Sirius Resources (ASX:SIR) has released the results of the long awaited feasibility study on its Nova nickel project, located approximately 700 km east of Perth in Western Australia. This is a remarkable event, as this is probably the first time a company is able to show a definitive feasibility study just two years after making a discovery. We aren’t too excited about the prospects of the nickel price, but the Nova project looks like it’d be profitable at a lower nickel price as well.
The estimated initial capex at Nova is less than $450M, and the project will produce on average 57 million pounds of nickel per year at a cash cost of just $1.5/lbs and an all-in sustaining cost of just under $2.1/lbs. This is an excellent result as at the current nickel price, Sirius’ operating margin will be in excess of 75% which means the project could have a payback period of just 2.5-3 years after initial production has started. As the capital expenditures are very reasonable and the operating cost is very low, we don’t think Sirius Resources will have any problem to get its project financed. As we’re unsure about the future of the nickel price – despite the problems in Indonesia – we would be interested in seeing Sirius hedge a part of its nickel (and copper) output.
Disclosure: The author holds no position in Sirius Resources but might consider to buy on a dip. Please see our disclaimer for current positions.