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Tracker - July 28, 2022: FPX Nickel met study confirms DTR assay method and firms up flotation recovery assumption
 FPX Nickel Corp sagged modestly after the company published a metallurgical update on July 27, 2022, possibly because the long release was largely unintelligible to the average investor. That is not surprising because the update was aimed at an entirely different audience, namely the technical staff of majors and battery or car makers who are still on the sidelines as far as the Decar nickel project is concerned. The news release addressed two topics, the mineralogy of the Baptiste deposit, and the flow-sheet used in the PEA. On the mineralogy front the news is positive, but on the flow-sheet front where we hoped to see a higher recovery than the 85% assumed in the PEA there was a minor recovery setback at the flotation level, though this will be offset by a recovery improvement at the magnetic separation stage, making the projected 85% recovery largely unchanged rather than improved. This update is important in giving the producers and end-users what they need to roll up their sleeves. The next metallurgical milestone will be a scoping study in September on the nickel sulphate conversion process, followed by the mid Q4 delivery of nickel sulphate samples from the hydrometallurgical studies now being done on the concentrates from the flotation studies as part of Phase 3, which battery makers will be able to test.
The mineralogy work focused on the details of where the nickel resides within the Baptiste deposit (speciation) and to what degree the use of Davis Tube Recoverable assays (DTR) is reliable. Unlike a fire assay which measures the total nickel content within the rock, a DTR assay measures only that portion of the nickel content that is recoverable through magnetic separation targeting a minimum grain size, in this case 5 microns. What makes the multi-billion tonne Baptiste deposit special is that it contains nickel in the form of the mineral awaruite (Ni3Fe), a nickel-iron alloy that is effectively natural stainless steel. These awaruite grains are magnetic, unlike the key nickel sulphide, pentlandite.
The Baptiste deposit is a former chunk of ocean floor basalt that emerged at a mid-ocean spreading center to become part of the thin ocean plates which the earth's convection cells (plate tectonics) carry away from the spreading centers. The usual destiny for this oceanic crust is back into the bowels of the earth when it butts up against continental crust where its higher density generally forces it to slide under the crust in what is called subduction. Because this is an ongoing process the oldest oceanic basalt is only 170 million years old. However, sometimes the oceanic basalt ends up being obducted, meaning that when it collides with continental crust it rides onto the crust or jams into it (accretion). These preserved blocks of ocean basalt, which can be much older than 170 million years, are called ophiolites and they are distinct from ultramafic rocks formed when an iron and magnesium rich magma intrudes continental crust. The slow cooling of these intrusive magma chambers allows metals like nickel, copper, cobalt and the platinum group to bond with sulphur and segregate from the rest of the melt to form sulphide bodies within distinct horizons such as the reefs of the Bushveld Complex or at the base of the magma chamber and even its feeders such as at Voisey's Bay. Most nickel exploration targets these magmatic segregation systems but not ophiolites because there is no mechanism to concentrate the metals dispersed within already chilled oceanic basalt that ends up stranded in orogenic mountain belts. In fact, the nickel generally ends up imprisoned in the lattice of olivine, a magnesium-iron silicate, from which it is very difficult (expensive) to extract. Until FPX's Peter Bradshaw became interested during the 2000s nobody paid attention to ophiolites as a potential economic source of nickel.
These stranded ophiolite bodies can, however, be subjected to metamorphic forces related to the folding and accretionary pressures that take place in mountain belts formed through crustal collisions, as opposed to volcanic belts like the Andes where the ocean plate successfully subducts. Under the right metamorphic conditions the nickel becomes mobile, escapes the olivine prison and combines with similarly mobilized iron to form awaruite grains of varying sizes. Because the ophiolite started out as a monotonous chunk of basalt and there is no fluid flow dynamics the distribution of the awaruite will be consistent and widespread. However, in additional to spatial distribution, the awaruite also evolves a grain size distribution. The DTR assay method was designed to measure the amount of recoverable magnetic metal down to a minimum grain size, in this case 5 microns (a micron is 1 millionth of a meter). The question potential developers of Decar have been asking is, how reliable are these DTR grade measurements across the tonnage proposed for mining?
FPX has reported DTR nickel grades of 0.1-0.15% for different zones within the Baptiste deposit along with total nickel content grades of around 0.2-0.25% which is the grade range reported for low grade nickel sulphide dominated deposits like Giga's Turnagain and Canada Nickel's Crawford. The mineralogical study established that 85-92% of the total nickel content is attributable to awaruite with the remaining 8-15% attributable to the sulphides heazlewoodite and pentlandite which would not be measured by DTR assay because they are not magnetic. The big surprise is that none of the total nickel grade is attributable to silicate trapped nickel which typically represents 0.1% of ultramafic rocks. This is a testament to how efficient the metamorphic transformation of the ophiolite rocks was at Decar and perhaps explains why this cluster in central British Columbia appears to be unique.
