Wednesday, March 4, 2009

Albidon suspends Zambia’s Munali nickel mine on low prices

ASX-listed African focused exploration company Albidon has suspended operations at its Munali nickel project in Zambia, with immediate effect, owing to depressed nickel prices.

The company stated on Tuesday that equipment availability constrained mine production during January, but that this had improved during February, following the availability issues being resolved.

However, despite the improved operating performance and capital previously raised, Albidon said ongoing operations at the project were unsustainable, because of low nickel prices,

The price of nickel, a key ingredient in the stainless steel making process, has dropped sharply as slowing global economic activity dampened demand. Nickel traded over $22/lb in 2007, but traded below $5/lb on Tuesday.

Although mining would be suspended with immediate effect, limited development activities might restart so that production levels greater than 900 000 t/y could be readily achieved when nickel prices improved.

The company added that discussions with key stakeholders, including employees, suppliers, the Zambian government, and the local community were ongoing.

Meanwhile, Albidon has received a conditional financing proposal from China’s Jinchuan Group, which has a life-of-mine offtake agreement over Munali.

The proposed funding would be through three tranches, and would include $1,8-million by way of payments for concentrate deliveries, $7-million in equity, and a convertible note facility of A$0,10 a share, with a coupon equivalent to the interest rate on Jinchuan’s subordinated debt.

The proposed funding is an alternative to that provided by the Pacific Road Resources funds, which would have required Albidon to obtain shareholder approval and to raise a minimum of $5-million in additional equity.

The Jinchuan proposal would also allow the Munali operation to be placed on care-and-maintenance, thereby reducing cash burn and nickel resources, while nickel prices were low.

Albidon stated that there was also a willingness to continue decline development during care-and-maintenance, which would put the company in a position to start operations at economical production rates.

If the funding proposal was fully achieved, it would provide Albidon with a strong balance sheet and industry partner, going forward.