Western Areas raises $100m to finish Odysseus mine as customers line up for nickel
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Nickel miner Western Areas (ASX:WSA) is in talks with potential customers in the EV battery sector for high-grade nickel sulphide from its Odysseus mine development in WA.
The company made the disclosure without identifying the parties as it kicked off an equity raising for $100m for its Odysseus project and to fund some additional expansion projects.
“With greater balance sheet flexibility, the company will be able to take advantage of opportunities within the portfolio to maximise returns to our shareholders,” managing director Dan Lougher said of the capital raising.
A key metal for batteries in EVs and power storage systems, demand for nickel is forecast to rise substantially in the years ahead as economies transition away from fossil fuels.
Western Areas said EV demand was especially strong in Europe as governments are offering significant incentives to switch to carbon emissions free EVs.
Elon Musk-led Tesla said its new, larger 4680 battery cell design uses cobalt-free cathodes with a high nickel content as it embraces a mine-to-battery approach to drive down costs.
Western Areas is forecasting global nickel demand for batteries to rise five-fold to 1 billion tonnes by 2030 from around 200 million tonnes in 2020.
Around $70m of the capital raising is earmarked for the development of the company’s Odysseus project, part of its high-grade Cosmos nickel operation 30km north of Leinster.
Western Areas has already covered most of the $243m cost of completing its Odysseus project from $98m of cash savings, and a $75m loan from Commonwealth Bank of Australia.
Odysseus has an annual production target of 14,600 tonnes of nickel concentrate and is scheduled to start up in the middle of the 2023 financial year.
The mine has an ore reserve of 8.1 million tonnes at 2 per cent nickel for 165,000 tonnes and is expected to have a 10-year life at a production rate of 900,000 tonnes of ore per year.
Odysseus has progressed in line with its mine plan with 1,460m of underground development including a main decline advance of 636m towards Odysseus orebodies.
Western Areas will also spend between $15m to $30m on advancing some production growth at its Cosmos and Forrestania projects, including a mine plan for Forrestania.
The nickel company operates two production hubs in WA, its Forrestania mine and Flying Fox and Spotted Quoll operations, and its Cosmos nickel operation including Odysseus.
Production of high-grade nickel from Forrestania is sold 50:50 to BHP and Chinese company Jinchuan Group, China’s largest nickel cathode producer.
The company’s production guidance for the 2021 FY is for 16,000 to 17,000 tonnes of nickel concentrate at a cash cost of $3.75 to $4.25 per pound.
Western Areas is also engaged in joint ventures for exploration in South Australia’s Gawler Craton region, and in the Kanowna and Fraser Range areas in WA.
The price of nickel has fallen to $US16,000 per tonne this week after touching seven-year highs of nearly $US20,000 per tonne in late February.
Analysts said supply tightness in the nickel market has eased with more deliveries of the base metal to LME warehouses encouraged by higher prices.
The bulk of the fresh equity, about $85m is coming from a fully underwritten institutional placement to sophisticated, professional and institutional investors.
Eligible shareholders will also be able to participate in a share purchase plan to raise $15m, bringing the total proceeds of the equity raising to $100m.
The share placement has been underwritten at a floor price of $2.15 per share, representing a 8.1 per cent discount to the company’s closing share price on Monday.
“The placement supports the development of the Odysseus underground mine which is progressing well with excellent advance rates being achieved while also providing funding for Western Areas’ exploration portfolio where we hope to make significant progress in 2021,” said Lougher.
Investment bank Goldman Sachs is the sole lead manager, underwriter and book runner for the share placement.