The progress being made on what was once arguably Australia’s most intriguing nickel sulphide exploration play could again be delayed if the anticipated merger of two of the country’s largest miners eventually does take place.
Assuming the shareholders of OZ Minerals Ltd (ASX: OZL) do accept the publicly-listed BHP’s (ASX: BHP) takeover offer of $9.6 million, it’s remotely possible that the world’s largest mineral resources house may put the current development of the West Musgrave project in remote Western Australia ‒ one which the Big Australian previously-owned between 2005-14 ‒ on hold if it decides to re-evaluate what has become a $1.2 million undertaking.
Discovered in 2000 by the now-gone Western Mining Corporation (WMC), the mineralisation contained within the combined Nebo-Babel targets, as indicated by OZL last September, has a current total measured, indicated and inferred resource estimate of 390 million tonnes at 0.3 per cent nickel (for 1.2 million tonnes of metal) and 0.33 per cent copper (yielding 1.3 Mt of product). It also has a reserve of 27Mt, of which 70-80 per cent sits in Babel.
According to the company, this all converts to a 24 year mining operation (via conventional crushing, grinding and flotation), wherein the processing of 10-12Mt per annum will return 28,000t and 35,000t of nickel and copper respectively at a cash cost of (according to OZL’s September quarter) US1.20-1.10 cents per pound net of the nickel by-product.
Located about 1300 kilometres north-east of Perth and 1400km north-west of Adelaide near the intersection of the borders between WA, South Australia and the Northern Territory, the discovery of West Musgrave – in a hole that yielded 26.55 metres of nickel at 2.45 per cent, 1.78 per cent of copper and 0.74 grams/t of platinum with gold ‒ represented one of 2000’s best pieces of exploration news at a time when the mineral resources sector was doing it tough.
But while the market watched eagerly as WMC continued sizing up Nebo-Babel, by 2003 this interest seemed to have somewhat waned when it appeared the company had put the project on the backburner – a move that wasn’t entirely surprising given, just a few years before, it had significantly divested its nickel assets in WA’s Kambalda region via a mine sell-off.
West Musgrave then fell in the hands of BHP Billiton Plc during 2005 after it acquired Western Mining for $9.5 billion – a deal more aimed at procuring producing assets (like the mighty copper-rich polymetallic Olympic Dam in South Australia) than greenfields exploration projects.
In a report to the market issued last September, OZL said the then new owner did conduct “drilling campaigns” in the area from 2006–11, but eventually relinquished the project to Cassini Resources in April of 2014 for $250,000 in cash, a 2 per cent smelter royalty and $10 million 12 months after production started.
Cassini then completed a significant infill drilling campaign at Nebo-Babel and followed it with a scoping study in April 2015, which reportedly showed favourable results.
Later, in October 2016, OZL signed a 70 per cent equity earn-in and joint venture deal with the junior and, by the following April, the miner was contributing $36 million towards pre-feasibility due diligence.
This was completed by February, 2017, and demonstrated an approximate 26 year open pit mine. Furthermore, it showed regional exploration activities had been scoring some runs.
In the end ‒ during October, 2020 ‒ the senior partner paid $70 million for Cassini, giving it full control of West Musgrave and allowing it to start onsite construction in late 2022 after sealing a crucial native title deal.
At Vertical Events’ recent Explorers Conference in Fremantle, OZL’s principle geologist for Australia, Jim McKinnon-Matthews, made a strong case for the project after telling delegates the proposed BHP takeover was still “not quite a done deal” (as it stands the company’s shareholders are expected to vote on the proposed merger in April).
West Musgrave, he said, had a 24 year mine life, with production scheduled to start in 2025.
Importantly, McKinnon-Matthews noted, the operation would be powered by renewables (wind and solar), providing 80 per cent of energy requirements for the first years’ of operation.
This, in turn, should create a “pathway to net zero scope emissions by 2038” and make the project “one of the largest, lowest emissions, lowest cost nickel-copper mines in the world”.
There was also plenty of upside when it came to exploration in the area, which would be focused on identifying near mine deposits (excluding the already-identified One Tree Hill, Yappsu, Babylon, Suez and Esgalia targets).
The current mine plan, McKinnon-Matthews said, did not include the Succoth ore body, which sits around 25km north-west of Nebo-Babel and already had a resource of 156Mt at 0.6 per cent copper for 943,000t of contained metal. OZL now planned to provide an update on all this later in 2023.
“We are also looking at a metal hydroxide precipitate for the battery value chain, so there are a lot of value-adds that we can put onto this project that aren’t actually currently considered,” he noted.
Although this kind of detail augers well for West Musgrave, the question remains: What exactly will BHP do with the project if its plan to take out OZL comes to fruition?
Having already looked at the project via its own exploration efforts over some five years, the Big Australian may still have some reservations about the shape of Nebo-Babel’s mineralisation and the potential upside of the surrounding ore targets as found by the OZL-Cassini’s joint venture.
Certainly the fact the West Musgrave project looks set to host a green mining operation that will, at least, produce two critical minerals should appeal to BHP’s strong sustainable sensibilities.
In addition, if it does go decide to go ahead with the development, the company could always send the product to its Kalgoorlie nickel smelter, although the price of fuel could wear away at the margins given the journey one way is approximately 762 km.
There’s also another important point to consider, that being the robustness of West Musgrave’s mineral endowment.
In a presentation made by OZL in August last year, the company said the project was Australia’s second largest primary nickel resource (as verified on a 100 per cent contained Mt nickel equivalent basis), with its 1.209 Mt of nickel and 943,000t of copper returning a nickel equivalent of 2.12Mt and a copper one of 400t.
This compared reasonably well with BHP’s Yakabindie operation, which sits 60km south of Agnew in WA and has (according to the company’s annual report to shareholders issued in September 2012) produced 2.538Mt of nickel for an equivalent total of 2.54Mt.
Given this, there is a compelling case for the Big Australian to look at West Musgrave carefully, and perhaps crunch its own set of new numbers, before deciding if it again wants to relinquish the project to a smaller player.
As an aside, OZL won the RIU Explorers Conference’s Craig Oliver Award for 2023, which since 2011 has been given to all-round small to mid-cap Australian players that have excelled in a number of operational areas – including those related to exploration, mining, marketing and environmental concerns.
