THE BOURSE WHISPERER: Poseidon Nickel (ASX: POS) has struck a conditional offtake agreement with BHP Billiton Nickel West.
The agreement is in the form of an ore tolling and concentrate purchase agreement (OTCPA) for the supply of ore to be mined by Poseidon at
Windarra and hauled to Nickel West’s concentrator at Leinster for toll treatment into a smeltable grade concentrate.
Nickel West will purchase all of the concentrate produced.
“The signing of an offtake deal with Nickel West continues a series of strategic steps that we have been committed to over the last year,” Poseidon Nickel CEO David Singleton said in the company’s announcement to the Australian Securities Exchange.
“We have removed the capital funding risk for the company through the Black Swan acquisition, developed depth to the company with the acquisition of Lake Johnston, and provided a clear route to market through the offtake arrangement with Nickel West.
“We thoroughly believe, like most analysts, in the future of the nickel market, given renewed strength in demand for nickel and limited new supply, and believe that Poseidon is now well structured to grow into that market.”
The OTCPA is for an initial period of two years, ending in February 2017, with first ore deliveries due no later than February 2015.
Nickel West has the option to extend the contract term by one or two contract years.
The contract is for a minimum quantity of 350,000 tonnes of ore per annum and a maximum of 500,000 tonnes, which can be extended to 700,000 tonnes by mutual agreement.
Poseidon will pay a treatment charge to Nickel West for every tonne of ore processed to be offset against payments by Nickel West for the concentrate produced.
Poseidon said the processing of ore at Leinster will bring the costs of commencing operations at Windarra down to approximately $11 million plus working capital, from the previously reported figure of $290 million.
Poseidon has previously announced its intention to mine at Windarra and ship ore to the Black Swan plant the company is currently purchasing from Norilsk Nickel.
The company believes it has sufficient production capacity between its Mt Windarra and Cerberus ore bodies to deliver both to Nickel West and to Black Swan.