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Nickel exploration
By Stanley Park
President's Letter to Shareholders
With the recent completion of a Preliminary Assessment (PA) of the Horsetrail Deposit, prepared by AMEC Americas Limited (AMEC), one of the top three international mine engineering design firms, your Company achieved a critical milestone in the development of its' core asset, the Turnagain Project. The PA involves an engineering assessment at the scoping level and includes a financial analysis of the deposit. The full report is available at www.hardcreeknickel.com.
The study supports our belief in the Turnagain project. A 50,000 tonne per day milling operation is modeled with a 17 year mine life that would produce a total of 833 million pounds of nickel, 57 million pounds of cobalt and 85 million pounds of copper over the life of the mine. Current pricing for equipment, steel, cement, energy, labour and other inputs were used in the model, while nickel is priced at historical levels.
With the base case cut-off grade of 0.095% sulfide nickel, the measured and indicated resource is estimated at 184 million tonnes grading 0.17% sulfide nickel. An additional inferred resource is estimated at 286 million tonnes grading 0.16% sulfide nickel. Depreciated net present value (NPV) is the metric most commonly used to value future cash flow streams. The discount rate is usually chosen to reflect risk, so a higher discount rate is used to evaluate deposits located in politically risky countries, while a lower rate is selected if the deposit is in a safer jurisdiction. The concept is similar to bond investors being happy with a lower rate of interest for Canadian bonds but demanding a higher rate of interest
for, say, Venezuelan bonds. What does this table mean for shareholders? It means that your shares are undervalued and remarkably leveraged to the price of nickel. The Horsetrail Nickel deposit,
as it currently stands, would not be attractive to develop if nickel was at its 15 year trailing average price of $4.45 per pound. At a five year trailing average price of $5.32 per pound, the project becomes positive and at a three year average of $6.60 per pound, well, just look at those numbers. Looking at a base case 10% discount rate, which is conservative for a Canadian asset, the Horsetrail deposit has a negative value with nickel at $4.45, has a value of $109 million with nickel at $5.32, and is valued at $595 million
at a nickel price of $6.60. Today the price of nickel is in excess of $10.00 per pound. With our current stock price of Cdn.$0.70 and total market capitalization of approximately Cdn.$30 million, I can't think of any financial instrument more geared to the price of nickel than shares of our Company.
Hard Creek Nickel Corporation
There is room for improvement on two fronts. One is to refine the engineering of the Horsetrail deposit. For example, AMEC assumed a two year mine construction schedule. If that schedule could be compressed so that negative cash flow turns to positive cash flow sooner, that would have an impact on both NPV and Rate of Return.
Grade control optimization could also be further improved.
The other front is exploration. The Horsetrail deposit occupies about 10 -15% of the area considered prospective for sulphide nickel mineralization within the Turnagain ultramafic intrusive. Most of the mineralized body remains undrilled.
The exploration program now underway is designed to test the limits of the Horsetrail deposit. Outside the
Horsetrail area we are testing several prospective areas that may contain more tonnes of nickel sulphides. We are exploring for areas with higher nickel grades that could be mined in the early years of the mine life. Success in that regard would have a huge impact on project economics by increasing cash flow in the early years. There are also several wild cards in our exploration program which could have a high impact. The DJ area contains a platinum (Pt) and palladium (Pd) soil geochemical anomaly that measures 1.5 by 1 kilometer. We are drilling several targets within this area, which should generate
some excitement given that platinum is now more than $1200 per ounce. Other targets have been generated by our 3D magnetic inversion model. This model shows an interpreted feeder zone beneath the Horsetrail-Hatzl area and several possible troughs or embayments in the lower ultramafic contact.
These structural features could potentially host high grade massive sulphide bodies and are compelling drill targets.
We have made remarkable progress over the last two years. While the engineering work on the Horsetrail
deposit is at an early stage, we now know that we have our hands on a significant asset that is conceptually capable of being developed into a world class nickel mine. We face many challenges in the development process, as does any deposit that makes it this far, but we feel that there is no challenge that can stop us. The fact that the deposit is located in Canada, rather than a politically unstable country, is an increasingly important consideration for international investors. Large sulphide nickel deposits are rare and very desirable, particularly to the rapidly growing economies of Asia. China recently announced a cutback in stainless steel production because they cannot source enough nickel. Nickel recently broke through $10.00 U.S. per pound for the second time and, as of this writing, is trading at over $13.00 per pound. I think we have the right deposit at the right time in the commodities cycle. Plus, our exploration upside is phenomenal. So although we have made a lot of progress, I still feel that we are just getting started. As a shareholder, I invite you to enjoy the ride.
Mark Jarvis,
President,
Hard Creek Nickel Corp.
Exploration
Technical aspects of this document have been reviewed and approved by Neil Froc, P. Eng, a Qualified Person consistent with NI 43-101. The Preliminary Assessment referred to in this letter includes the use of inferred resources that are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. The study is preliminary in nature and there is no assurance the mining scenarios outlined in this report would ever be realized.
This document uses the terms "measured" "indicated" and "inferred" resources. We advise U.S. investors that while those terms are recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them. U.S. investors are cautioned not to assume that any part or all of mineral deposits in these categories would ever be converted to reserves. This document contains "forward looking statements" which are subject to risks, both known and unknown, which may affect the outcome of such forward looking statements. Known risks include, but are not limited to, financing risks,commodity price risks, scheduling risks and engineering risks.
TSX.V:HNC
Hard Creek Nickel Corporation
About the Author
Stanley Park is a business development consultant, speaker, author, and copywriter. With 15 years experience in Business Marketing Management program. He is also a technical writer for Netsplorer.com News syndication and RSS feed aggregator. He spearheaded the online marketing program for Stockmat.com with a successs ratio of over 52 million hits in the month of August 2005.
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