Banking on Batteries, Western Areas Sets Out at Odysseus

Western Areas (ASX:WSA) announced that its board will go ahead with the Cosmos Odysseus nickel project after encouraging results from a recently completed definitive feasibility study.

The decision to mine should not come as a huge surprise; Western Areas went ahead with early works at the project in April, well before the definitive feasibility study was near completion, saying then that it was confident Odysseus would become its third operating mine and second production center.

Located near the Western Australian Goldfields community of Leonora, Cosmos is a mined-out open pit, while Odysseus refers to orebodies that will be accessed through underground mining operations.

In a Monday (October 22) release, Western Areas says the definitive feasibility study shows Odysseus will have a “robust 10-year operation producing 130,000 tonnes of contained nickel in concentrate.”

The company says that the definitive study “demonstrates a larger, longer life project with improved economics” over the prefeasibility study, and that Odysseus does not require any additional capital outlay for years, “therefore providing optionality arounds funding future commitments.”

It continues, “[w]ith first nickel concentrate scheduled for the December 2022 quarter, Odysseus will be one of the few nickel sulfide mines coming online just as forecast demand for class one nickel is expected to substantially increase in the electric vehicle sector.”

Western Areas says it is receiving significant interest in offtake agreements for Odysseus, though it has yet to enter into any agreements.

The economics of the Odysseus project are robust, says Western Areas, noting that it will have a short 3.5-year payback from production start, according to the definitive study. It will be a low-cost operation with a life-of-mine cash cost of AU$2.65 per pound with cobalt by-products.

The definitive feasibility study also gives the project breathing room, with a life-of-mine breakeven nickel price of AU$6.10 per pound (or US$4.58 per pound), while the current spot price is around AU$7.92 per pound (or US$5.64 per pound).

With the company betting on electric vehicle demand going up, it is clearly hoping there will be even more breathing room in the near to medium-term future.

The study envisages that Odysseus will produce an average of 13,000 tonnes of nickel annually, and over 14,000 tonnes per year between 2024 and 2031.

Dan Lougher, managing director of Western Areas, said the definitive feasibility study os a great result on “many fronts.” He added, “[t]he Odysseus Ore Reserve is now 164,500 tonnes of nickel, with the life of mine nickel concentrate production increasing by 42,700 tonnes to 130,100 tonnes compared to the pre-feasibility study.”

Additionally, Lougher said that capital expenditure for the project is minor for the next 12 to 24 months given the company can fund the works from its own cash reserves. “In fact, the major pre-production expenditure, totalling AU$162m, is not required until FY22 and FY23,” he noted.

Cosmos Odysseus was acquired from Glencore (LSE:GLEN) in 2015 for AU$24.5 million, and is located in the same region of Western Australia as major nickel-producing assets in BHP Billiton’s (ASX:BHP,NYSE:BHP,LSE:BLT) Nickel West portfolio, which is set for a major expansion.

On the ASX, Western Areas’ share value increased by 3.43 percent on Monday, closing at AU$2.41.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.