POS Poseidon Nickel Limited

BHP Billiton Ltd. (BHP) said Wednesday it has agreed to sell the failed Ravensthorpe nickel mine to Canada's First Quantum Minerals Ltd. (FM.T) for US$340 million, which is seeking to diversify its production base.

The sale is expected to be finalized in the first quarter of next year, and is subject to approvals from the Australian Foreign Investment Review Board and the West Australian Minister for Mines and Petroleum.

"The acquisition of the Ravensthorpe nickel operation is a major step towards First Quantum achieving its goal of becoming a globally diversified mining company," said Philip Pascall, Chairman and CEO of First Quantum.

The company, headquartered in Vancouver and with an office in Perth, is new to the nickel industry. Last month it approved construction of its first nickel venture, the US$400 million Kevitsa nickel and copper mine in Finland.

Commercial production for Kevitsa is targeted for mid-2012, and together with a restart of Ravensthorpe "has the potential to make the company one of the world's leading nickel producers," said Pascall.

"We are committed to re-starting Ravensthorpe, which we believe we can successfully achieve within a realistic timeframe," Pascall added.

For BHP, the sale marks the end of a costly venture into nickel laterite mining.

The Melbourne-based mining giant commissioned the mine in May last year after huge cost overruns and delays, but decided to shut it in January after plummeting nickel prices undercut the viability of the mine, damaging the miner's reputation and relations with the local community.

Ravensthorpe has a nameplate capacity of 50,000 metric tons.

First Quantum said it expects the mine, about 550 kilometers south-east of Perth, to produce around 39,000 tons of nickel in the first five years of production, and an average of 28,000 tons over the expected mine life of 32 years.

"We are delighted that BHP Billiton and First Quantum have reached this agreement. This reflects the culmination of a thorough and exhaustive study into a range of future options for Ravensthorpe, which has delivered a positive outcome for BHP Billiton, First Quantum and the local communities of Hopetoun and Ravensthorpe," said Gerard Bond, BHP's acting president of stainless steel materials.

BHP has written the value of the operation down to zero, and will now reverse a previous pre-tax impairment charge of around US$630 million for the half year ended December 2009. After tax, the reversal will be US$441 million.

One analyst who declined to be named said it was pleasing to see BHP exit from Ravensthorpe, but question marks remained over how far it could really distance itself from the social and environmental liabilities associated with such a large project.

Attempts to work nickel laterite ore bodies using high pressure acid leach extraction--the process used at Ravensthorpe--have produced a number of failed attempts since the 1990s, including the Cawse and Bulong operations in Western Australia.

The sale to First Quantum, a cash-rich copper focused company with its key assets in Zambia, Republic of Congo and Mauritania, will be a disappointment to joint bidders and existing nickel laterite miners Minara Resources Ltd. (MRE.AU) and China Metallurgical Group Corp.

Minara, which operates the only surviving nickel laterite mine in Australia, Murrin Murrin, teamed up with MCC to secure funding.

MCC owns the US$1.4 billion Ramu nickel mine in Papua New Guinea that is in the latter stages of construction.

According to people familiar with the situation, final bidders also included Poseidon Nickel Ltd. (POS.AU), a small nickel developer chaired by Fortescue Metals Ltd. Chief Executive Andrew Forrest.

BHP's ability to secure the sale of an operation with such a difficult history is a positive signal for the nickel market in terms of longer-term demand expectations.

However, many analysts continue to doubt Raventhorpe's viability not only because of its technical challenges, but generally higher production costs and the addition of significant production capacity from nickel in pig iron output in China that is expected to keep a lid on nickel prices.

After touching a five-year low of US$8,850/ton in October last year on the London Metal Exchange, Nickel has recovered to US$16,100/ton--still well below record prices of over US$50,000/ton in 2007.

 
   -By Elisabeth Behrmann, Dow Jones Newswires; 

61-2-8272-4689 elisabeth.behrmann@dowjones.com

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