JOHANNESBURG (miningweekly.com) – The global defence industry is expected to stimulate considerable demand for nickel as the world invests in more armaments that require nickel-containing steels.

“I think there's going to be a big demand side inflection coming quite quickly from the global defence industry as the world invests – and I think, unfortunately, has to invest – in more armaments that all require stainless steel and specialised steels that contain nickel for gun barrels, for armour, for ships.

“I'm not seeing, yet, that it's factored into the demand side analysis much at all, but I think it's going to be big. It's going to be bigger than anyone's thinking about at the moment,” Lifezone Metals founder and chairperson Keith Liddell outlined to Mining Weekly in a Zoom interview. (Also watch attached Creamer Media video.)

“We think that the nickel price will start to trend up over the next few years, and we want to be commissioning into a rising price, rather than where we are at the moment where the price is in a bit of a doldrum.”

New York-listed Lifezone recently took full control of Kabanga Nickel, which in turn holds an 84% interest in Tembo Nickel, the Tanzanian operating company behind the Kabanga project. The remaining 16% is held by the Tanzania government.

Lifezone’s comprehensive feasibility study for the Kabanga project outlines the initial development phase, including a 3.4-million-ton-a-year underground mine, processing infrastructure and tailings storage. The project will produce a high-grade nickel, copper and cobalt concentrate for downstream processing and has an expected 18-year mine life.

“It's very big and it's a very high grade nickel resource – and those two things, large tonnage and high grade, don't often come together.

“You either get one or the other, but not both, and this is what makes Kabanga so great,”  said Liddell, who is well known in South Africa for conceiving smelterless Kell Technology that enables the production at mine sites of refined platinum group metals (PGMs), substantially cutting capital expenditure and operating costs.

Liddell was also instrumental in the development of South Africa’s Kroondal PGMs project, which gave birth to a low cost and efficient PGM business.

Now, Kabanga is on its way to bringing benefits to the people of Tanzania, and Liddell is going all out to make sure it does so.

The feasibility study contains the reserve statement, which at the project level is 52-million tons of ore grading 2% nickel, and that contains 103-million tons of nickel in the reserve, 7.8-million tons of cobalt and 14-million tons of copper.

“So you can see it's big, over 100-million tons of nickel in reserve. That's massive,” Liddell pointed out.

Steady-state output of 60 000 t/y of nickel in product would make it one of the larger nickel mines in the world, particularly underground nickel mines.

Project-level financial metrics include a post-tax net present value (NPV) of $1.58-billion at an 8% discount rate at just over $8/lb nickel price, with an after-tax internal rate of return (IRR) of 23%.

On a capital expenditure (capex) of just under a billion dollars to build a mine and a concentrator first, a $1.858-million NPV is described as being eminently fundable with both debt and equity. The feasibility study initially is based on the sale of concentrate and the Kabanga concentrate runs at 17.5% nickel with no penalty elements contained in it.

The initial assessment includes a Lifezone-hydromet-technology-using refinery making an entry five years after the startup of the mining concentrator, so cash can be generated to pay for most of the refinery capex, but also derisk the project from a debt and equity perspective, to open the way for the mining concentrator to be built as fast as possible.

In addition, inferred resources contained in the initial assessment add six or seven years on to mine life. The inferred resources will be drilled out from underground once down there and brought into production in the later years of the project.

The initial assessment contains the refinery, the after-tax NPV, which increases the feasibility study concentrate sales of $1.58-billion to $2.37-billion, again with a 23% IRR, but with the refinery significantly increasing the NPV and elevating the mine life with the inferred resource beyond the 25-year level.

EARLY CASH BENEFIT FOR COMMUNITY

Liddell regards as “very important” the bringing of “lasting and tangible benefits” to Tanzania and the host region in the north-west of the East African country, which has an agrarian population.

Lifezone, which is working with the Tanzanian government at central, district and village levels, has already made all the initial cash compensation payments for all the affected people and families and households on the mining lease that will have to relocate.

Well ahead of time, the company has already paid the cash payments for fixed assets and crops to community households and many of the recipients are using those cash payments to better their lives, to build new businesses, including developing businesses that feed the Kabanga camp.

They are also preparing to enter the jobs that arise as the mine is built and begins to produce nickel, copper and cobalt.

“That's really important to us to have done all that very early, and that's a big part of the capex that we've made to date.

“We've already built half a dozen show houses in the relocation sites that people will move into, and we've taken feedback from those, and they're different designs, so people have decided what designs they want. We've been very proactive in that,” Liddell pointed out.

The local Tembo Nickel subsidiary, with Tembo meaning elephant, is already 95% staffed by local Tanzanians – “and we're really impressed with the skills that already exist in Tanzania, both technical, commercial and corporate.

“Again, I think it's a testament to the fact that there's an established mining industry in Tanzania, and  those skills already exist.

“As the mine will be a long life mine, and effectively multi-generational, we're very focused on bringing skills development into the local population, into the younger persons, and so they will have career paths in the mine as it's built and operated, so we're very focused on that, and that leaves the lasting legacy,” he added.

The mining concentrator operation has 1 090 permanent job positions, and the plan is for 95% of those to be filled Tanzanians.

The government of Tanzania is expected to receive $3.6-billion in royalties, taxes and dividends through its 16% interest under the country’s economic benefit sharing principle.

Standard Chartered Bank has been appointed as Lifezone’s financial adviser to arrange short-term development financing, which will fund early works and resettlement activities and bridge the company to final investment decision (FID). Societe Generale is advising on the long-term project finance package, which could include support from the US International Finance Corporation and export credit agencies.

How far is Lifezone from taking a final investment decision on Katanga Nickel?

We're into that phase now, finally. We're sort of on the home stretch, really, before construction – and I never look at construction as a home stretch. That's the start of a new phase. The Lifezone board has accepted and approved the Kabanga feasibility study that we put out in July, and straight away empowered management to formally commence the FID process. We think that'll take till somewhere around the middle of next year. It really depends on the how fast the debt process moves, and we're looking at about $600-million of debt funding. The critical path to that FID is definitely the banks. But we actually started at the beginning of the year. We've got two banks mandated, Standard Chartered Bank and Societe Generale. Standard Chartered is undertaking the pre-FID financing and has assisted with replacing BHP as a partner in Kabanga Nickel. Both of those we've just successfully done in the last few months. We've now purchased back 17% of our subsidiary Kabanga Nickel, Limited. We've raised $60-million pre-FID short-term bridge financing, which means that we can keep spending on Kabanga as we go through FID. Both ourselves and the Tanzanian government want to keep momentum going – starting the mining boxcuts next year, keeping the relocation going by commencing house construction, so that we can move people well in advance of when we need to, and all the other associated things that you need to be doing in pre-development of a project. All the front-end engineering designs and everything else. It'll be the mining concentrator, and then getting the big one, the mining contract, finalised, embedded down and ready to go.