Proto Resources and Investments has recently announced the results of the feasibility study on their Barnes Hill nickel project in Tasmania, where Metals Finance is earning a 50% interest.

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Corporate Summary

Proto Resources and Investments has recently announced the results of the feasibility study on their Barnes Hill nickel project in Tasmania, where Metals Finance is earning a 50% interest.

Besides the Barnes Hill project, Proto has a wide range of exploration projects in the Northern Territory and Western Australia (Clara Hills) provinces, as well as in Germany and Albania in Europe.

Barnes Hill

Barnes Hill, located in Tasmania, is Proto’s flagship project and should be developed within the next few years. Joint Venture partner Metals Finance (ASX:MFC) is earning a 50% interest in the project by providing funding for all of the feasibility study work and preparation of a proprietary nickel processing flow sheet.

Metals Finance recently released a feasibility study on Barnes Hill outlining a production profile of 500,000 tonnes per annum which should result in a production of approximately 10Mlbspa of nickel (4800 tonnes nickel equivalent in form of nickel metal and cobalt sulphate) in the first five years of operation and 7.25Mlbspa for the years thereafter. The capex comes in at a little bit less than A$80M, and the opex is relatively high at A$5.75/lbs (A$5.16/lbs over the first five years).

The NPV12.5% comes in at A$144M, at a nickel price of $10/lbs as base case scenario, which seems to be too optimistic when compared to the current nickel price of $6.75/lbs, but it’s an independent forecast. Investment bank ABN AMRO is predicting a nickel price of $9.53/lbs for 2015 and Brook Hunt (a subsidiary of Wood Mackenzie) even has a long-term price target of $13/lbs, so we can live with the $10/lbs assumption.
If we use the current nickel price, the annual EBITDA country will be approximately $20M per year, and will obviously have a lower NPV and IRR. But note that this lower price would also lower opex and capex costs as we have used higher costs and higher nickel prices predicted for the end of next year. Our rough calculation of the NPV8% (we think a 12.5% discount rate is very conservative, as Australia still is a first world) based on a 10 year life of mine is A$19M. If we use a nickel price of $8/lbs, the NPV increases to A$62M. As you notice, this project is highly sensitive to the prevailing nickel price. A 10% change in nickel price has huge consequences for the project’s NPV and IRR.

Metals Finance can earn 50% of the project by providing funding for the construction work. The main catalyst for this year will be whether or not Metals Finance is able to arrange funding for Barnes Hill.


Mt. Vetters

Proto Resources hoped to encounter the BSKC mineralized trend and to find high-grade nickel sulphide in their deep holes, but unfortunately the first hole did not encounter the ultramafic rock types that are typical for the Black Swan Komatiite Complex-type of ore. Proto is currently waiting on the results of the second deep hole which was drilled further to the east.

It’s possible Proto’s focus will change to gold exploration at Mt Vetters after they intersected 4 meters at in excess of one gram per tonne of gold. As the average depth of the drilled holes was only 70 meter, we think a follow-up drill program is warranted.

Lindemans Bore

The company will start drilling at Lindeman’s Bore next week, and Proto is aiming to drill a hole till a depth of 600 meters right in the FLTEM-target, which was discovered during a survey in 2011. The goal of drill hole LBD4 will be to follow up on earlier intersected anomalous gold and copper values up to 5.75g/t Au-Pd and 0.11%Cu.
Lindeman’s Bore will be Proto’s main focus while they are awaiting the financing for the Barnes Hill nickel project.


Barrier Bay Technology

We think the real value of Proto Resources might be in their partially owned Barrier Bay Technology. This technology aims for a better recovery of the different commodities in nickel laterite through the use of electricity to process the previously waste by-products into re-usable acid and saleable metal products. This is a proven process, as Rio Tinto also uses a nickel plant whereby nickel is recovered through an electrolytic process.

Where cobalt, iron and magnesium weren’t recoverable before, the Barrier Bay Technology extracts all elements out of the nickel laterite, thus reducing the capex on acid plants and tailing dams by 80%, according to Proto Resources.

Corporate

Proto Resources announced an agreement with the Bergen Global Opportunity Fund in New York, whereby the fund agreed to provide A$4.35M in funding over the next two years which will be used to drill the Mt. Vetters and Lindeman’s Bore projects in Australia.
The funding agreement takes form of six interest-free secured convertible securities of which the first one will have a face value of A$825,000.

Conclusion

2013 will be a busy year for Proto. It’ll be very important to see if JV-partner Metals Finance is able to secure funding to develop the Barnes Hill project. We’re also hoping for progress reports on the Barrier Bay technology, as this might be a technology Proto is able to license out to third parties for an annual fee. It’s also good to notice Proto has the opportunity to raise up to A$4.35M from Bergen Global Opportunity fund, which will be used for exploration activities in Australia.

Disclosure: Proto Resources & Investements Ltd. is a sponsoring company. Please see our disclaimer for current positions.

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