Western Areas moves toward goal as nickel major

NEW YORK, July 1 (Reuters) - Australian nickel explorer and producer Western Areas NL (WSA.AX) (WSA.TO) is on track to meet its production target of 35,000 tonnes of nickel concentrate a year by 2011, Managing Director and CEO Julian Hanna told investors at a recent presentation.

"In addition to 35,000 tonnes out of Western Australia we'd like to produce about 10,000 (tonnes) out of Canada as well. If we achieve that, by acquisition or exploration in Manitoba, at 45,000 tonnes a year it puts us in the big-boys camp equivalent to Xstrata (XTA.L)," he said, referring to the global miner.

The miner's principal asset is the Forrestania Nickel Project located east of Perth in Western Australia.

Western Areas bought the nickel-rich tract about six years ago from Finnish metals producer Outokumpu (OUT1V.HE).

Hanna described Forrestania as a concession that "only comes along every 15 years or so," with the highest grade of ore at low-cost mines lasting longer than 10 years.

"It's a tight industry with very few players and more will fall away. On top of that, nickel in sulphides is a very rare commodity and high-grade nickel is extremely rare," he said.

So far, Western Areas has discovered three separate nickel systems with one operating mine, four other proposed mine sites and many drilling targets, with more than 270,000 tonnes of contained nickel in mineral resources.

Forrestania's Flying Fox mine, in its first full year of production, is on track to reach its target of 8,000 tonnes of nickel in 2008, the same level as most Australian miners.

The company expects to expand Flying Fox's output to about 10,000 tonnes next year. Once the miner constructs a shaft, it looks to ramp up production to 14,000 tonnes by 2010, and grow to 20,000 tonnes a year at 6 percent nickel by 2011.

Simultaneously, Western Areas is at work bringing a second mine into production 40 kilometers (about 25 miles) away at Diggers South, with plans to produce 3,000 tonnes in 2009.

The nickel miner can use an old open pit mine left by Outokumpu as a springboard to access another large nickel deposit at Diggers South that will add about 6,000 tonnes of nickel concentrate per year starting in 2010.

Last year, Hanna said, the company discovered another high quality deposit named Spotted Quoll which should yield about 5,000 tonnes a year by 2010.

"We have two of the world's highest grade deposits, Flying Fox and Spotted Quoll. And what looks like another one at New Morning, which as it stands now would be another mine," Hanna said.

He said the New Morning site is in a pre-feasibility study, and the deposits seen there are a totally new type.

"They're just anomalies at this point and we're just working our way through this 25 kilometer belt, but at this point the signs are pretty exciting," the executive said.

Western Areas is also constructing the Cosmic Boy concentrator to take ore from all over the district. In its current phase it would process 250,000 tonnes of ore per year.

"If we achieve that 35,000-tonne-a-year target that puts us at about the eighth largest producer in the world. If we then add another 10,000 tonnes to that, which is what we're trying to do and sustain that production, that puts us up at fifth largest producer. We're talking 10 years out," the CEO said.

Next quarter, Hanna said Western Areas will be making $6 million a month of free cash flow, and with $150 million in the bank, it has the means to carry out its objectives. (Editing by Christian Wiessner)