nickel grade and reduces the MgO content of the final concentrate. This will make the smelter grade concentrate more attractive to traditional nickel smelters and should lead to optimal nickel payabilities being achieved.

 

It was also recognised that a lower grade nickel concentrate (5-7% nickel) could be produced with a higher MgO content that should be attractive feed to both high pressure acid leach and pressure oxidation plants. Consequently, the scope of the Fill the Mill Strategy has been widened to include a full feasibility study on the “rougher concentrate option”, which would mean recommissioning both the SAG and ball mills at Black Swan and operating at 2.2Mtpa throughput. This will also allow processing of the talc carbonate ore which is not included in the 1.1Mtpa throughput smelter grade concentrate study and has potential to increase the project life.

 

Assuming a decision to proceed is made by early 2024, production of concentrate could commence by around end 2024. The decision on the larger tonnage, rougher concentrate project, will be dependent on the outcome of the feasibility study and discussion with potential customers for that product.

 

 

Samso’s Conclusions (Tony’s Take)

 

The POS journey has indeed been a long and winding road, full of false starts and unfulfilled promise, but the prospects of the company becoming a nickel producer should be looked at in a clear eyed fashion before making a serious assessment of the project. There have been recent setbacks, but the company is continuing to work through the issues identified and we therefore think it is only a matter of time before it will finally progress from explorer to miner.

 

The long term outlook for nickel remains excellent and Poseidon is virtually unique, globally, amongst all those prospective and near term producers. It has multiple existing nickel assets from average to high to super high-grade ores and strong drilling exploration targets - and it has infrastructure valued conservatively at over $600 million replacement value.

 

The share price is undeniably low, having taken a battering since the announcement of a delay to the project. In our opinion, there is a major disparity currently, between the market cap of circa $90 million and a more rationale valuation based on a continued pathway to production, and therefore a market cap approaching say $300 million plus. The battery minerals space is a dynamic environment at the moment and there is quite a lot of ‘jockeying’ taking place so it would not be entirely unexpected if the low price makes Poseidon a takeover target.

 

However, the delay does not change our overall expectations and Poseidon continues to work closely with two shortlisted offtake and funding partners. At the same time, they are working on resolving the metallurgical and other issues outlined in their recent announcement. Once successfully finalised, the company will be positioned to announce a Final Investment Decision as well as Project Funding and Offtake Agreements.

 

Consequently, we expect Poseidon will be substantially re-rated in due course and there are trading opportunities for the savvy investor.

 

 

 

Chapters:

 

00:00 Start

00:20 Introduction

00:34 Updates from Poseidon

01:13 Metallurgy - Black Swan Restart

06:58 The global nickel market

10:23 Nickel from an ESG perspective

11:53 The cost effective advantage

17:42 The nickel market

21:44 Grid power not available to late 2024

24:43 Discussion about microgrids

26:12 Extending the mine life

28:26 Discussion about the finances

29:46 Share price performance

32:20 Concluding comments from Tony.

33:49 Conclusion