The other question was to what extent grade size affected the DTR nickel assays. The original Cliffs PEA in 2013 did not include an ore schedule which would have favored higher grade ore during the early mine life years to boost the NPV and IRR, and shorten the CapEx payback period. The updated PEA produced by FPX in 2020 optimized the mining plan with an ore schedule. As part of the mineralogical study FPX created composites of ore for the different phases in the ore schedule based on DTR grades. The graphic above plots the measured DTR grade as a percentage of total nickel grade against that percentage of the awaruite content that is finer than 5 microns, in other words, that part of the total nickel content not attributable to the nickel sulphides which the DTR assay did not measure because it would not be recoverable by magnetic separation. The graphic is confusing because it uses the term "phase" in 2 different contexts. All the data points (blue circles) labeled "Mine Phase 1 etc" represent results for study composites prepared for the different ore schedule phases. The "PEA Testwork" data point was the number generated for the PEA starter pit from a smaller scale "Phase 1" study. The good news is that the larger scale study confirmed the starter pit assumption. The data point labeled "Life of Mine Composite" is a blend of the various phases. Its sub-label "Similar to Phase 1 Testwork" points out that in this regard the PEA assumptions are confirmed. A data point in the upper left corner is the best and a data point in the bottom right corner is the worst. What this graphic conveys to future developers is that the DTR assay method accurately predicts recoverable nickel grade, and that the variation in DTR grade is indeed due to grain size distribution. Awaruite grain coarseness determines DTR grade. This confirms the reliability of DTR as a grade measurement tool, which knowledge will come in handy if the Van deposit, where drilling of the southwestern portion is now underway, delivers better DTR grade than Baptiste and a decision has to be made about prioritizing Van for early mining. A big concern about Van proving better than Baptiste was that it might cost FPX several years in the feasibility demonstration timeline.
The other part of this metallurgical update was the result of bench scale testing of concentrates generated through magnetic separation when processed by the flotation stage which was a major improvement in the updated 2020 PEA because it delivers a 60-65% nickel concentrate which is much more marketable than the 13.5% nickel concentrate Cliffs assumed in the 2013 PEA and whose nickel content is 100% payable compared to 75% payable in the Cliffs concentrate. The PEA was based on a 90% recovery for the initial magnetic separation stage, and a 94% recovery for the flotation stage which processes a fraction of the original ore. Multiplying 90% by 94% gives the 85% recovery used by the PEA. The pilot scale flotation study showed that the flotation recovery was lower at 87%, which would reduce the overall recovery to 78.3%. This was a negative though not fatal outcome of the pilot scale flotation study. However, as part of the magnetic separation stage study FPX observed that the coarsest awaruite grains were getting trapped in the grinding circuit, which could be avoided by optimizing the grinding circuit to deal with the coarser grains. This is expected to boost magnetic separation recovery to 95% which would largely offset the loss due to the lower flotation stage recovery. The important message to the producer audience on the sidelines is that FPX Nickel's metallurgical studies are identifying the sort of "gotchas" that lurk in the flow-sheet details.
The metallurgical study is now in Phase 3 which involves subjecting the nickel concentrate generated by the pilot scale phase 2 study to hydrometallurgical studies aimed at converting the concentrate into a battery grade nickel sulphate. Engineering and cost discovery is well underway on the nickel sulphate extension of the flow-sheet and CEO Martin Turenne expects to release a "scoping study" in September. Since this a financial analysis of a process rather than a mine it is not subject to 43-101 rules, but it will allow the market to assess the profitability of making nickel sulphate rather than just selling the ferro-nickel concentrate to stainless steel mills based on the LME price linked nickel content. The subsequent metallurgical milestone will occur in mid Q4 when FPX has produced nickel sulphate samples which it can submit to battery makers for testing. A wild card which remains for FPX to quantify is the potential salability of the magnetite stream that emerges during magnetic separation.
Metallurgical updates tend to be of little interest to investors unless they contain negative news, which, given the outcome that everything is close to what we assumed, may be why the stock sagged after it came out. The next big market stage for FPX Nickel is to attract a serious institutional audience, not just Bay Street momentum chasing institutions which came and went in 2021. But that is not going to happen during the current market slump and metal price weakness unless there is movement on the sidelines involving producers with the clout to develop a big CapEx project like Decar or end-users at either the battery or car maker level willing to help along the feasibility demonstration process with equity investments. The latter are watching and probably waiting for the nickel sulphate conversion scoping study in September to see what sort of markup from the LME nickel price will be needed to make nickel sulphate production worthwhile. The producers who would sell ferro-nickel concentrate to the stainless steel makers will be signing non-disclosure agreements in order to review the data underlying the latest news. FPX Nickel Corp continues to be a Good Spec Value rated Favorite which should be trading in the $2.00-$2.50 range right now.
*JK owns shares in FPX Nickel Corp
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